JOINT FINAL RULE--AMENDMENT TO RISK-BASED CAPITAL STANDARDS FOR MARKET RISK.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. (OCC OCC See: Options Clearing Corporation OCC See Options Clearing Corporation (OCC). ), 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. (Board), and 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. (FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). ) (collectively, the agencies) are adopting as a final rule an interim rule amending their respective risk-based capital standards for market risk applicable to certain banks and bank holding companies with significant trading activities. The interim rule implemented a revision (programming) revision - A release of a piece of software which is not a major release or a bugfix, but only introduces small changes or new features. to the Basle Basle, Switzerland: see Basel. Accord An agreement that settles a dispute, generally requiring an obligee to accept a compromise or satisfaction from the obligor with something less than what was originally demanded. Also often used synonymously with treaty. ACCORD, in contracts. adopted in 1997. Prior to the 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 According to International Convergence of Capital Measurement and Capital Standards, known as Basel II, the standardized approach is a set of risk measurement techniques for banking institutions. The term may be used in the context of credit risk or operational risk. . The rule will finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... the interim rule, which reduced regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. burden for institutions with qualifying internal models because they no longer must calculate a standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. specific risk capital charge. Effective July July: see month. 1, 1999, 12 C.F.R. Parts 3, 208, 225, and 325 are amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. as follows. Part 3--Risk-Based Capital Standards: Market Risk For the reasons set out in the joint preamble A clause at the beginning of a constitution or statute explaining the reasons for its enactment and the objectives it seeks to attain. Generally a preamble is a declaration by the legislature of the reasons for the passage of the statute, and it aids in the interpretation of , the OCC's portion of the joint interim rule with request for comment amending 12 C.F.R. parts titled Risk-Based Capital Standards: Market Risk, published on December December: see month. 30, 1997, at 62 Federal Register 68,067 is adopted as final without change. Part 208--Membership of State Banking Institutions in the Federal Reserve System (Regulation H) 1. The authority citation Citation (foaled 1945) U.S. Thoroughbred racehorse. In four seasons he won 32 of 45 races, finished second in ten, and third in two. He won the 1948 Triple Crown, and became the first horse to win $1 million. He set a world record in 1950 by running a mile in 1:33 3/5. for Part 208 continues to read as follows: Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1823(j), 1828(o), 18310, 1831p-1, 1831r-1, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 781(b), 781(g), 781(i), 780-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128. 2. In Appendix appendix, small, worm-shaped blind tube, about 3 in. (7.6 cm) long and 1-4 in. to 1 in. (.64–2.54 cm) thick, projecting from the cecum (part of the large intestine) on the right side of the lower abdominal cavity. E to Part 208, the appendix heading is revised to read as follows: Appendix E to Part 208--Capital Adequacy Guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. for State Member Banks; Market Risk Measure 3. In Appendix E to Part 208, section 2., paragraph (b)(2) is revised to read as follows: Section 2.--Definitions (b) *** (2) Specific risk means changes in the market value of specific positions due to factors other than broad market movements and includes event and default risk as well as idiosyncratic id·i·o·syn·cra·sy n. pl. id·i·o·syn·cra·sies 1. A structural or behavioral characteristic peculiar to an individual or group. 2. A physiological or temperamental peculiarity. 3. variations. 4. In Appendix E to Part 208, section 5., paragraphs (a), (b), and the introductory text of paragraph (c) are revised to read as follows: Section 5.--Specific Risk (a) Modeled specific risk. A bank may use its internal model to measure specific risk. If the bank has demonstrated to the Federal Reserve that its internal model measures the specific risk, including event and default risk as well as idiosyncratic variation, of covered debt and equity positions and includes the specific risk measures in the VAR-based capital charge in section 3(a)(2)(i) of this appendix, then the bank has no specific risk add-on A purchase of additional goods before payment is made for goods already purchased. An add-on may be covered by a clause in an installment payment contract that allows the seller to hold a security interest in the earlier goods until full payment is made on the later goods. for purposes of section 3(a)(2)(ii) of this appendix. The model should explain the historical price variation in the trading portfolio and capture concentration, both magnitude magnitude, in astronomy, measure of the brightness of a star or other celestial object. The stars cataloged by Ptolemy (2d cent. A.D.), all visible with the unaided eye, were ranked on a brightness scale such that the brightest stars were of 1st magnitude and the and changes in composition. The model should also be robust to an adverse environment and have been validated val·i·date tr.v. val·i·dat·ed, val·i·dat·ing, val·i·dates 1. To declare or make legally valid. 2. To mark with an indication of official sanction. 3. through backtesting Backtesting The process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward, which could take years, a trader can do a simulation of his or her trading strategy on relevant past data in order to gauge the its effectiveness. which assesses whether specific risk is being accurately captured. (b) Partially modeled specific risk.
(1) A bank that incorporates specific risk in its internal model but fails
to demonstrate to the Federal Reserve that its internal model adequately
measures all aspects of specific risk for covered debt and equity
positions, including event and default risk, as provided by section 5(a)
of the appendix, must calculate its specific risk add-on in accordance
with one of the following methods:
(i) If the model is susceptible to valid separation of the VAR measure
into a specific risk portion and a general market risk portion, then the
specific risk add-on is equal to the previous day's specific risk
portion.
(ii) If the model does not separate the VAR measure into a specific risk
portion and a general market risk portion, then the specific risk add-on
is the sum of the previous day's VAR measures for subportfolios of
covered debt and equity positions that contain specific risk.
(2) If a bank models the specific risk of covered debt positions but not
covered equity positions (or vice versa), then the bank may determine its
specific risk charge for the included positions under section 5(a) or
5(b)(1) of this appendix, as appropriate. The specific risk charge for the
positions not included equals the standard specific risk capital charge
under paragraph (c) of this section.
(c) Specific risk not modeled. If a bank does not model specific risk in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with section 5(a) or 5(b) of this appendix, then the bank's specific risk capital charge shall equal the standard specific risk capital charge, calculated as follows: Part 225--Bank Holding Companies and Change in Bank Control (Regulation Y) 1. The authority citation for Part 225 continues to read as follows: Authority: 12U. S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 3909. 2. In Appendix E to part 225, the appendix heading is revised to read as follows: Appendix E to Part 225--Capital Adequacy Guidelines for Bank Holding Companies: Market Risk Measure 3. In Appendix E to Part 225, section 2., paragraph (b)(2) is revised to read as follows: Section 2.--Definitions (b) *** (2) Specific risk means changes in the market value of specific positions due to factors other than broad market movements and includes event and default risk as well as idiosyncratic variations. 4. In Appendix E to Part 225, section 5., paragraphs (a), (b), and the introductory text of paragraph (c) are revised to read as follows: Section 5.--Specific Risk (a) Modeled specific risk. A bank holding company may use its internal model to measure specific risk. If the organization has demonstrated to the Federal Reserve that its internal model measures the specific risk, including event and default risk as well as idiosyncratic variation, of covered debt and equity positions and includes the specific risk measures in the VAR-based capital charge in section 3(a)(2)(i) of this appendix, then the organization has no specific risk add-on for purposes of section 3(a)(2)(ii) of this appendix. The model should explain the historical price variation in the trading portfolio and capture concentration, both magnitude and changes in composition. The model should also be robust to an adverse environment and have been validated through backtesting which assesses whether specific risk is being accurately captured. (b) Partially modeled specific risk.
(1) A bank holding company that incorporates specific risk in its internal
model but fails to demonstrate to the Federal Reserve that its internal
model adequately measures all aspects of specific risk for covered debt and
equity positions, including event and default risk, as provided by section
5(a) of this appendix, must calculate its specific risk add-on in
accordance with one of the following methods:
(i) If the model is susceptible to valid separation of the VAR measure
into a specific risk portion and a general market risk portion, then the
specific risk add-on is equal to the previous day's specific risk
portion.
(ii) If the model does not separate the VAR measure into a specific risk
portion and a general market risk portion, then the specific risk add-on
is the sum of the previous day's VAR measures for subportfolios of
covered debt and equity positions that contain specific risk.
(2) If a bank holding company models the specific risk of covered debt
positions but not covered equity positions (or vice versa), then the bank
holding company may determine its specific risk charge for the included
positions under section 5(a) or 5(b)(1) of this appendix, as appropriate.
The specific risk charge for the positions not included equals the standard
specific risk capital charge under paragraph
(c) of this section. (c) Specific risk not modeled. If a bank holding company does not model specific risk in accordance with section 5(a) or 5(b) of this appendix, then the organization's specific risk capital charge shall equal the standard specific risk capital charge, calculated as follows: Part 325--Capital Maintenance 1. The authority citation for Part 325 continues to read as follows: Authority: 12U. S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth Tenth can mean: In mathematics:
2. In Appendix C to Part 325, the appendix heading is revised to read as follows: Appendix C to Part 325--Risk-Based Capital For State Non-Member Banks: Market Risk 3. In Appendix C to Part 325, section 2., paragraph (b)(2) is revised to read as follows: Section 2.--Definitions. (b) *** (2) Specific risk means changes in the market value of specific positions due to factors other than broad market movements and includes event and default risk as well as idiosyncratic variations. 4. In Appendix C to Part 325, section 5, paragraphs (a), (b), and (c) introductory text are revised to read as follows: Section 5.--Specific Risk. (a) Modeled specific risk. A bank may use its internal model to measure specific risk. If the bank has demonstrated to the FDIC that its internal model measures the specific risk, including event and default risk as well as idiosyncratic variation, of covered debt and equity positions and includes the specific risk measure in the VAR-based capital charge in section 3(a)(2)(i) of this appendix, then the bank has no specific risk add-on for purposes of section 3(a)(2)(ii) of this appendix. The model should explain the historical price variation in the trading portfolio and capture concentration, both magnitude and changes in composition. The model should also be robust to an adverse environment and have been validated through backtesting which assesses whether specific risk is being accurately captured. (b) Add-on charge for modeled specific risk. A bank that incorporates specific risk in its internal model but fails to demonstrate to the FDIC that its internal model adequately measures all aspects of specific risk for covered debt and equity positions, including event and default risk, as provided by section 5(a) of this appendix, must calculate the bank's specific risk add-on for purposes of section 3(a)(2)(ii) of this appendix as follows: (1) If the model is capable of valid separation of the VAR measure into a specific risk portion and a general market risk portion, then the specific risk add-on is equal to the previous day's specific risk portion. (2) If the model does not separate the VAR measure into a specific risk portion and a general market risk portion, then the specific risk add-on is the sum of the previous day's VAR measures for subportfolios of covered debt and equity positions. (c) Add-on charge if specific risk is not modeled. If a bank does not model specific risk in accordance with paragraph (a) or (b) of this section, the bank's specific risk add-on charge for purposes of section 3(a)(2)(ii) of this appendix equals the sum of the components for covered debt and equity positions. If a bank models, in accordance with paragraph (a) or (b) of this section, the specific risk of covered debt positions but not covered not covered Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered. equity positions (or vice versa VICE VERSA. On the contrary; on opposite sides. ), then the bank's specific risk add-on charge for the positions not modeled is the component for covered debt or equity positions as appropriate:3 |
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