US regulators issue Basel I improvement ANPR

US federal banking agencies have issued for public comment proposed changes to that country’s domestic risk-based capital framework. The advance notice of proposed rulemaking (ANPR) will apply to banks, bank holding companies and savings associations.

The agencies said the revised framework will promote safe and sound banking practices and a prudent level of regulatory capital; maintain a balance between risk sensitivity and operational feasibility; avoid undue regulatory burden; create appropriate incentives for banking organisations; and mitigate material distortions in the amount of regulatory risk-based capital requirements for all institutions - large and small.

The ANPR document discusses various modifications to the US risk-based capital standards, including increasing the number of risk weight categories to which credit exposures may be assigned; expanding the use of external credit ratings as an indicator of credit risk for externally rated exposures; and expanding the range of collateral and guarantors that may qualify an exposure for lower risk weights.

The proposals also discuss the use of loan-to-value ratios, credit assessments, and other broad measures of credit risk for assigning risk-weights to residential mortgages; modifying the credit conversion factor for various commitments, including those with an original maturity of under one year; and requiring that certain loans 90 days or more past due or in a non-accrual status be assigned to a higher risk weight category.

Other topics discussed in the ANPR are: the modification of the risk-based capital requirements for certain commercial real estate exposures; increasing the risk sensitivity of capital requirements for other types of retail, multifamily, small business and commercial exposures; and assessing a risk-based capital charge to reflect the risks in securitisations with early amortisation provisions that are backed by revolving retail exposures.

The agencies will accept public comment on or before January 18, 2006.

The ANPR can be accessed at:
http://www.federalreserve.gov/BoardDocs/Press/bcreg/2005/20051020/
attachment.pdf

BaselAlert