Banking organizations are subject to complex risk-based regulatory capital rules. Some banking organizations may use internal risk management models approved by the relevant regulator; other must use standardized rules set out in the regulations. On April 6, 2015, Frequently Asked Questions were released by the federal banking regulators to assist banking organizations in calculating their risk-based capital.
The FAQs were issued by the Federal Reserve Board (for bank holding companies, certain savings and loan holding companies and state-chartered banks that are member banks of the Federal Reserve System), the Office of the Comptroller of the Currency (for federal savings associations and national banks chartered by the US Treasury Department and the Federal Deposit Insurance Corporation (for state-chartered nonmember banks and insured state savings associations).
The FAQs range over a wide range of issues, and break down into several broad categories. To give you an idea of what topics are covered within these categories:
- The definition of “capital”
- Qualification of instruments includable in tier 2 capital
- Risk-weighting of mortgage servicing assets
- Eligibility of TARP shares as tier I capital
- High volatility commercial real estate exposures (HVCRE)
- Classification of loans as HVCRE
- What constitutes borrower-contributed capital for purposes of HVCRE
- Which appraisal value is used for purposes of determining HVCRE exposure
- Other real estate and off-balance sheet exposures
- Regulatory capital treatment of reverse mortgages
- What is considered an unconditionally cancellable loan
- Treatment of FHA Title I loans
- Qualifying Central Counterparties (QCCPs)
- How to determine when a central counterparty meets the criteria under the US risk-based regulatory rules for QCCPs
- The effect of a foreign supervisor’s classification of a CCP as a QCCP
- Whether uncapped liability exposure could defeat a classification as a QCCP
- Miscellaneous
- Exposures to be included in a credit valuation adjustment capital requirement calculation
- How Sallie Mae student loan securitizations are to be risk-weighted
- Calculation of risk weights for securitizations held in investment funds