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Subject: Risk-Based Capital - Recourse, Direct Credit Substitutes and Residual Interests
Date: December 6, 2001
To: Chief Executive Officers of National Banks, Department and Division Heads, Examining Personnel and Other Interested Parties
Description: Final Rule
This bulletin transmits the final rule on Recourse, Direct Credit Substitutes and Residual Interests in Asset Securitizations that was published in the Federal Register on November 29.
The final rule amends the agencies' regulatory capital standards to align more closely the risk-based capital treatment of recourse obligations and direct credit substitutes. It also varies the capital requirements for positions in securitized transactions and certain other exposures according to their relative credit risk and requires capital commensurate with the risks associated with residual interests.
The final rule is a result of the combination of two separate notices of proposed rulemaking: a proposed rule on Recourse and Direct Credit Substitutes (65 FR 12320, March 8, 2000), and a proposed rule on Residual Interests in Asset Securitizations or Other Transfers of Financial Assets (65 FR 57993, September 27, 2000). The two proposals overlapped in scope in that both addressed leveraged credit risk. Recognizing the overlap and interaction between the two proposals, a single final rule that combines aspects of the two proposals has been developed.
The final rule amends the regulatory capital standards as follows:
The rule is effective January 1, 2002. Any transactions settled on or after that date are subject to the final rule. Banking organizations that have settled transactions before January 1, 2002 that result in increased capital requirements under the rule may delay the application of the rule to those transactions until December 31, 2002. Banking organizations may elect early adoption, as of November 29, 2001, of any provision of the final rule.
FOR FURTHER INFORMATION CONTACT:
Amrit Sekhon, risk expert, Capital Policy at (202) 874-5211 or Laura Goldman, senior attorney, Legislative and Regulatory Activities Division at (202) 874-5090.
Jonathan L. Fiechter