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OCC BULLETIN 2002-13
To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel

Description: Final Rule

Purpose

This bulletin transmits the final rule, "Risk-Based Capital Standards: Claims on Securities Firms" that was published in the Federal Register on April 9, 2002. The rule permits banks to reduce the risk weight on certain claims against qualifying securities firms from 100 percent to 20 percent.

Summary

For loans or other claims against a securities firm to qualify for the preferential risk weight, the firm must be incorporated in the U.S. or another Organization for Economic Cooperation and Development (OECD) country and be subject to supervisory and regulatory arrangements that are comparable to those imposed on banks under the Basel Committee on Banking Supervision's Capital Accord 1 (Basel Accord). A U.S. broker-dealer that is registered with the Securities and Exchange Commission (SEC) and in compliance with the SEC's net capital rule 2 would meet the comparable regulatory arrangement criterion. However, a claim against a U.S. securities firm that is registered with the SEC as an over-the-counter derivatives dealer would not satisfy that criterion. For a non-U.S. OECD securities firm to qualify, the firm must be subject to consolidated supervision and regulation comparable to that imposed on depository institutions in that country, including capital requirements that are comparable to those applied to depository institutions under the Basel Accord.

Additionally, the securities firm must have a long-term issuer credit rating or a rating on at least one issue of long-term (i.e., one year or longer) unsecured debt from a nationally recognized statistical rating organization that is in one of the three highest investment-grade rating categories, i.e., "A" or above. If the securities firm is unrated, the credit rating requirement may be satisfied if the parent of the securities firm has a rating that is in one of the three highest investment-grade rating categories and the parent guarantees the claim against its subsidiary securities firm. However, direct claims against the parent company would not receive the preferential risk weight, but would continue to receive a 100 percent risk weight under the current risk-based capital rules. A claim against the parent is not eligible to receive a 20 percent risk weight because it is not a "regulated entity." A claim against an unrated securities firm guaranteed by a rated parent receives the reduced risk weight because it meets both the regulated entity and credit quality requirements.

A claim against a qualifying securities firm that does not meet the credit rating or guarantee requirement described above could qualify for the preferential risk weight if it is collateralized by a debt or equity security. The claim on the securities firm must be collateralized subject to all of the following requirements:

  • The claim must arise from a reverse repurchase/repurchase agreement or securities lending/borrowing contract executed using standard industry documentation.
  • The collateral must consist of debt or equity securities that are liquid and readily marketable.
  • The claim and collateral must be marked-to-market daily.
  • The claim must be subject to daily margin maintenance requirements under standard industry documentation.
  • The contract from which the claim arises can be liquidated, terminated, or accelerated immediately in bankruptcy or similar proceedings, and the security or collateral agreement will not be stayed or avoided under the applicable law of the relevant jurisdiction.

Further Information

For further information about this bulletin, contact the Office of the Chief National Bank Examiner (202) 649-6370.

Jonathan L. Fiechter
Senior Deputy Comptroller for International and Economic Affairs

1 International Convergence of Capital Measurement and Capital Standards (July 1988).

2 17 CFR 240.15c3-1

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