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February 04, 2019

FED is adopting a proposal to extend for three years, without revision, the Basel II Interagency Pillar 2 Supervisory Guidance, also known as the Pillar 2 Guidance (FR 4199; OMB No. 7100-0320). The report is related to the advanced approaches framework, which requires certain banks and bank holding companies to use an internal ratings-based approach to calculate regulatory credit risk capital requirements and advance measurement approaches to calculate regulatory operational risk capital requirements.

FED had published, on October 22, 2018, a proposal requesting public comment for 60 days on the extension, without revision, of FR 4199. The comment period for the proposal expired on December 21, 2018. FED did not receive any comments. A bank is required to comply with the advanced approaches framework if it meets either of two independent threshold criteria: consolidated total assets of USD 250 billion or more as reported on the most recent year-end regulatory reports, or consolidated total on-balance sheet foreign exposure of USD 10 billion or more at the most recent year-end.

A bank holding company is required to comply with the advanced approaches framework if the bank holding company has either of the following:

  • Consolidated total assets (excluding assets held by an insurance underwriting subsidiary) of USD 250 billion or more, as reported on the most recent year-end regulatory reports
  • Consolidated total on-balance-sheet foreign exposure of USD 10 billion or more at the most recent year-end
  • A subsidiary depository institution that meets the criteria to be subject to the advanced approaches rule or elects to adopt the advanced approaches framework

As of the end of 2017, 13 bank holding companies meet the above criteria and are, therefore, subject to the advanced approaches rule. Also, some banks or bank holding companies may voluntarily decide to adopt the advanced approaches framework. Both mandatory and voluntary respondents are required to meet certain qualification requirements before they can use the advanced approaches framework for risk-based capital purposes.

 

Related Link: Federal Register Notice

Keywords: Americas, US, Banking, FR 4199, Pillar 2, Basel II, Advanced Approach, IRB Approach, Capital Requirements, FED

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