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(RCAP) Assessment of Basel III Regulations – Basel Committee on Banking Supervision Regulatory Consistency Assessment Programme (RCAP) Assessment of Basel III regulations – United States of America December 2014 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2014. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-012-4 (print) ISBN 978-92-9197-011-7 (online) Contents Glossary ................................................................................................................................................................................................ 1 Preface ................................................................................................................................................................................................ 3 Executive summary ........................................................................................................................................................................... 5 Response from United States ....................................................................................................................................................... 7 1 Context, scope and main assessment findings ................................................................................................... 8 1.1 Context ................................................................................................................................................................................ 8 1.2 Structure, enforceability and binding nature of prudential regulations ................................................... 9 1.3 Scope of the assessment ........................................................................................................................................... 11 1.4 Main findings .................................................................................................................................................................. 12 2 Detailed assessment findings ................................................................................................................................... 28 2.1 Scope of application .................................................................................................................................................... 28 2.2 Transitional arrangements ......................................................................................................................................... 28 2.3 Pillar 1: minimum capital requirements ............................................................................................................... 29 2.3.2 Capital buffers (conservation and countercyclical) ....................................................................... 34 2.3.3 Credit risk: Standardised Approach ..................................................................................................... 34 2.3.4 Credit risk: Internal Ratings-Based approach .................................................................................. 38 2.3.5 Securitisation framework ......................................................................................................................... 46 2.3.6 Counterparty credit risk framework .................................................................................................... 48 2.3.7 Market risk: Standardised Measurement Method ......................................................................... 53 2.3.8 Market risk: Internal Models Approach ............................................................................................. 55 2.3.9 Operational risk: Basic Indicator Approach and Standardised Approach ............................ 56 2.3.10 Operational risk: Advanced Measurement Approaches ............................................................ 57 2.4 Pillar 2: supervisory review process ....................................................................................................................... 61 2.5 Pillar 3: market discipline ........................................................................................................................................... 61 Annexes .............................................................................................................................................................................................. 64 Annex 1: RCAP assessment team and review team .................................................................................................. 64 Annex 2: Implementation of the Basel framework as of cut-off date ............................................................... 65 Annex 3: List of capital standards under the Basel framework used for the assessment .......................... 66 Annex 4: Local regulations issued by US authorities for implementing Basel capital standards ........... 67 Annex 5: Details of the RCAP assessment process ................................................................................................... 68 Annex 6: List of actions made or planned by US authorities ................................................................................ 69 Annex 7: Assessment of binding nature of US regulatory documents ............................................................. 70 Regulatory Consistency Assessment Programme – United States iii Annex 8: Key financial indicators of US banking system ........................................................................................ 73 Annex 9: Summary of the materiality assessment and list of banks in the RCAP sample ......................... 75 Annex 10: Areas where US requirements are regarded to be higher than the Basel standards ............ 77 Annex 11: List of Basel approaches not allowed by US regulatory framework ............................................. 80 Annex 12: List of issues for post-RCAP assessment follow-up ............................................................................ 81 Annex 13: Areas for further guidance from the Basel Committee ...................................................................... 82 Annex 14: US agencies’ summary of their Pillar 2 supervisory review process ............................................. 83 Annex 15: US floor for banks using advanced Basel approaches ....................................................................... 86 iv Regulatory Consistency Assessment Programme – United States Glossary ABCP Asset-backed commercial paper ALLL Allowances for loan and lease losses AMA Advanced Measurement Approach AT1 Additional Tier 1 BCBS Basel Committee on Banking Supervision BEICF Business environment and internal control factors BHC Bank holding company bps Basis points CCAR Comprehensive capital analysis and review CCF Credit conversion factor CCP Central counterparty CCR Counterparty credit risk CDS Credit default swap CET1 Common Equity Tier 1 CFR Code of Federal Regulations CRC OECD’s country risk classification CRM Credit risk mitigation CVA Credit valuation adjustment DI Depository institution DTAs Deferred tax assets EAD Exposure at default EL Expected loss EPE Expected positive exposure FAQs Frequently asked questions FDIA Federal Deposit Insurance Act FDIC Federal Deposit Insurance Corporation FINMA Swiss Financial Market Supervisory Authority FR Federal register FRB Federal Reserve Board FX Foreign exchange G-SIB Global systemically important bank HVCRE High-volatility commercial real estate IMA Internal Models Approach Regulatory Consistency Assessment Programme – United States 1 IMM Internal Models Method IRB Internal Ratings-Based approach LGD Loss-given-default MR Market risk MRA Matter requiring attention MRIA Matter requiring immediate attention OCC Office of the Comptroller of the Currency OTC Over-the-counter PCA Prompt corrective action PD Probability of default PFE Potential future exposure PON Point of non-viability PSE Public sector entity QCCP Qualifying central counterparty RBA Ratings-Based Approach RCAP Regulatory Consistency Assessment Programme RMBS Residential mortgage-backed securities RWA Risk-weighted assets SFT Securities financing transaction SSFA Simplified Supervisory Formula Approach UL Unexpected loss USC United States Code USD US dollar VaR Value-at-risk 2 Regulatory Consistency Assessment Programme – United States Preface The Basel Committee on Banking Supervision sets a high priority on the implementation of regulatory standards underpinning the Basel III framework. The prudential benefits of the agreed global reforms can fully accrue only if the Basel minimum requirements are incorporated into member jurisdictions’ regulatory frameworks and implemented appropriately and consistently. In 2011, the Basel Committee established the Regulatory Consistency Assessment Programme (RCAP) to monitor, assess and evaluate its members’ implementation of the Basel framework.1 This report presents the findings of the RCAP assessment team on the domestic adoption of the Basel risk-based capital standards in the United States and those standards’ consistency with the Basel III framework. The assessment focuses on the adoption of Basel standards applied to the large internationally active US banks, ie the “core banks” of the US banking system.2 As a sequel to the 2007–08 global financial crisis, US regulatory agencies have undertaken several noteworthy initiatives designed to strengthen the prudential framework relating to bank capital. The agencies issued
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