Regulatory Capital Rule: Category I and II Banking Organizations, Banking Organizations with Significant Trading Activity, and Optional Adoption for Other Banking Organizations

Summary:

The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency jointly issued a proposal that would significantly revise the measurement of risk-weighted assets applicable to Category I and Category II banking organizations, including for credit risk, operational risk, market risk, and credit valuation adjustment (CVA). All banking organizations would have the option to elect this proposed approach.

Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-supervised financial institutions.

Highlights:

• The proposal would simplify the current framework by no longer requiring large banking organizations to calculate two sets of risk-based capital ratios and hold capital against the more stringent of the two.
• The proposal would remove the use of internal models from the credit risk framework and revise the standardized approach by providing more granular, risk-sensitive treatments and introducing several new credit exposure categories.
• It would also make targeted adjustments to the existing methodologies for determining exposure amounts for counterparty credit risk and risk-weighted asset amounts for securitizations, as well as for recognizing the benefits of certain synthetic risk transactions. The proposal would also adjust the recognition of credit risk mitigants.
• The current models-based approach for operational risk would be replaced with a standardized approach that uses income and expense items to proxy operational risk and determine an operational risk capital requirement.
• The market risk framework would be replaced with a more robust models-based approach and provide for a standardized approach that better captures tail and market liquidity risk in a severe market stress and downturn.
• The CVA framework would be revised to include a basic approach and a standardized approach that would expand the recognition of hedge instruments. The proposal would also exempt client-facing derivative transactions from the CVA requirement.
• The proposal also would revise the treatment of mortgage servicing assets by removing the regulatory capital deduction requirement and seek comment on further changes.
• Certain dollar-based thresholds in the capital rule would be adjusted in the future to reflect inflation, pursuant to a pre-determined indexing methodology.
• Comments are due June 18, 2026.