a rule-making notice to member banks, telling them it intends to change collateral rules, among other things. The changes are not purely the work of the FDIC alone. Prior to the notice, the agency got the approval of all US federal bank regulatory agencies. These include the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board of Governors and the Office of the Comptroller of the Currency (OCC).
The purpose is
to harmonize and address perceived shortcomings in the measurement of
risk-weighted assets, in part by implementing changes made by the Basel
Committee on Banking Supervision (BCBS) to international regulatory
capital standards. It is also intended to implement aspects of the
Dodd-Frank Act. The proposed rule would:
1) Revise risk weights for residential mortgages based on loan-to-value ratios and certain product and underwriting features;
Increase capital requirements for past-due loans, high volatility
commercial real estate exposures, and certain short-term loan
3) Expand the recognition of collateral and guarantors in determining risk-weighted assets;
4) Remove references to credit ratings; and
5) Establish due diligence requirements for securitization exposures.
key provision significantly strengthens restrictions on the way banks
estimate their exposure to derivative risks. Banks use these estimates,
and disseminate them to regulators, for purposes of setting and/or
justifying capital levels. Estimates of exposure using so-called "net
current credit exposure" (the cost of canceling the contracts prior to
the occurrence of a trigger event) and/or purely subjective
mark-to-fantasy "models", concocted by the bank financial team, would no
longer be acceptable. Notional exposure would become a mandatory part
of calculating the "risk" of derivatives.
Under new rules, the following would be entitled to a zero percent risk weighting:
2. Gold bullion;
3. Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency;
4. Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
Claims on certain supranational entities (such as the International
Monetary Fund) and certain multilateral development banking
6. Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria, as listed in the notice.
Under this joint proposal, co-sponsored by FDIC, OCC and the Federal
Reserve, gold will once again be a zero risk asset in the private
banking world. It has been legally barred from that most important of
positions for 80 years now.