Regulatory Capital Rules: Standardized Approach Risk-Weighted Assets Revisions
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The OCC, Federal Reserve, and FDIC are jointly proposing amendments to the standardized approach for calculating risk-weighted assets under existing regulatory capital rules. The proposal targets specific exposure categories most relevant to bank lending activities, aiming to improve the calibration and risk sensitivity of applicable risk weights for covered banking organizations. A key structural change removes the threshold-based deduction for mortgage servicing assets (MSAs) from the definition of regulatory capital for all banking organizations subject to capital rules, including those under the community bank leverage ratio (CBLR) framework. This change directly affects how MSAs are counted when determining a bank's capital adequacy. The proposal also mandates that Category III and IV banking organizations — mid-to-large sized institutions not currently subject to the strictest capital standards — begin recognizing most elements of accumulated other comprehensive income (AOCI) in their regulatory capital calculations. This aligns their treatment more closely with the requirements applied to the largest Category I and II banks. Concurrently, a separate but related proposal is being published that would require Category I and II banking organizations to adopt a new expanded risk-based approach (eRBA) for calculating risk-weighted assets, while permitting other organizations to elect into the eRBA framework voluntarily.
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Key Changes
- Removal of the threshold-based deduction for mortgage servicing assets (MSAs) from regulatory capital for ALL banking organizations, including community banks under the CBLR framework
- Category III and IV banking organizations must now recognize most elements of accumulated other comprehensive income (AOCI) in regulatory capital calculations
- Revised risk-based capital treatment for specific exposure categories under the standardized approach to improve risk weight calibration for lending activities
+ 3 more changes with Pro
Obligations
What this law requires
Remove threshold-based deduction for mortgage servicing assets (MSAs) from the definition of regulatory capital
Recalculate risk-weighted assets using revised risk weights for specific exposure categories under the standardized approach
Recognize most elements of accumulated other comprehensive income (AOCI) in regulatory capital calculations
Adopt the new expanded risk-based approach (eRBA) for calculating risk-weighted assets
Elect to use the expanded risk-based approach (eRBA) framework or continue with current standardized approach