On February 11, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation issued an automated tool to help national banks and federal savings associations (collectively, banks) calculate risk-based capital requirements for securitization exposures. The agencies are making this tool available for all banks that use the simplified supervisory formula approach to help calculate associated capital requirements. Banks may opt to use the simplified supervisory formula approach under the standardized approach, which is part of the revised capital rule that became effective January 1. At their discretion, banks may use the tool to help calculate regulatory capital requirements for securitization exposures under the revised capital rule. Use of the tool, however, is not required, nor is it a component of regulatory reporting.

The revised capital rule replaced the existing generally applicable risk-based capital standards with a standardized approach. Banks subject to the advanced approaches risk-based capital rule must use the standardized approach to determine their risk-based capital floor, and all other banks must use the standardized approach to determine their overall minimum risk-based capital requirements.

Among other changes, the standardized approach removes references to external credit ratings (consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act) and provides alternative measures of creditworthiness for determining risk-based capital requirements for securitization exposures. The simplified supervisory formula approach is designed to apply relatively higher risk-based capital requirements to the more risky junior tranches of securitizations, which are the first to absorb losses, and relatively lower requirements to the most senior tranches. The automated tool:

  • helps banks calculate risk-based capital for securitization exposures and helps reduce potential burden;
  • requires five inputs to calculate the minimum required risk-based capital for a securitization exposure (the inputs are typically readily available to investors); and
  • requires manual inputs consistent with the requirements of the revised capital rule.

To ensure that the tool is being used appropriately, banks should continue to reference the revised capital framework when determining regulatory capital requirements.

The tool is available through the BankNet webpage here.