Q 9: The agencies seek comment on the application of the proposed rule to DI subsidiaries of a U.S. BHC that meets the conditions in Federal Reserve SR letter 01-01 and on the principle of national treatment in this context.
We support the efforts of the US agencies to ensure all financial institutions maintain strong capital adequacy standards and agree with the principle around uniformity of treatment regarding capital adequacy standards for domestic DI’s or those owned by a banks headquartered outside the US. Citizens agrees that the agencies should retain the authority to require any BHC, including a U.S. BHC owned or controlled by a foreign banking organization, to maintain capital levels above the regulatory minimums.
However, we believe that the rule could be reworded to better conform the language of SR letter 01-0121. The third paragraph of SR letter 01-0121, which makes clear that the authority to require higher capital levels would only be exercised where such higher capital levels were deemed appropriate under “safety and soundness” would be helpful to ensure that this measure was not implemented in an arbitrary or discriminatory manner.
Q 10: The agencies seek comment on this approach and on how and to what extent future modifications to the general risk-based capital rules should be incorporated into the transitional floor calculations for advanced approaches banks.
We do not understand why the agencies have implemented a harsher set of transitional floors (and arrangements) than those incorporated within the Basel Accord and the EU CRD. Any changes in the rules or calibration should, ideally, be undertaken at an international level rather than be implemented on a bi-lateral basis.
Q 11: The agencies seek comment on what other information should be considered in deciding whether those overall capital goals have been achieved.
Regulators should focus on Basel 1, Basel 2 and Economic (or Internal) capital requirements, as proposed. We do not believe that firms adopting Basel 2 should also have to implement Basel 1a, as this imposes additional implementation requirements for firms, which can only divert focus away from Basel 2 implementation. Additionally, regulatory authorities should review the current requirements of the well capitalized bank regime. Without changes to the leverage ratio calculation, the behavioral benefits of Basel 2 are unlikely to be achieved.