FOR IMMEDIATE RELEASE	 					   
September 27, 2000
NR 2000-76


AGENCIES PROPOSE REVISION OF CAPITAL RULES
FOR THE TREATMENT OF RESIDUAL INTERESTS 

The Office of the Comptroller of the Currency, the Board of 
Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, and the Office of Thrift Supervision today 
requested public comment on proposed revisions to their capital 
rules for residual interests in asset securitizations or other 
transfers of financial assets.  The proposed rule was published 
in today’s Federal Register.

Comments are due December 26, 2000.

The proposal by the agencies addresses concerns with 
residual interests raised in the December 1999 Interagency 
Guidance on Asset Securitization.  In that guidance, the agencies 
expressed concern with institutions that were holding inadequate 
capital against residual interests, were valuing the assets 
improperly, and were holding excessive amounts of these assets in 
relation to capital.  In that document, the agencies indicated 
that they were considering limiting the amount of certain 
residual interests recognized in regulatory capital.

The capital proposal is intended to apply to balance-sheet 
assets retained by a seller (or transferor) that are structured, 
through subordination provisions or other credit enhancement 
techniques, to absorb more than a pro rata share of credit loss 
related to the transferred assets.

The agencies believe that these residual interests expose 
institutions to concentrated credit risk, and may present 
valuation and liquidity concerns.  Recent experience has shown 
that high concentrations of such residual interests can threaten 
the safety and soundness of insured depository institutions.

The proposed treatment would amend the leverage and risk-based 
capital requirements by:

. Requiring that "dollar-for-dollar" risk-based capital be 
held against residual interests from securitization 
activities or other transfers of financial assets that are 
retained on the balance sheet, even if the amount exceeds 
the full capital charge typically held against the assets 
transferred.

. Restricting undue concentrations in such residual interests 
by placing them within the 25 percent Tier 1 capital 
sublimit already established for nonmortgage servicing 
assets and purchased credit card relationships. Any amounts 
above this limit will be deducted from Tier 1 capital.


Media Contacts:
Federal Reserve:      David Skidmore   (202) 452-2955	   
OCC:    	      Sam Eskenazi     (202) 874-5770
FDIC:		      Phil Battey      (202) 898-6993	   
OTS:    	      William Fulwider (202) 906-6913