FOR IMMEDIATE RELEASE					             
NR 2000-9
February 17, 2000

AGENCIES PROPOSE REVISION OF RISK-BASED CAPITAL RULES’
 TREATMENT OF RECOURSE AND DIRECT-CREDIT SUBSTITUTES

The four federal banking agencies today released proposed 
revisions to their risk-based capital requirements for 
certain obligations related to securitized transactions.
The proposal by the Federal Reserve Board, Federal 
Deposit Insurance Corporation, Office of the Comptroller 
of the Currency and Office of Thrift Supervision is intended to 
produce more consistent capital treatment for credit risks 
associated with exposures arising from securitization transactions.  
It would amend the risk-based capital requirements for asset-backed 
securities as well as recourse obligations and direct credit substitutes.
Public comment is requested by May 26, 2000. In securitizations, 
assets such as residential and commercial mortgages, credit-card 
receivables and automobile loans are pooled and reconstituted into 
securities.  Securitizations typically carve up the credit risks 
from underlying assets and redistribute them to different parties.  
Sellers of assets into a securitization may retain part of the 
risk of credit loss through recourse arrangements.  Sellers also 
may arrange for a third party, such as a banking organization, 
to accept some of the credit risk through guarantees, referred 
to as direct credit substitutes.

The proposed revisions would:

- Assign a risk-based charge to positions in securitized 
  transactions according to the relative credit risk of those positions, 
  as measured by credit ratings received from nationally recognized 
  rating agencies.
- Treat recourse obligations and direct credit substitutes more 
  consistently under risk-based capital rules.
- Define recourse and revise the definition of direct credit substitute.
- Permit the limited use of an institution’s internal risk-rating 
  system and other alternative approaches in determining the 
  risk-based capital requirement for unrated direct credit 
  substitutes associated with asset-backed commercial paper programs and 
  other structured finance programs.
- Require banking organizations to hold additional risk-based capital 
  against risks presented by the early amortization feature 
  of revolving asset securitizations.


The interagency proposal published today incorporates many of 
the industry comments received in response to an earlier version 
published in November 1997.  A consultative paper issued 
in June 1999 by the Basel Committee on Banking Supervision 
considers a similar approach to that contained in 
this proposal. The preamble of the agencies’ notice 
of proposed rulemaking is attached.  The full notice 
will be published in the Federal Register.


Media Contacts:
Federal Reserve: 		Dave Skidmore (202) 452-3204
FDIC:				David Barr  (202) 898-6992
OCC:				Kevin Mukri (202) 874-5770
OTS: 				Patricia Cinelli (202) 906-6688