SUPPORTING STATEMENT
Risk-Based Capital Standards: Advanced Capital Adequacy Framework (Basel II)
OMB Control No. 1550-0115
A. Justification.
1. Circumstances that make the collection necessary:
On December 7, 2007, the Office of Thrift Supervision (OTS), the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System , and the Federal Deposit Insurance Corporation (the agencies) issued the joint final rule titled Risk-Based Capital Standards: Advanced Capital Adequacy Framework (rule) implementing a new risk-based regulatory capital framework for institutions in the United States (72 FR 69288). The rule is based on the June 2004 Basel Committee on Banking Supervision’s document, “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (New Accord). Along with the rule, the agencies adopted the information collection (OMB Control Number 1550-0115).
The OTS is now issuing a 30-Day Federal Register Notice to implement Basel II for institutions in the United States. The rule sets forth a new risk-based capital adequacy framework that would require some savings associations and allow other qualifying savings associations to use an internal ratings-based approach to calculate regulatory credit risk capital requirements and advanced measurement approaches to calculate regulatory operational risk capital requirements. Information collection requirements in the proposed rule are found in Appendix F, Sections 21-23, 42, 44, 53, and 71. The collections of information are necessary in order to implement Basel II.
The Basel II rule and this supporting statement are issued in conjunction with the Advanced Capital Adequacy Framework Regulatory Reporting Requirements rule. The Basel II rule covers the associated reporting burden, while the Regulatory Reporting Requirements addresses the actual data collection.
2. Use of the information:
OTS will use the information to implement and monitor savings association’s compliance with BASEL II. The information will be used to assess compliance on a quarterly, annual, and ongoing basis.
3. Consideration of the use of improved information technology:
The OTS will use information technology to reduce burden on institutions and decrease costs to savings associations and the agencies. Qualifying savings associations will be required to store data in an electronic format allowing timely retrieval for analysis, reporting, and disclosure purposes. Qualifying savings associations will be encouraged to provide information for public disclosure on their websites.
4. Efforts to identify duplication:
The required information is unique and is not duplicative of any other information already collected. There will, however, be a transition period during the parallel run where duplicative information will be produced for a limited period. This is necessary to implement the rule.
5. Methods used to minimize burden if the collection has a significant impact on a substantial number of small entities:
Not applicable. The collection does not have a significant impact on a substantial number of small entities.
6. Consequences to the Federal program if the collection were conducted less frequently:
OTS will not be able to adequately monitor capital levels and ensure safety and soundness if the collection is conducted less frequently.
7. Special circumstances that would cause an information collection to be conducted in a manner inconsistent with 5 CFR Part 1320:
The proposed rule requires savings associations to maintain data used to estimate risk parameters. For wholesale exposures, default data must be maintained for at least five years, loss severity data must be maintained for at least seven years, and exposure amount data must be maintained for at least seven years. Retail segment exposure default, loss severity and exposure amount data must be maintained for at least five years.
In addition to the requirements for a minimum number of years that data must be maintained, the default, loss severity, and exposure amount data must include periods of economic downturn conditions, or the savings association must adjust its estimates of risk parameters to compensate for the lack of data from such periods.
Maintenance of data for these periods is necessary for savings associations to conduct adequate statistical analysis to support the associated risk parameters used to calculate the risk-based capital requirement.
8. Efforts to consult with persons outside the agency:
In response to the August 2003 ANPR, the agencies received about 100 comments from savings associations, banks, trade associations, supervisory authorities, and other interested parties. While some of the commenters found the approach discussed in the ANPR burdensome, many commenters found the approach worthwhile and encouraged the agencies to continue their development of this framework. The agencies participated with other members of the Basel Committee during the development of the Basel Committee’s Basel II final paper, which was issued in June 2004. The agencies also participated in the BCBS’s Fourth Quantitative Impact Study (QIS 4) during the fall and winter of 2004-2005 to better understand the potential impact of the proposed framework on the risk-based capital requirements for savings associations.
On July 17, 2009 (FR 74 No. 34865), the agencies published a joint 60-Day Federal Register Notice. Extensive interagency collaboration was involved in creating this proposed information collection. The agencies surveyed five institutions regarding the burden estimates. The OTS did not receive any comments. The OTS published the 30-Day Federal Notice on October 27, 2009 (74 FR 55289).
9. Payment or gift to respondents:
None.
10. Any assurance of confidentiality:
The information will be kept confidential, pursuant to applicable exemptions under the Freedom of Information Act. 5 U.S.C. § 552.
11. Justification for questions of a sensitive nature:
There are no questions of a sensitive nature.
12. Burden estimate:
The burden is calculated as follows:
Number of Respondents: 3
Estimated Burden Per Respondent: 4,000 hours
Total Estimated Annual Burden: 12,000 hours
Section by Section Analysis of Burden:
Sections 21 and 22 require that a savings association adopt a written implementation plan that addresses how it will comply with the Basel II’s qualification requirements, including incorporation of a comprehensive and sound planning and governance process to oversee the implementation efforts. The savings association must also develop processes for assessing capital adequacy in relation to an organization’s risk profile. It must have in place internal risk rating and segmentation systems for wholesale and retail risk exposures, including comprehensive risk parameter quantification processes and processes for annual reviews and analyses of reference data to determine its relevance. It must document its process for identifying, measuring, monitoring, controlling, and internally reporting operational risk; verify the accurate and timely reporting of risk-based capital requirements; and monitor, validate, and refine its advanced systems.
Section 23 requires a savings association to notify the OTS of any changes to its advanced systems that would result in a material change in the saving association’s risk-weighted asset amount for an exposure type or when significant changes are made to its modeling assumptions.
Section 24 requires a savings association to update its implementation plan after any mergers.
Section 42 outlines the capital treatment for securitization exposures. A savings association must disclose publicly that it has provided implicit support to the securitization and the regulatory capital impact to the savings association of providing such implicit support.
Section 44 describes the internal assessment approach (IAA). Prior written approval is required for use of IAA. A savings association must review and update each internal credit assessment whenever new material is available, but at least annually. It must validate its internal credit assessment process on an ongoing basis and at least annually.
Section 53 outlines the internal models approach (IMA). Prior written approval is required for use of IMA.
Section 71 specifies that each savings association must publicly disclose its total and tier 1 risk-based capital ratios and their components, and additional information on scope of application, capital structure, capital adequacy, credit risk (general disclosures and disclosures for portfolios subject to IRB risk based capital formulas), counterparty credit risk-related exposures, credit risk mitigation, securitization, and operational risk.
Section Number |
Section Title |
Estimated Burden Hours |
Section 21, 24 |
Implementation |
1052 |
Section 22 |
Documentation |
208 |
Section 22, 23 |
Systems maintenance |
1113 |
Various sections |
Supervisory approvals |
271 |
Section 22 |
Control, oversight and verification of systems |
1123 |
Section 71, 42 |
Disclosures |
233 |
Estimated burden per respondent: 4,000 hours
Cost of Hour Burden to Respondents:
The OTS estimates the cost of the hour burden to respondents as follows:
12,000 x $100/hour (combination of various levels of staff) = $ 1,200,000
Total Hour Burden Cost: $1,200,000.
Basel II is designed to leverage off the risk management practices at the most sophisticated financial institutions, which are under continual refinement. The estimated costs identified above represent those additional expenditures that institutions are likely to incur as a result of implementing Basel II alone, and are not intended to be all inclusive of the adopting institutions' total risk management expenditures.
13. Estimate of total annual costs to respondents (excluding cost of hour burden in Item #12):
Not applicable.
14. Estimate of annualized costs to the Federal government:
Not applicable.
Change in burden:
OTS is citing a reduction in the inventory burden. This is due to the loss of two institutions in the OTS program (from 5 institutions to 3 institutions), including the only banking organization that would have incurred the full, consolidated top tier level burden of Basel II. The remaining banking organizations are “subsidiary Basel II institutions” that will incur only a fractional, marginal part of the total burden.
16. Information regarding collections whose results are to be published for statistical use:
OTS has no plans to publish the information for statistical purposes.
17. Reasons for not displaying OMB approval expiration date:
Not applicable.
18. Exceptions to the certification:
None.
B. Collections of Information Employing Statistical Methods.
Not applicable.
| File Type | text/rtf |
| File Title | BASEL II – NOTICE OF PROPOSED RULEMAKING |
| Author | Administrator |
| Last Modified By | Ira Mills |
| File Modified | 2010-02-04 |
| File Created | 2010-02-04 |