Basel
ii in the United States of America
From the
Basel ii
Compliance Professionals Association (BCPA),
the largest association of Basel ii Professionals in the
world
Final Rule, USA: Risk-Based Capital Standards:
Advanced Capital Adequacy Framework — Basel II
III.
Qualification
A.
The Qualification Process
1. In
general
Supervisory qualification to use the advanced approaches
is an iterative and ongoing process that begins when a
bank’s board of directors adopts an implementation plan
and continues as the bank operates under the advanced
approaches.
Under
the final rule, as under the proposal, a bank must
develop and adopt a written implementation
plan,
establish and maintain a comprehensive and sound
planning and governance process to oversee the
implementation efforts described in the plan,
demonstrate to its primary Federal supervisor that it
meets the qualification requirements in section 22 of
the final rule, and complete a satisfactory “parallel
run” (discussed below) before it may use the advanced
approaches for risk-based capital purposes.
A
bank’s primary Federal supervisor is responsible, after
consultation with other relevant supervisors, for
evaluating the bank’s initial and ongoing compliance
with the qualification requirements for the advanced
approaches.
Under
the final rule, as under the proposed rule, a bank
preparing to implement the advanced approaches must
adopt a written implementation plan, approved by its
board of directors, describing in detail how the bank
complies, or intends to comply, with the qualification
requirements.
A core
bank must adopt a plan no later than six months after it
meets a threshold criterion in section 1(b)(1) of the
final rule.
If a
bank meets a threshold criterion on the effective date
of the final rule, the bank would have to adopt a
plan
within six months of the effective date.
Banks
that do not meet a threshold criterion, but are nearing
any criterion by internal growth or merger, are expected
to engage in ongoing dialogue with their primary Federal
supervisor regarding implementation
strategies to ensure their readiness to adopt the
advanced approaches when a threshold criterion is
reached.
An
opt-in bank may adopt an implementation plan at any
time.
Under
the final rule, each core and opt-in bank must submit
its implementation plan, together with a copy of the
minutes of the board of directors’ approval of the plan,
to its primary Federal supervisor at least 60 days before
the bank proposes to begin its parallel run, unless the
bank’s primary Federal supervisor waives this prior
notice provision.
The
submission to the primary Federal supervisor should
indicate the date that the bank proposes to begin its
parallel run.
In
developing an implementation plan, a bank must assess
its current state of readiness relative to the
qualification requirements in this final rule.
This
assessment must include a gap analysis that identifies
where additional work is needed and a
remediation or action plan that clearly sets forth how
the bank intends to fill the gaps it has identified.
The
implementation plan must comprehensively address the
qualification requirements for the bank and each of its
consolidated subsidiaries (U.S. and foreign DRAFT based)
with respect to all portfolios and exposures of the bank
and each of its consolidated subsidiaries.
The
implementation plan must justify and support any
proposed temporary or permanent exclusion of a business
line, portfolio, or exposure from the advanced
approaches.
The
business lines, portfolios, and exposures that the bank
proposes to exclude from the advanced approaches must
be, in the aggregate, immaterial to the bank.
The
implementation plan must include objective, measurable
milestones (including delivery dates and a date when the
bank’s implementation of the advanced approaches will be
fully operational).
For
core banks, the implementation plan must include an
explicit first transitional floor period start date that
is no later than 36 months after the later of the
effective date of the rule or the date the bank meets at
least
one of
the threshold criteria.
Further, the implementation plan must describe the
resources that the bank has budgeted and that are
available to implement the plan.
The
proposed rule allowed a bank to exclude a portfolio of
exposures from the advanced approaches if the bank could
demonstrate to the satisfaction of its primary Federal
supervisor that the portfolio, when combined with all
other portfolios of exposures that the bank sought to
exclude from the advanced approaches, was not material
to the bank.
Some
commenters asserted that a bank should be permitted to
exclude from the advanced approaches any business line,
portfolio, or exposure that is immaterial on a
stand-alone basis (regardless of whether the excluded
exposures in the aggregate are material to the bank).
The
agencies believe that it is not appropriate for a bank
to permanently exclude a material portion of its
exposures from the enhanced risk sensitivity and risk
measurement and management requirements of the advanced
approaches.
Accordingly, the final rule retains the requirement that
the business lines, portfolios, and exposures that the
bank proposes to exclude from the advanced approaches
must be, in the aggregate, immaterial to the bank.
During
implementation of the advanced approaches, a bank should
work closely with its primary Federal supervisor to
ensure that its risk measurement and management systems
are functional and reliable and are able to generate
risk parameter estimates that can be used to calculate
the risk-based capital ratios correctly under the
advanced approaches.
The
implementation plan, including the gap analysis and
action plan, will provide a basis for ongoing
supervisory dialogue and review during the qualification
process.
The
primary Federal supervisor will assess a bank’s progress
relative to its implementation plan.
To the
extent that adjustments to target dates are needed,
these adjustments should be made subject to the ongoing
supervisory discussion between the bank and its primary
Federal supervisor.
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