Capital; Capital Adequacy Guidelines

The FDIC is proposing to amend its risk-based capital guidelines for state nonmember banks. The proposal would revise and expand the set of conversion factors used to calculate the potential future exposure of derivative contracts and recognize effects of netting arrangements in the calculation of potential future exposure for derivative contracts subject to qualifying bilateral netting arrangements. The FDIC is proposing these amendments on the basis of proposed revisions to the Basle Accord announced on July 15, 1994. The effect of the proposed amendments would be twofold. First, long-dated interest rate and exchange rate contracts would be subject to new higher conversion factors and new conversion factors would be set forth that specifically apply to derivative contracts related to equities, precious metals, and other commodities. Second, institutions would be permitted to recognize a reduction in potential future exposure for transactions subject to qualifying bilateral netting arrangements.