Supervision and Regulation Letters
Tool for Calculating Capital Requirements Using the Simplified Supervisory Formula Approach
SUPERVISION AND REGULATION
|SUBJECT:||Tool for Calculating Capital Requirements Using the Simplified Supervisory Formula Approach|
The Board of Governors of the Federal Reserve System (the Board), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (collectively, the agencies) have developed an automated tool to assist financial institutions subject to the agencies' regulatory capital rules1 in calculating risk-based capital requirements for individual securitization exposures. Specifically, institutions that use the rules' Simplified Supervisory Formula Approach (SSFA)2 to calculate risk-based capital requirements for securitization exposures may use the tool, at their discretion, to calculate capital requirements for such exposures. A link to the tool appears at the bottom of this letter.
The SSFA is designed to apply relatively higher risk-based capital requirements to the more risky junior tranches of securitizations that are the first to absorb losses, and relatively lower requirements to the most senior tranches. The automated tool:
- is designed to reduce potential burden by helping institutions calculate risk-based capital for securitization exposures, and
- requires five inputs to calculate the risk-based capital requirement for a securitization exposure per the requirements of the SSFA.
Financial institutions using this tool remain solely responsible for the accuracy of the reporting data produced with the assistance of this tool, as well as for ensuring compliance with the Board's Regulation Q. Institutions are expected to have a comprehensive understanding of their securitization exposures and to conduct due diligence requirements in accordance with the requirements of Regulation Q and consistent with supervisory expectations related to investment activities and safe‑and‑sound banking practices.
Reserve Banks are asked to distribute this letter to institutions supervised by the Federal Reserve in their districts, as well as to appropriate supervisory and examination staff. Questions regarding the attached guidance should be addressed to staff in the Capital and Regulatory Policy section: Thomas Boemio, Manager, at (202) 452-2982, or Page Conkling, Supervisory Financial Analyst, at (202) 912-4647. In addition, questions may be sent via the Board's public website.3
Michael S. Gibson
Division of Banking
Supervision and Regulation
- For the Board's rules, see 12 CFR 217 (Regulation Q). Return to text
- See 12 CFR 217.43 and 144. Return to text
- http://www.federalreserve.gov/apps/contactus/feedback.aspx Return to text