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Basel II Capital Accord
Notice of Proposed Rulemaking (NPR) and Supporting Board Documents
Draft Basel II NPR - Proposed Regulatory Text - Part VIII Disclosure
March 30, 2006 Skip repetitive navigation

Part VIII.  Disclosure
Section 71.  Disclosure Requirements

(a) Each bank must publicly disclose each quarter its total and tier 1 risk-based capital ratios and their components (that is, tier 1 capital, tier 2 capital, total qualifying capital, and total risk-weighted assets).23

(b) A bank must comply with paragraph (c) of section 71 of appendix [Advanced Approaches Rule] to the Federal Reserve Board’s Regulation Y (12 CFR part 225, appendix F) if it is a bank or bank holding company, or must comply with section 71(c) of 12 CFR 567, appendix F if it is a savings association. A bank is not subject to these additional disclosure requirements if it is a consolidated subsidiary of a bank holding company or depository institution that is subject to these requirements.

End of common rule.

[The bank holding company and savings association capital rules will also include the following regulatory text:

(c)(1) Each consolidated [bank holding company/savings association] described in paragraph (b) of this section that has successfully completed its parallel run must provide timely public disclosures each calendar quarter of the information in tables 11.1 - 11.11 below. If a significant change occurs, such that the most recent reported amounts are no longer reflective of the [bank holding company’s/savings association’s] capital adequacy and risk profile, then a brief discussion of this change and its likely impact must be provided as soon as practicable thereafter. Qualitative disclosures that typically do not change each quarter (for example, a general summary of the [bank holding company’s/savings association’s] risk management objectives and policies, reporting system, and definitions) may be disclosed annually, provided any significant changes to these are disclosed in the interim. Management is encouraged to provide all of the disclosures required by this appendix in one place on the [bank holding company’s/savings association’s] public website.24 The [bank holding company/savings association] must make these disclosures publicly available for each of the last three years (that is, twelve quarters) or such shorter period since it began its first floor period.

(2) Each [bank holding company/savings association] is required to have a formal disclosure policy approved by the board of directors that addresses its approach for determining the disclosures it makes. The policy must address the associated internal controls and disclosure controls and procedures. The board of directors and senior management must ensure that appropriate verification of the disclosures takes place and that effective internal controls and disclosure controls and procedures are maintained. The chief financial officer of the [bank holding company/savings association] must certify that the disclosures required by this appendix are appropriate, and the board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over financial reporting, including the disclosures required by this appendix.

Table 11.1 – Scope of Application

(a) The name of the top corporate entity in the group to which the appendix applies.
(b) An outline of differences in the basis of consolidation for accounting and regulatory purposes, with a brief description of the entities25 within the group (a) that are fully consolidated; (b) that are deconsolidated and deducted; (c) for which the regulatory capital requirement is deducted; and (d) that are neither consolidated nor deducted (for example, where the investment is risk-weighted).
(c) Any restrictions, or other major impediments, on transfer of funds or regulatory capital within the group.
(d) The aggregate amount of surplus capital of insurance subsidiaries (whether deducted or subjected to an alternative method) included in the regulatory capital of the consolidated group.
(e) The aggregate amount of capital deficiencies26 in all subsidiaries and the name(s) of such subsidiaries.

Table 11.2 – Capital Structure

(a) Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of innovative, complex or hybrid capital instruments.
(b) The amount of tier 1 capital, with separate disclosure of:
  • common stock/surplus;
  • retained earnings;
  • minority interests in the equity of subsidiaries;
  • restricted core capital elements as defined in 12 CFR part 225, Appendix A (if a bank holding company);
  • regulatory calculation differences deducted from tier 1 capital;27 and
  • other amounts deducted from tier 1 capital, including goodwill and certain intangibles.
(c) The total amount of tier 2 capital.
(d) Other deductions from capital.28
(e) Total eligible capital.

Table 11.3 – Capital Adequacy

(a) A summary discussion of the [bank holding company’s/savings association’s] approach to assessing the adequacy of its capital to support current and future activities.
(b) Risk-weighted assets for credit risk from:
  • Wholesale exposures;
  • Residential mortgage exposures;
  • Qualifying revolving exposures;
  • Other retail exposures;
  • Securitization exposures;
  • Equity exposures
  • Equity exposures subject to simple risk weight approach; and
  • Equity exposures subject to internal models approach.
(c) Risk-weighted assets for market risk as calculated under [12 CFR part 225, Appendix E/ 12 CFR part 567 Market Risk Rule]:29
  • Standardized approach for specific risk; and
  • Internal models approach for specific risk.
(d) Risk-weighted assets for operational risk.
(e) Total and tier 1 risk-based capital ratios:30
  • For the top consolidated group; and
  • For each DI subsidiary.

General qualitative disclosure requirement

For each separate risk area described in tables 11.4 through 11.11, the [bank holding company/savings association] must describe its risk management objectives and policies, including:

Table 11.431 – Credit Risk:  General Disclosures

(a) The general qualitative disclosure requirement with respect to credit risk (excluding counterparty credit risk disclosed in accordance with Table 11.6), including:
  • Definitions of past due and impaired (for accounting purposes);
  • Description of approaches followed for allowances, including statistical methods used where applicable;
  • Discussion of the [bank holding company’s/savings association’s] credit risk management policy.
(b) Total gross credit risk exposures,32 and average gross credit risk exposures, over the period broken down by major types of credit exposure.33
(c) Geographic34 distribution of exposures, broken down in significant areas by major types of credit exposure.
(d) Industry or counterparty type distribution of exposures, broken down by major types of credit exposure.
(e) Remaining contractual maturity breakdown (for example, one year or less) of the whole portfolio, broken down by major types of credit exposure.
(f) By major industry or counterparty type:
  • Amount of impaired loans;
  • Amount of past due loans;35
  • Allowances; and
  • Charge-offs during the period.
(g) Amount of impaired loans and, if available, the amount of past due loans broken down by significant geographic areas including, if practical, the amounts of allowances related to each geographical area.36
(h) Reconciliation of changes in the allowance for loan and lease losses.37

Table 11.5 – Credit Risk:  Disclosures for Portfolios Subject to IRB Risk-Based Capital Formulas

(a) Explanation and review of the:
  • Structure of internal rating systems and relation between internal and external ratings;
  • Use of risk parameter estimates other than for regulatory capital purposes;
  • Process for managing and recognizing credit risk mitigation; and
  • Control mechanisms for the rating system, including discussion of independence, accountability, and rating systems review.
(b) Description of the internal ratings process, provided separately for the following:
  • Wholesale category;
  • Retail subcategories;
  • Residential mortgage exposures;
  • Qualifying revolving exposures; and
  • Other retail exposures.
For each category and subcategory the description should include:
  • The types of exposure included in the category/subcategories;
  • The definitions, methods and data for estimation and validation of PD, ELGD, LGD, and EAD, including assumptions employed in the derivation of these variables.38
Disclosures:  Risk Assessment
(c) For wholesale exposures, present the following information across a sufficient number of PD grades (including default) to allow for a meaningful differentiation of credit risk:39
  • Total EAD;40
  • Exposure-weighted average ELGD and LGD (percentage);
  • Exposure weighted-average capital requirement (K); and
  • Amount of undrawn commitments and exposure-weighted average EAD for wholesale exposures;
For each retail subcategory, present the disclosures outlined above across a sufficient number of segments to allow for a meaningful differentiation of credit risk.
Disclosures:  Historical Results
(d) Actual losses in the preceding period for each category and subcategory and how this differs from past experience. A discussion of the factors that impacted the loss experience in the preceding period – for example, has the [bank holding company/savings association] experienced higher than average default rates, loss rates or EADs.
(e) Comparison of risk parameter estimates against actual outcomes over a longer period.41 At a minimum, this should include information on estimates of losses against actual losses in the wholesale category and each retail subcategory over a period sufficient to allow for a meaningful assessment of the performance of the internal rating processes for each category/subcategory.42 Where appropriate, the [bank holding company/savings association] should further decompose this to provide analysis of PD, ELGD, LGD, and EAD outcomes against estimates provided in the quantitative risk assessment disclosures above.43

Table 11.6 – General Disclosure for Counterparty Credit Risk-Related Exposures

(a) The general qualitative disclosure requirement with respect to OTC derivatives, eligible margin loans, and repo-style transactions, including:
  • Discussion of methodology used to assign economic capital and credit limits for counterparty credit exposures;
  • Discussion of policies for securing collateral, valuing and managing collateral, and establishing credit reserves;
  • Discussion of the primary types of collateral taken;
  • Discussion of policies with respect to wrong-way risk exposures; and
  • Discussion of the impact of the amount of collateral the bank would have to provide given a credit rating downgrade.
(b) Gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held (including type, for example, cash, government securities), and net unsecured credit exposure.44 Also report measures for EAD used for regulatory capital for these transactions, the notional value of credit derivative hedges purchased for counterparty credit risk protection, and the distribution of current credit exposure by types of credit exposure.45
(c) Notional amount of purchased and sold credit derivatives, segregated between use for the institution’s own credit portfolio, as well as in its intermediation activities, including the distribution of the credit derivative products used, broken down further by protection bought and sold within each product group.
(d) The estimate of alpha if the [bank holding company/savings association] has received supervisory approval to estimate alpha.

Table 11.7 – Credit Risk Mitigation46, 47, 48

(a) The general qualitative disclosure requirement with respect to credit risk mitigation including:
  • policies and processes for, and an indication of the extent to which the [bank holding company/savings association] uses, on- and off-balance sheet netting;
  • policies and processes for collateral valuation and management;
  • a description of the main types of collateral taken by the [bank holding company/savings association];
  • the main types of guarantors/credit derivative counterparties and their creditworthiness; and
  • information about (market or credit) risk concentrations within the mitigation taken.
(b) For each separately disclosed portfolio, the total exposure (after, where applicable, on- or off-balance sheet netting) that is covered by guarantees/credit derivatives and the risk-weighted asset amount associated with that exposure.

Table 11.8 – Securitization47

(a) The general qualitative disclosure requirement with respect to securitization (including synthetics), including a discussion of:
  • the [bank holding company’s/savings association’s] objectives relating to securitization activity, including the extent to which these activities transfer credit risk of the underlying exposures away from the bank holding company to other entities;
  • the roles played by the [bank holding company/savings association] in the securitization process49 and an indication of the extent of the bank holding company’s involvement in each of them; and
  • the regulatory capital approaches (for example, RBA, IAA and SFA) that the [bank holding company/savings association] follows for its securitization activities.
(b) Summary of the [bank holding company’s/savings association’s] accounting policies for securitization activities, including:
  • whether the transactions are treated as sales or financings;
  • recognition of gain-on-sale;
  • key assumptions for valuing retained interests, including any significant changes since the last reporting period and the impact of such changes; and
  • treatment of synthetic securitizations.
(c) Names of NRSROs used for securitizations and the types of securitization exposure for which each agency is used.
(d) The total outstanding exposures securitized by the [bank holding company/savings association] in securitizations that meet the operation criteria in Section 41 (broken down into traditional/synthetic), by underlying exposure type.50, 51, 52
(e) For exposures securitized by the [bank holding company/savings association] in securitizations that meet the operational criteria in Section 41:52
  • amount of securitized assets that are impaired/past due; and
  • losses recognized by the bank holding company during the current period53 broken down by exposure type.
(f) Aggregate amount of securitization exposures broken down by underlying exposure type.50
(g) Aggregate amount of securitization exposures and the associated IRB capital charges for these exposures broken down into a meaningful number of risk weight bands. Exposures that have been deducted from capital should be disclosed separately by type of underlying asset.
(h) For securitizations subject to the early amortisation treatment, the following items by underlying asset type for securitized facilities:
  • the aggregate drawn exposures attributed to the seller’s and investors’ interests; and
  • the aggregate IRB capital charges incurred by the [bank holding company/savings association] against the investor’s shares of drawn balances and undrawn lines.
(i) Summary of current year's securitization activity, including the amount of exposures securitized (by exposure type), and recognised gain or loss on sale by asset type.

Table 11.9 – Operational Risk

(a) The general qualitative disclosure requirement for operational risk.
(b) Description of the AMA, including a discussion of relevant internal and external factors considered in the [bank holding company’s/savings association’s] measurement approach.
(c) A description of the use of insurance for the purpose of mitigating operational risk.

Table 11.10 – Equities Not Subject to Market Risk Rule

(a) The general qualitative disclosure requirement with respect to equity risk, including:
  • differentiation between holdings on which capital gains are expected and those taken under other objectives including for relationship and strategic reasons; and
  • discussion of important policies covering the valuation of and accounting for equity holdings in the banking book. This includes the accounting techniques and valuation methodologies used, including key assumptions and practices affecting valuation as well as significant changes in these practices.
(b) Value disclosed in the balance sheet of investments, as well as the fair value of those investments; for quoted securities, a comparison to publicly-quoted share values where the share price is materially different from fair value.
(c) The types and nature of investments, including the amount that is:
  • Publicly traded; and
  • Non-publicly traded.
(d) The cumulative realized gains (losses) arising from sales and liquidations in the reporting period.
  • Total unrealized gains (losses)54
  • Total latent revaluation gains (losses)55
  • Any amounts of the above included in tier 1 and/or tier 2 capital.
(f) Capital requirements broken down by appropriate equity groupings, consistent with the [bank holding company’s/savings association’s] methodology, as well as the aggregate amounts and the type of equity investments subject to any supervisory transition regarding regulatory capital requirements.56

Table 11.11 – Interest Rate Risk for Non-trading Activities

(a) The general qualitative disclosure requirement, including the nature of interest rate risk for non-trading activities and key assumptions, including assumptions regarding loan prepayments and behavior of non-maturity deposits, and frequency of measurement of interest rate risk for non-trading activities.
(b) The increase (decline) in earnings or economic value (or relevant measure used by management) for upward and downward rate shocks according to management’s method for measuring interest rate risk for non-trading activities, broken down by currency (as appropriate).


  1. Other public disclosure requirements continue to apply - for example, Federal securities law and regulatory reporting requirements.  Return to text
  2. Alternatively, a [bank holding company/savings association] may provide the disclosures in more than one place, as some of them may be included in public financial reports (for example, in Management’s Discussion and Analysis included in SEC filings) or other regulatory reports. The [bank holding company/savings association] must provide a summary table on its public website that specifically indicates where all the disclosures may be found (for example, regulatory report schedules, page numbers in annual reports).  Return to text
  3. Entities include securities, insurance and other financial subsidiaries, commercial subsidiaries (where permitted), significant minority equity investments in insurance, financial and commercial entities.  Return to text
  4. A capital deficiency is the amount by which actual regulatory capital is less than the minimum regulatory capital requirement.  Return to text
  5. Representing 50% of the amount, if any, by which total expected credit losses as calculated within the IRB framework exceed eligible credit reserves, which must be deducted from Tier 1 capital.  Return to text
  6. Including 50% of the amount, if any, by which total expected credit losses as calculated within the IRB framework exceed eligible credit reserves, which must be deducted from Tier 2 capital.  Return to text
  7. Risk-weighted assets determined under [12 CFR part 225, Appendix E/ 12 CFR part 567 Market Risk Rule] are to be disclosed only for the approaches used.  Return to text
  8. Total risk-weighted assets should also be disclosed.  Return to text
  9. Table 4 does not include equity exposures.  Return to text
  10. That is, after accounting offsets in accordance with US GAAP (for example, FASB Interpretations 39 and 41) and without taking into account the effects of credit risk mitigation techniques, for example collateral and netting.  Return to text
  11. This breakdown could be that applied under accounting rules, and might, for instance, be (a) loans, off-balance sheet commitments, and other non-derivative off-balance sheet exposures, (b) debt securities, and (c) OTC derivatives.   Return to text
  12. Geographical areas may comprise individual countries, groups of countries or regions within countries. A [bank holding company/savings association] might choose to define the geographical areas based on the way the company’s portfolio is geographically managed. The criteria used to allocate the loans to geographical areas must be specified.  Return to text
  13. A [bank holding company/savings association] is encouraged also to provide an analysis of the aging of past-due loans.  Return to text
  14. The portion of general allowance that is not allocated to a geographical area should be disclosed separately.  Return to text
  15. The reconciliation should include the following: a description of the allowance; the opening balance of the allowance; charge-offs taken against the allowance during the period; amounts provided (or reversed) for estimated probable loan losses during the period; any other adjustments (for example, exchange rate differences, business combinations, acquisitions and disposals of subsidiaries), including transfers between allowances; and the closing balance of the allowance. Charge-offs and recoveries that have been recorded directly to the income statement should be disclosed separately.  Return to text
  16. This disclosure does not require a detailed description of the model in full – it should provide the reader with a broad overview of the model approach, describing definitions of the variables, and methods for estimating and validating those variables set out in the quantitative risk disclosures below. This should be done for each of the four category/subcategories. The [bank holding company/savings association] should disclose any significant differences in approach to estimating these variables within each category/subcategories.  Return to text
  17. The PD, ELGD, LGD and EAD disclosures below should reflect the effects of collateral, qualifying master netting agreements, eligible guarantees and eligible credit derivatives as defined in Part 1. Disclosure of each PD grade should include the exposure weighted-average PD for each grade. Where a [bank holding company/savings association] aggregates PD grades for the purposes of disclosure, this should be a representative breakdown of the distribution of PD grades used for regulatory capital purposes.  Return to text
  18. Outstanding loans and EAD on undrawn commitments can be presented on a combined basis for these disclosures.  Return to text
  19. These disclosures are a way of further informing the reader about the reliability of the information provided in the “quantitative disclosures: risk assessment” over the long run. The disclosures are requirements from year-end 2010; in the meantime, early adoption is encouraged. The phased implementation is to allow a [bank holding company/savings association] sufficient time to build up a longer run of data that will make these disclosures meaningful.  Return to text
  20. This regulation is not prescriptive about the period used for this assessment. Upon implementation, it might be expected that a [bank holding company/savings association] would provide these disclosures for as long run of data as possible – for example, if a [bank holding company/savings association] has 10 years of data, it might choose to disclose the average default rates for each PD grade over that 10-year period. Annual amounts need not be disclosed.  Return to text
  21. A [bank holding company/savings association] should provide this further decomposition where it will allow users greater insight into the reliability of the estimates provided in the “quantitative disclosures: risk assessment.” In particular, it should provide this information where there are material differences between its estimates of PD, ELGD, LGD or EAD compared to actual outcomes over the long run. The [bank holding company/savings association] should also provide explanations for such differences.  Return to text
  22. Net unsecured credit exposure is the credit exposure after considering both the benefits from legally enforceable netting agreements and collateral arrangements without taking into account haircuts for price volatility, liquidity, etc.  Return to text
  23. This may include interest rate derivative contracts, foreign exchange derivative contracts, equity derivative contracts, credit derivatives, commodity or other derivative contracts, repo-style transactions, and eligible margin loans.  Return to text
  24. At a minimum, a [bank holding company/savings association] must give the disclosures below in relation to credit risk mitigation that has been recognized for the purposes of reducing capital requirements under this Appendix. Where relevant, [bank holding companies/savings associations] are encouraged to give further information about mitigants that have not been recognized for that purpose.  Return to text
  25. Credit derivatives that are treated, for the purposes of this Appendix, as synthetic securitization exposures should be excluded from the credit risk mitigation disclosures and included within those relating to securitization.  Return to text
  26. Counterparty credit risk-related exposures disclosed pursuant to Table 11.6 should be excluded from the credit risk mitigation disclosures in Table 11.7.  Return to text
  27. For example: originator, investor, servicer, provider of credit enhancement, sponsor of asset backed commercial paper facility, liquidity provider, swap provider.  Return to text
  28. Underlying exposure types may include, for example, 1-4 family residential loans, home equity lines, credit card receivables, and auto loans.  Return to text
  29. Securitization transactions in which the originating [bank holding company/savings association] does not retain any securitization exposure should be shown separately but need only be reported for the year of inception.  Return to text
  30. Where relevant, a [bank holding company/savings association] is encouraged to differentiate between exposures resulting from activities in which they act only as sponsors, and exposures that result from all other [bank holding company/savings association] securitization activities.  Return to text
  31. For example, charge-offs/allowances (if the assets remain on the [bank holding company’s/savings association’s] balance sheet) or write-downs of I/O strips and other residual interests.  Return to text
  32. Unrealized gains (losses) recognized in the balance sheet but not through earnings.  Return to text
  33. Unrealized gains (losses) not recognized either in the balance sheet or through earnings.  Return to text
  34. This disclosure should include a breakdown of equities that are subject to the 0%, 20%, 100%, 300%, and 400% risk weights, as applicable.  Return to text