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4-058.92

Attachment I—Sample Calculation of Risk-Based Capital Ratio for Bank Holding Companies

Sample Calculation of Risk-Based Capital Ratio for Bank Holding Companies
Example of a banking organization with $6,000 in total capital and the following assets and off-balance-sheet items.
Balance-sheet assets
Cash $   5,000  
U.S. Treasuries    20,000
Balances at domestic banks     5,000
Loans secured by first liens on 1- to 4-family residential properties     5,000
Loans to private corporations    65,000
Total Balance-Sheet Assets $ 100,000
Off-balance-sheet items
Standby letters of credit (SLCs) backing general- obligation debt issues of U.S. municipalities (GOs) $  10,000  
Long-term legally binding commitments to private corporations    20,000
Total Off-Balance-Sheet Items $  30,000
This bank holding company’s total capital to total assets (leverage ratio) would be:
  ($6,000/$100,000) = 6.00%.
To compute the bank holding company’s weighted-risk assets:
1. Compute the credit-equivalent amount of each off-balance-sheet (OBS) item.
OBS item Face value Conversion factor Credit-
equivalent amount
SLCs backing municipal GOs $10,000 × 1.00 = $10,000
Long-term commitments to private corporations $20,000 × 0.50 = $10,000
2. Multiply each balance-sheet asset and the credit-equivalent amount of each OBS item by the appropriate risk weight.
OBS item Face value Conversion factor Credit-
equivalent amount
0% category  
Cash  $ 5,000  
U.S. Treasuries   20,000
 $25,000 × 0 = 0
20% category    
Balances at domestic banks  $ 5,000
Credit-equivalent amounts of SLCs backing GOs of U.S. municipalities   10,000
 $15,000 × 0.20 = $ 3,000
50% category  
Loans secured by first liens on 1- to 4-family residential properties  $ 5,000 × 0.50 = $ 2,500
100% category  
Loans to private corporations  $65,000  
Credit-equivalent amounts of long-term commitments to private corporations   10,000
 $75,000 × 1.00 = $75,000
Total Risk-Weighted Assets $80,500
This bank holding company’s ratio of total capital to weighted-risk assets (risk-based capital ratio) would be:
  ($6,000/$80,500) = 7.45%
4-058.921
C. Optional Transition Provisions Related to the Implementation of Consolidation Requirements under FAS 167
This section IV.C. provides optional transition provisions for a banking organization that is required for financial and regulatory reporting purposes, as a result of its implementation of Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 167), to consolidate certain variable interest entities (VIEs) as defined under United States generally accepted accounting principles (GAAP). These transition provisions apply through the end of the fourth quarter following the date of a banking organization’s implementation of FAS 167 (implementation date).
1. Exclusion Period
a. Exclusion of risk-weighted assets for the first and second quarters. For the first two quarters after the implementation date (exclusion period), including for the two calendar quarter-end regulatory report dates within those quarters, a banking organization may exclude from risk-weighted assets:
i. Subject to the limitations in section IV.C.3, assets held by a VIE, provided that the following conditions are met:
(1) The VIE existed prior to the implementation date,
(2) The banking organization did not consolidate the VIE on its balance sheet for calendar quarter-end regulatory report dates prior to the implementation date,
(3) The banking organization must consolidate the VIE on its balance sheet beginning as of the implementation date as a result of its implementation of FAS 167, and
(4) The banking organization excludes all assets held by VIEs described in paragraphs C.1.a.i. (1) through (3) of this section IV.C.1.a.i; and
ii. Subject to the limitations in section IV.C.3, assets held by a VIE that is a consolidated ABCP program, provided that the following conditions are met:
(1) The banking organization is the sponsor of the ABCP program,
(2) Prior to the implementation date, the banking organization consolidated the VIE onto its balance sheet under GAAP and excluded the VIE’s assets from the banking organization’s risk-weighted assets, and
(3) The banking organization chooses to exclude all assets held by ABCP program VIEs described in paragraphs (1) and (2) of this section IV.C.1.a.ii.
b. Risk-weighted assets during exclusion period. During the exclusion period, including the two calendar quarter-end regulatory report dates during the exclusion period, a banking organization adopting the optional provisions in section IV.C.1.a must calculate risk-weighted assets for its contractual exposures to the VIEs referenced in section IV.C.1.a on the implementation date and include this calculated amount in its risk-weighted assets. Such contractual exposures may include direct-credit substitutes, recourse obligations, residual interests, liquidity facilities, and loans.
c. Inclusion of allowance for loan and lease losses in tier 2 capital for the first and second quarters. During the exclusion period, including for the two calendar quarter-end regulatory report dates within the exclusion period, a banking organization that excludes VIE assets from risk-weighted assets pursuant to section IV.C.1.a may include in tier 2 capital the full amount of the allowance for loan and lease losses (ALLL) calculated as of the implementation date that is attributable to the assets it excludes pursuant to section IV.C.1.a (inclusion amount). The amount of ALLL includable in tier 2 capital in accordance with this paragraph shall not be subject to the limitations set forth in section II.A.2.a of this appendix.
2. Phase-In Period
a. Exclusion amount. For purposes of this section IV.C., exclusion amount is defined as the amount of risk-weighted assets ex cluded in section IV.C.1.a as of the implementation date.
b. Risk-weighted assets for the third and fourth quarters. A banking organization that excludes assets of consolidated VIEs from risk-weighted assets pursuant to section IV.C.1.a. may, for the third and fourth quarters after the implementation date (phase-in period), including for the two calendar quarter-end regulatory report dates within those quarters, exclude from risk-weighted assets 50 percent of the exclusion amount, provided that the banking organization may not include in risk-weighted assets pursuant to this paragraph an amount less than the aggregate risk-weighted assets calculated pursuant to section IV.C.1.b.
c. Inclusion of ALLL in tier 2 capital for the third and fourth quarters. A banking organization that excludes assets of consolidated VIEs from risk-weighted assets pursuant to section IV.C.2.b. may, for the phase-in period, include in tier 2 capital 50 percent of the inclusion amount it included in tier 2 capital during the exclusion period, notwithstanding the limit on including ALLL in tier 2 capital in section II.A.2.a. of this appendix.
3. Implicit recourse limitation. Notwithstanding any other provision in this section IV.C., assets held by a VIE to which the banking organization has provided recourse through credit enhancement beyond any contractual obligation to support assets it has sold may not be excluded from risk-weighted assets.

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