Citibank 2012 Annual Report Download - page 71

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In addition, under the Basel III NPR, the U.S. banking agencies are
proposing to revise the Prompt Corrective Action (PCA) regulations in
certain respects. The PCA requirements direct the U.S. banking agencies to
enforce increasingly strict limitations on the activities of insured depository
institutions that fail to meet certain regulatory capital thresholds. The
PCA framework contains five categories of capital adequacy as measured
by risk-based capital and leverage ratios: “well capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized,” and
“critically undercapitalized.”
The U.S. banking agencies are proposing to revise the PCA regulations
to accommodate a new minimum Tier 1 Common ratio requirement
for substantially all categories of capital adequacy (other than critically
undercapitalized), increase the minimum Tier 1 Capital ratio requirement
at each category, and introduce for Advanced Approaches insured depository
institutions the Supplementary Leverage ratio as a metric, but only for the
“adequately capitalized” and “undercapitalized” categories. These revisions
have been proposed to be effective on January 1, 2015, with the exception
of the Supplementary Leverage ratio for Advanced Approaches insured
depository institutions for which January 1, 2018 was proposed as the effective
date. Accordingly, as proposed, beginning January 1, 2015, an insured
depository institution, such as Citibank, N.A., would need minimum Tier 1
Common, Tier 1 Capital, Total Capital, and Tier 1 Leverage ratios of 6.5% (a
new requirement), 8% (a 2% increase over the current requirement), 10%,
and 5%, respectively, to be considered “well capitalized.”
Standardized Approach NPR
The Standardized Approach NPR would be applicable to substantially all
U.S. banking organizations, including Citi and Citibank, N.A., and when
effective would replace the existing Basel I rules governing the calculation
of risk-weighted assets for credit risk. As proposed, this approach would
incorporate heightened risk sensitivity for calculating risk-weighted assets for
certain on-balance sheet assets and off-balance sheet exposures, including
those to foreign sovereign governments and banks, residential mortgages,
corporate and securitization exposures, and counterparty credit risk on
derivative contracts, as compared to Basel I. Total risk-weighted assets under
the Standardized Approach would exclude risk-weighted assets arising from
operational risk, require more limited approaches in measuring risk-weighted
assets for securitization exposures under Basel II.5, and apply the standardized
risk-weights to arrive at credit risk-weighted assets. As required under the
Dodd-Frank Act, the Standardized Approach proposes to rely on alternatives
to external credit ratings in the treatment of certain exposures. The proposed
effective date for implementation of the Standardized Approach is January 1,
2015, with an option for U.S. banking organizations to early adopt.
Advanced Approaches NPR
The Advanced Approaches NPR incorporates published revisions to the Basel
Committee’s Advanced Approaches calculation of risk-weighted assets as
proposed amendments to the U.S. Basel II capital guidelines. Total risk-
weighted assets under the Advanced Approaches would include not only
market risk equivalent risk-weighted assets as determined under Basel II.5,
but also the results of applying the Advanced Approaches in calculating credit
and operational risk-weighted assets. Primary among the proposed Basel II
modifications are those related to the treatment of counterparty credit risk,
as well as substantial revisions to the securitization exposure framework. As
required by the Dodd-Frank Act, the Advanced Approaches NPR also proposes
to remove references to, and reliance on, external credit ratings for various
types of exposures.