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1. P age |1 InternationalAssociationofRiskandComplianceProfessionals(IARCP) 1200GStreet NWSuite800Washington,DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext DearMember, WhenAustraliansupervisorsspeakaboutAmericannumberplates…wehaveagreatspeech: “Thecentrepieceofthestorycanbesummedupbyjustsixlettersembossedonapersonalisednumberplate: “FUNDEM”waswrittenonthenumberplateofacarbelongingtoAngeloMozilo,theCEO ofCountrywide Financial. PriortotheGlobalFinancialCrisis,CountrywideFinancialwasthebiggestmortgageoriginator intheUnitedStates. It’sanunusualnumberplate.Whatdoyousupposeitmeans? Well,forallintentsandpurposes,itwasamissionstatement.ItissayingthatCountrywideisinthebusinessofprovidingfunds tohomeborrowers.” DavidLewis,GeneralManager,AustralianPrudentialRegulationAuthority,continueswithinterestingremarks: InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

2. P age |2 “Manycountriesdefine‘supervision’tobetheenforcementofprudentialrules(capitaladequacy,liquidity,largeexposuresandsoforth). Wedonot. Tous,‘regulation’canbedefinedastheapplicationofrulesand‘supervision’astheoversightoftheeffectivenessofafirm’sriskmanagement. Thedifferenceismorethanmerelyoneofnomenclature;itisoneofregulatorymission.AtAPRA,wedobothregulationandsupervision. AtAPRA,wedonotseeoursupervisorymandateasbeingconstrainedby therules. Tous,aprudentialsupervisor’smandateextendsbeyondtherulestoensuringtheeffectivemanagementofrisksbyregulatedinstitutions– whereverthoserisksmightarise,andregardlessofwhetherornotthoserisksaredescribedbyprudentialrulesorstandards. Acompliance-basedregulatorstaysinthebluecircle;arisk-basedregulatoroperatesinthepinkone.” InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

3. P age |3 Interesting!Hecontinues: “Wearestrongbelieversin‘meta-regulation’. Bythis,wemeanencouragingregulatedinstitutionsto‘internalise’regulatorygoalsbyhaving inplacesoundinternalrisk managementandgovernanceprocesses.” ReadmoreatNumber8below. Anotherveryinterestingspeech: By"zombiemovies"wemeanthefilmsthatdealwiththedeadreturningtolife. By"zombiebanks"wemeansomethingslightlydifferent … Mr.BenoîtCoeuré,MemberoftheExecutiveBoardoftheEuropeanCentralBank,explainsthedifference: “Awell-identifieddangeristheemergenceofso-called“zombiebanks”. Thesearebanks whichareundercapitalisedbut cancontinue to operatebyfailingtorecogniselossesontheirloan portfolios. Suchbanksremainweakand, intheshort term,overlysensitivetoadverseshocks. Theyareaproblemforregulatorsbecausetheyhaveanincentivetotakeexcessiverisks,forexample,byextendingloanstoexanteriskynewcustomers. Adeeperconcern,however,isthatzombiebanks mayposerisksformediumtolong-termgrowthiftheyengageintheso-called“evergreening”ofloans,whichisoftendiscussedwithreferencetoJapan. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

4. P age |4 ThecollapseoftheJapanesestockandrealestatemarketsintheearly1990sledtoseverelossesforJapan’snon-financialcorporations,alargenumberofwhichbecameunable toservicetheirbankloans. Ifbankshaddecided tocallinnon-performingloans,theywouldhavebeenforced towriteoffexistingcapital. Thefearoffalling below theregulatorycapitalstandardsgavethemtheperverseincentivetocontinueextendingcredittoinsolventborrowers,gamblingonthehopethatthefirmswouldrecoverorthatthegovernmentwouldbailthemout. Thisresultedintheevergreeningofloans to troubledfirms. Bykeepingtheloanscurrent,banks’balancesheetsalsolookedhealthierbecausethetroubledloanswerenotreportedasnon-performing. “Zombielending”isdangerous,asitcanstiflethephysiologicalprogressofcreativedestructionwhichcontributes to fosteringproductivitygrowth.” Thisisanamazingspeech!Mr.BenoîtCoeurécontinues: “Unemploymenthysteresis,whichrefers to thepossibilitythatanyincreasesinunemploymentbecomepermanent,mightalsobeobserved,inthepresenceofsegmentedlabourmarkets,wherewagesaresetbetweenworkersandfirmsandunemployedworkersarenotrepresented. Theensuingfall in thenaturallevelofunemploymentwilltendtoreducetheproductive capacityoftheeconomy. In additiontothat,depresseddemandforservicesinarecessionaryenvironmentcouldslow downtheadoptionofinformationtechnologiesinindustriessuchasretail,businessservices,andfinance,resulting in apersistentlylowergrowthintotalfactorproductivity.” Interesting! InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

5. P age |5 ReadmoreatNumber4below. Welcome totheTop10list. BestRegards, GeorgeLekatisPresidentoftheIARCP GeneralManager,ComplianceLLC 1200GStreetNWSuite800,WashingtonDC20005,USATel:(202)449-9750 Email:lekatis@risk-compliance-association.comWeb:www.risk-compliance-association.comHQ:1220N.MarketStreetSuite804, WilmingtonDE19801,USATel:(302)342-8828 InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

6. P age |6 BaselIIIintheUnitedStatesofAmerica TheFederalReserveBoardonTuesdayapprovedafinalrule TheFederalReserveBoardapprovedafinal ruletohelpensurebanks maintainstrongcapitalpositionsthatwillenable themtocontinuelendingtocreditworthyhouseholdsandbusinessesevenafterunforeseenlossesandduringsevereeconomicdownturns. Thefinalruleminimizesburdenonsmaller,lesscomplexfinancialinstitutions. Itestablishesanintegratedregulatory capitalframeworkthataddressesshortcomingsin capitalrequirements,particularlyforlarger,internationallyactivebankingorganizations,thatbecameapparentduringtherecentfinancialcrisis. TherulewillimplementintheUnitedStatestheBaselIIIregulatorycapitalreformsfromtheBaselCommitteeonBankingSupervisionandcertainchangesrequiredbytheDodd-FrankWallStreetReformandConsumerProtectionAct. FinalRule RegulatoryCapitalRules: RegulatoryCapital,ImplementationofBaselIII,CapitalAdequacy,TransitionProvisions,PromptCorrectiveAction,StandardizedApproachforRisk-weightedAssets,MarketDisciplineandDisclosureRequirements,AdvancedApproaches InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

7. P age |7 TheOfficeoftheComptrolleroftheCurrencyandBoardofGovernorsoftheFederalReserveSystem(Board),are adoptingafinalrulethatrevisestheirrisk-basedandleverage capitalrequirementsforbankingorganizations. Bankingorganizationsincludenationalbanks,statememberbanks,Federalsavingsassociations,andtop-tierbankholdingcompaniesdomiciledintheUnitedStatesnotsubject to theBoard’sSmallBankHoldingCompanyPolicyStatement(12CFRpart225,appendixC)),aswellastop-tiersavingsandloanholdingcompaniesdomiciledintheUnitedStates,exceptcertainsavingsandloanholdingcompaniesthataresubstantiallyengagedininsuranceunderwritingorcommercialactivities,asdescribedinthispreamble. EBAlaunchesnewSingleRulebookQ&Atool TheEuropeanBankingAuthority(EBA)launchesanewonline"SingleRulebookQ&A"toolwhichwillallow institutions,supervisorsandotherstakeholders tosubmittheirquestionsontheCRDIVpackage,on therelatedTechnicalStandardsdevelopedbytheEBAandadoptedbytheEuropeanCommission(RTSandITS),aswellasontheEBAGuidelines. ThepurposeofthisQ&AtoolistoensureconsistentandeffectiveapplicationofthenewregulatoryframeworkacrosstheSingleMarketandtocontributetothebuildingoftheSingleRulebookinbanking. TheunderlyingprocessentailscloseandongoinginteractionbetweentheEBAandtheEuropean Commissiontoensurethattheresponses tothequestionssubmittedremainfullyconsistentwiththeEuropeanlegislativetexts. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

8. P age |8 Monetarypolicyandtheriskofalostdecade SpeechbyMrBenoîtCoeuré,MemberoftheExecutiveBoardoftheEuropeanCentralBank,attheAmundiWorldInvestmentForum2013“Mappingunchartedterritoriesofinvesting”,Paris “Thespecificrisk scenariothatIwish toconsideristhatofa“lostdecade”–thepossibilityofamuchmoreprotractedperiodofstagnationthancurrentlyanticipated.” Globalsystemicallyimportantbanks:updatedassessmentmethodologyandthehigherlossabsorbencyrequirement ThisdocumentupdatesandreplacestheNovember2011publicationGlobalsystemicallyimportantbanks:assessmentmethodologyandtheadditionallossabsorbencyrequirement. Below isasummaryofthemainchangesrelativetothatpublication. Thesechangesreflectthelessonslearntfromapplyingtheassessmentmethodologyusingdatasubmittedbybanks inrespectoftheirpositionsasatthefinancialyear-ends2009to2011. Thechangesalsoincludetheadditionofthedisclosuresthatbanksare requiredtomake toensurethattheassessmentmethodologyoperatesonthebasisofpubliclyavailableinformation. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

9. P age |9 U.S.AgenciesReleasePublicSectionsofResolutionPlansforFourInstitutions TheFederalDepositInsuranceCorporation(FDIC)andtheFederal ReserveBoardonTuesdaymadeavailablethepublicportionsofresolutionplansforfourfirmswithU.S.nonbankassetsbetween$100billionand$250billion. TheDodd-FrankWallStreetReformandConsumerProtectionActrequiresthatbankholdingcompanieswithtotalconsolidatedassetsof $50billionormoreandnonbankfinancialcompaniesdesignatedbytheFinancialStabilityOversightCouncilsubmitresolutionplanstothe FDICandFederalReserve. Eachplanmustdescribethecompany'sstrategyforrapidandorderlyresolutionintheeventofmaterialfinancialdistressorfailureofthecompany. • EIOPApublishesthefirstEUassessmentofthefinancialsituationofpensionfunds • TheQuantitativeImpactStudybyEIOPAis • thefirstofitskindinassessingthefinancialsituationofEUpensionfundsinacomparableway. • Theholisticbalancesheetapproachcancontributetothesustainabilityofpensionfundsandtheprotectionofcurrentaswellasfuturegenerations. • TheQISoutcomesreinforcetheneedtocontinueworkingtowardsamarket"consistentandrisk"basedregulatoryregimeinEurope. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

10. P age |10 Risk-basedSupervision:Howcan we dobetter? DavidLewis GeneralManagerAustralianPrudentialRegulationAuthority “AtAPRA,wehavealwaysbeenstrongproponentsofrisk-basedsupervision.It’s inherent in ourmissionandvalues,andit’singrainedinoursupervisoryapproach.It’sinourDNA.” 11PublicCapitalDisclosureRequirementsrelatedtoBaselIIIPillar3 To:Banks BankHoldingCompanies FederallyRegulatedTrustandLoanCompaniesCooperativeRetailAssociations OnJune26,2012,theBaselCommitteeonBankingSupervision(BCBS)issueditsfinalrulesontheinformationbanks mustpubliclydisclosewhendetailingthecompositionoftheircapital. Entitled,Compositionofcapitaldisclosurerequirements–Rulestext(theBCBSDisclosureRules),thepublicationsetsoutaframeworkto ensurethatthecomponentsofbanks’capitalbasesarepublicly disclosedinstandardisedformatsacrossandwithinjurisdictionsforbankssubjecttoBaselIII. In Canada,thisincludesallbanks,bankholdingcompanies,federallyregulatedtrustandloan companies,andcooperativeretailassociations(collectivelyinstitutions)regardlessofsizeorpubliclistings. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

11. P age |11 ShapingtheEUregulatoryandsupervisoryframework GabrielBernardinoChairofEIOPAIAAColloquiumLyon InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

12. P age |12 BaselIIIintheUnitedStatesofAmerica TheFederalReserveBoardonTuesdayapprovedafinalrule TheFederalReserveBoardapprovedafinalruletohelpensurebanksmaintain strongcapitalpositionsthatwillenablethemtocontinuelendingto creditworthyhouseholdsandbusinessesevenafterunforeseenlossesand duringsevereeconomicdownturns. Thefinalruleminimizesburdenonsmaller,lesscomplexfinancialinstitutions. Itestablishesanintegratedregulatory capitalframeworkthataddressesshortcomingsin capitalrequirements,particularlyforlarger,internationallyactivebankingorganizations,thatbecameapparentduringtherecentfinancialcrisis. TherulewillimplementintheUnitedStatestheBaselIIIregulatorycapitalreformsfromtheBaselCommitteeonBankingSupervisionandcertainchangesrequiredbytheDodd-FrankWallStreetReformandConsumerProtectionAct. "Thisframeworkrequiresbankingorganizationstoholdmoreand higherquality capital,whichactsasafinancialcushion to absorblosses,whilereducingtheincentiveforfirms totakeexcessiverisks,"ChairmanBenBernankesaid. "Withtheserevisions to ourcapitalrules,bankingorganizationswillbebetterable to withstandperiodsoffinancialstress,thuscontributingtotheoverallhealthoftheU.S.economy." Underthefinalrule,minimumrequirementswillincreaseforboththequantityandqualityofcapital heldbybankingorganizations. ConsistentwiththeinternationalBaselframework,theruleincludesa newminimumratioofcommonequitytier1capitaltorisk-weighted InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

13. P age |13 assetsof4.5percentandacommonequitytier1capitalconservation bufferof2.5percentofrisk-weightedassetsthatwillapply toallsupervisedfinancialinstitutions. Therulealsoraisestheminimumratiooftier1capitalto risk-weightedassetsfrom4percent to 6percentandincludesaminimumleverageratioof4percentforallbankingorganizations. In addition,forthelargest,mostinternationallyactivebankingorganizations,thefinalruleincludesanewminimumsupplementaryleverageratiothattakesinto accountoff-balancesheetexposures. Onthequalityofcapitalside,thefinalruleemphasizescommonequity tier1capital,themostloss-absorbingformofcapital,andimplementsstricteligibilitycriteriaforregulatorycapitalinstruments. Thefinalrulealsoimprovesthemethodologyforcalculatingrisk-weightedassetsto enhancerisksensitivity. Banksandregulatorsuserisk weightingtoassigndifferentlevelsofrisktodifferentclassesofassets--riskierassetsrequirehighercapitalcushionsandlessriskyassetsrequiresmallercapitalcushions. "Adoptionofthe capitalrules todayisa milestonein ourpost-crisiseffortstomakethefinancialsystemsafer,"GovernorDanielTarullosaid. "Alongwiththestresstestingand capitalreviewmeasureswehavealreadyimplemented,andtheadditionalrulesforlargeinstitutionsthatareontheway,thesenewrulesareanessentialcomponentofasetof mutuallyreinforcingcapitalrequirements." Thebankingagenciescarefullyreviewedthecommentsreceivedontheproposalandmadeanumberofchangesin thefinalrule,inparticulartoaddressconcernsaboutregulatoryburdenoncommunitybanks. Forexample,thefinalruleissignificantlydifferentfromtheproposalintermsofriskweightingforresidentialmortgagesandtheregulatorycapitaltreatmentofcertainunrealizedgainsandlossesandtrustpreferredsecuritiesforcommunitybankingorganizations. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

14. P age |14 In total,forcommunitybanks,thechangesfromcurrentregulationstargetafewareasthatarehigherrisk,butare otherwiseminimal. Indeed, nineoutof10financialinstitutionswithlessthan$10billioninassetswouldmeetthecommonequitytier1minimumplusbufferof7percentinthefinalrule,accordingtodatafromMarch2013. Aswithallfinancialinstitutionssubjecttothefinalrule,communitybankswillhaveasignificanttransitionperiodtomeetthenewrequirements. Thephase-inperiodforsmaller,lesscomplexbankingorganizationswillnotbeginuntilJanuary2015whilethephase-inperiodforlargerinstitutionsbeginsinJanuary2014. In anotherchangefromtheproposal,savingsandloanholdingcompanieswithsignificantcommercialor insuranceunderwritingactivitieswillnotbesubjecttothefinalruleatthistime. TheFederalReservewilltakeadditionaltime to evaluatetheappropriateregulatorycapitalframeworkfortheseentities. TheFederalReservecoordinatedthefinalrulewiththeFederalDepositInsuranceCorporation(FDIC)andtheOfficeoftheComptrolleroftheCurrency(OCC),whichcontinuetoreview thismatter. TheFDIChasprovidednoticethatitwillconsiderthematterasaninterimfinalruleonJuly9,2013. TheOCCexpectstoreviewandconsiderthematterasafinalrulebyJuly9,2013. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

15. P age |15 OpeningStatementbyChairmanBenS.Bernanke Goodmorning.I'dlike to beginbywelcomingourgueststotheFederalReserve,andwelcomingthestaffaswell. Iappreciatethisopportunity todiscussakeyelementoftheBoard'sregulatoryreformpackage to promotefinancialstability. StrongcapitalrequirementsareacoreelementoftheFederalReserve'sregulatoryresponsetothefinancialcrisis to helpensuretheresilienceoftheU.S.bankingsectorand tomakeourfinancialsystem safer. Thefinalrulethatwe'reconsideringtodayputsinplaceacomprehensiveregulatorycapitalframeworkthattheBoardhasbeendevelopingforsometimein consultationwithourdomesticandinternationalcolleagues. Critically,thisframeworkrequiresbankingorganizationstoholdmoreandhigherqualitycapital,whichactsasafinancialcushionto absorblosses,whilereducingtheincentiveforfirms totakeexcessiverisks. Withtheserevisionstoour capitalrules,bankingorganizationswillbebetterable to withstandperiodsoffinancialstress,thuscontributingtotheoverallhealthoftheU.S.economy. Thefinalrulefulfills theU.S commitmenttoimplementtherevisedinternationalregulatory capitalframework,knownasBaselIII,forthelargest,mostinternationally-activebankingorganizations. Therulealsoincorporatesmacroprudential aspectsthatcomplementtheBoard'sbroaderfinancialstabilityagenda. Todaywewillalsobeconsideringproposedtechnicalchangestothemarketrisk capitalrulethatbecameeffectiveinJanuaryofthisyear toconformwiththefinalrule. Ilookforwardto today'sdiscussionofthisimportantinitiativeandIwelcomethestaffaswell.LetmeturnthemeetingovertoGovernorTarullo, who hasplayedakeyleadershiprolein thisrulemakingprocess. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

16. P age |16 OpeningStatementbyGovernorDanielK.Tarullo Thankyou,Mr.Chairman. Adoptionofthe capitalrulesbeforeustodaywillbeamilestoneinourpost-crisisefforts tomakethefinancialsystemsafer. Whilestrongcapitalrequirementsalone cannotensurethesafetyandsoundnessofourfinancialsystem,theyarecentralto goodfinancialregulation,preciselybecausetheyareavailable to absorballkindsoflosses,nomatterhowunanticipated. Alongwiththestresstestingandcapitalreviewmeasureswehavealreadyimplemented,andtheadditionalrulesforlargeinstitutionsthatareontheway,thesenewruleswillbeanessentialcomponentofasetofmutuallyreinforcingcapitalrequirements. Theruleswouldhaveseveralimportantconsequences. First,theywouldconsolidate theprogressthathasbeenmadebybanksandregulatorsoverthelastfouryearsinimprovingthequalityandquantityofcapitalheldbybankingorganizations. Adoptionoftheserulesassuresthat,asmemoriesofthecrisisfade,effortstobuildandmaintainhighercapitallevelswillnotbeallowed to wane. Second,theywouldremedyshortcomingsin ourexisting,generallyapplicablerisk-weightedassetscalculationsthatbecameapparentduringthefinancialcrisis. In sodoing,theywouldalsoenhancetheeffectivenessoftheCollinsAmendment,whichwehavestrengthenedinthisfinalrulebymakingitapplicableto capitalbuffer,aswellasminimum,requirements. Third,adoptionoftheserulesmeansthatwewillhavemetinternationalexpectationsforU.S.implementationoftheBaselIIIcapitalframework. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

17. P age |17 This givesusafirmpositionfromwhichtopressourexpectationsthatothercountriesimplementBaselIIIfullyandfaithfully,therebypromotingglobalfinancialstability. Incharacterizingthisruleasamilestoneinfinancialregulatoryreform,I shouldnotethatthismarkerhasquitedifferentmeaningsforbankingorganizationsofsystemicimportance,ontheonehand,andthethousandsofsmallerbanks,ontheother. Forthevastmajorityofbanks,therulewe adopttodaywillmarktheend ofmajormodificationsweplanto capitalrules. In fact,asGovernorDuke willexplaininamoment,mostofthesignificant changeswemadetothefinalrulefromtheproposedrulesweissuedlastyearareintendedto reducethenumberof,andsimplify,thosemodificationsfromcurrentstandardsthatapply to smallerbanks. Withrespect to largerbankingorganizations,wehaveanumberofcapital-relatedinitiativesremaining. Beforeturningtothoseinitiatives,InotethatworkcontinuesintheBaselCommitteeonsimplifyingsomeofthemorecomplexprovisionsincapitalrequirementsapplicable to largerinstitutions. Ofparticularinterestisworkonstandardized capitalrequirementsformarketrisk thatwouldprovideasoundback-upformodel-derivedriskweights. Astowhatremains,beginninginthefallwewillextendfullstresstestingrequirementsand capitalplanreviews tothedozenorsobankingorganizationswithgreaterthan$50billionin assetsthathavenotbeenfully coveredintheexerciseswehaveundertakensince2009. Wealsohave,invariousstagesofdevelopment,fourrulemakingsthatwillenhance capitalrequirementsfortheeightU.S.bankingorganizationsalreadyidentifiedasofglobalsystemicimportance. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

18. P age |18 First,weareveryclosetocompletionofanoticeofproposedrulemakingthatwillestablishaleverageratiothresholdforthesefirms abovetheBaselIIIrequiredminimum. Despiteitsinnovativenessintakingaccountofoff-balance-sheetassets, ***theBaselIIIleverageratioseemstohavebeensettoolow***tobeaneffectivecounterpartto thecombinationofrisk-weighted capitalmeasuresthathavebeenagreedinternationally. Second,weshouldbereadyinthenextfewmonthstoissueanoticeof proposedrulemakingconcerningthecombined amountofequityandlong-termdebtthesefirmsshouldmaintaininordertofacilitateorderlyresolutioninappropriatecircumstances. Third,aftertheBaselCommitteehascompletedfinalmethodologicalrefinementstoitsframeworkforcapitalsurchargesonbankingorganizationsofglobalsystemicimportance,wewillissueanoticeof proposedrulemakingto implementthisframeworkintheUnitedStates. GiventhecurrentstateofBaselCommitteework,wemaybelookingatsuchanoticelatethisyear. Fourth,andfinally,staffiscurrentlyworkingonarecommendationforan advancenoticeofproposedrulemakingtoseekcommentonpossibleapproachestorequiringadditionalmeasuresthatwoulddirectlyaddressrisksrelated toshort-termwholesalefunding, includingarequirement thatlargefirmssubstantiallydependentonsuchfunding holdadditionalcapital. Oncefinal,thesemeasureswouldroundoutacapitalregimeofcomplementaryrequirementsthatfocusondifferentvulnerabilitiesandtogethercompensatefortheinevitableshortcomingsinanysinglecapitalmeasure. ThisregimewouldconformtothemandategivenusbyCongresstoapply tolargebankingorganizationsmoreexactingregulatoryandsupervisoryrequirementsthatbecomeprogressivelystricterasthesystemicimportanceofafirmincreases. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

19. P age |19 The capitalruleweconsidertodayisakeyelementofthisbroaderregime--initself,asafoundationfortheforward-lookingrequirementsembeddedinstresstesting,andasabaseonwhich to addadditionalrequirementssuchas capitalsurchargesforbanks ofglobalsystemicimportance. Withthat,Iturn toGovernorDuke forher introductorycomments. OpeningStatementbyGovernorElizabethA.Duke Thankyou.Iwillfocusmyremarksonthoseelementsoftherulethataremostpertinent to communitybanks. Iwanttobeginbyemphasizingthathavingadequatelevelsofhighquality capitalisjustascrucialforsmallerbanks asitisforthelargestinstitutions. Therecentfinancialcrisisdemonstratedthatcommunitybanks canstillbedevastatedbyeconomicturbulenceevenwhentheydidnothingto causetheproblem. Thebanks thatwereabletowithstandtheadverseeconomicconditionsandcontinuetoservetheircommunitieswerethosethatstartedwithsolidcapitalpositions. Asproposedlastyear,the capitalrulewouldhaveachievedtheobjectiveofincreasingthequantityandqualityofcapital inbanksofallsizes. Butitalsowouldhavecreatedsubstantialadditionalregulatoryburdenoncommunitybanks. In thefinalruleI believewehavemaintainedtheobjectiveofstrengtheningcapitalrequirementsbutwithoutthemoreonerousregulatoryburden. TheBoardreceivedmorethan2,600commentsontheproposal,withthemajorityofthecommentletterscomingfromcommunitybankingorganizations. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

20. P age |20 In addition,theFederalReservesoughtinputfromcommunitybankersthroughin-personmeetings. Boardstaffheldseverallarge outreachsessionsaroundthecountrygeared towardcommunitybankers,fieldinghundredsofquestions. Imetpersonallywithrepresentativesfromorganizationsofvarioussizeswithdifferentlegalstructuresandbusinessmodels. IknowseveralmembersoftheBoarddidthesame. Thisoutreachwascriticaltounderstandinghowdifferentelementsoftheproposalwouldaffectindividualbankingorganizations. Afterhearingtheseconcerns,numerouschangeshavebeenmade to theproposaltoreduceitscomplexityand tominimizethepotentialburdenthatwouldbeplacedonsmallerandcommunitybankingorganizations. Whilestaffwilldiscussthesechangesindetail,Iwanttobrieflycommentonthreechangesinparticular. First,inlightofcommenterconcernsabouttheburdenofcalculatingtheproposedrisk weightsforbankingorganizations'existingresidentialmortgageportfolios,andthepotentialreductionincreditavailabilityduetotheinteractionoftheproposalwithothermortgage-relatedrulemakings,thefinalrulewouldretainthecurrentrisk weightsforresidentialmortgageloans. Second,thefinalrulewouldallow non-advancedapproachesbankingorganizationstomakeaone-timeelectiontooptoutoftherequirementtoincludemostelementsofAOCIinregulatorycapital.Whilethesebanks wouldnotberequired to recognizeunrealizedgainsandlossesin theirregulatorycapital,theywouldnotbepermitted to switchbackandforthtotakeadvantageofunrealizedgainsandignoreunrealizedlosses. Third,communitybanks objectedtothephase-outoftrustpreferredsecuritiesaspartoftheirtier1capital.Inrecognitionofcommunitybankingorganizations'limitedaccesstothecapitalmarkets,thefinalrule InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

21. P age |21 wouldeffectivelygrandfathercertainexistingtrustpreferredsecuritiesaspermittedbytheDodd-FrankAct. Ultimately,therelevantmeasureofthefinalruleisnottocompareit totheproposal,but toevaluateitagainstexistingregulatorycapitalrequirements. In thisregard,Ibelievethatthefinalrulewouldstrengthenthequalityandquantityofbankcapitalwithoutintroducingunnecessarycomplexityorcapitalvolatilityforcommunitybanks. Comparedtocurrentregulatorycapitalrequirements,themajorchangesthatwouldaffectcommunitybanksare: Thenewcommonequitytier1capitalrequirementwouldrequireallbanks toholdmorecommonstock andretainedearningsthanisthecaseundercurrentrequirements. Becausemostcommunitybanks arealready capitalizedprimarilywithcommonstock,andbecauseretainedearningsaretheirprimarysourceofadditionalcapital,Iviewthisnewstandardasavalidationofthecommunitybankcapitalmodelratherthananadditionalburden. Theminimumrequirementfortier1capital wouldbeincreasedfrom4percentto6percent. Trustpreferredsecuritieshavebecomeanimportantelementin tier1capitalforcommunitybanks. Withthegrandfatheringofthoseinstruments,thenewtier1capitalstandardshouldimposeonlyaminimalburdenonmostcommunitybanks. Therulealsowouldcreateacapitalconservationbufferthatwouldworktolimit capitaldistributionsascapitallevelsapproachregulatoryminimums. In theircomments,communitybanks stressedtheirlimitedaccess to capitalmarketsandresultingdependenceonretainedearnings. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

22. P age |22 The capitalbufferconceptdoesnotonits ownrequireabanktoraiseoutsidecapital,ratheritsimplymandatesearningsretentionuntilcapitaliscomfortablyaboveregulatoryminimums. Thenumeratorusedforcalculatingvarious capitalratioswouldhavemorestringentlimitsontheinclusionofmortgageservicingassetsand deferredtaxassets,andtheirriskweightswouldalsoincrease. Admittedly,thisprovisionincreasescapitalrequirementsforinstitutionswithhighconcentrationsofeitherofthesetypesofassets,butinthecrisistheseassetsprovedlesseffectivethanexpectedforabsorbinglosses. Lastly,theriskweightswouldincreaseforloansthatarepastdueoronnonaccrualaswellasforhighvolatilitycommercialrealestate(HVCRE)loans. IwanttoemphasizethatthehigherriskweightforHVCREloansappliesonly to asmallsubsetofcommercialrealestateloans,thatis,certainhigherrisk acquisition,development,orconstructionloansofthetypethatresultedin largelossesduringboththerecentcrisisandthesavingsandloancrisis. Allothercommercialrealestateloanswouldretaintheircurrentriskweight. Inacontinuingefforttoimprovecommunicationwithcommunitybanksaboutregulatorychanges,staffhaspreparedaone-pagesummarydesignedspecificallyforcommunitybanks thatdescribesthekeychangesdiscussedtoday. Iamhopefulthatthissummarywillallow communitybankers to quicklyzeroin onthechangesthataffectthem. Iwouldlike tothankourstafffortheirstrongandtirelesseffortsinfinalizingthesenewcapitalrequirements. Iamconfidentthattheirworkwillgreatlycontribute to astrongerandmoreresilientbanking industrythatwill benefittheoveralleconomy. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

23. P age |23 InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

24. P age |24 FinalRule RegulatoryCapitalRules:RegulatoryCapital,ImplementationofBaselIII,CapitalAdequacy,TransitionProvisions,PromptCorrectiveAction, StandardizedApproachforRisk-weightedAssets,MarketDisciplineandDisclosureRequirements,AdvancedApproaches TheOfficeoftheComptrolleroftheCurrencyandBoardofGovernorsoftheFederalReserveSystem(Board),are adoptingafinalrulethatrevisestheirrisk-basedandleverage capitalrequirementsforbankingorganizations. Bankingorganizationsincludenationalbanks,statememberbanks,Federalsavingsassociations,andtop-tierbankholdingcompaniesdomiciledintheUnitedStatesnotsubject to theBoard’sSmallBankHoldingCompanyPolicyStatement(12CFRpart225,appendixC)),aswellastop-tiersavingsandloanholdingcompaniesdomiciledintheUnitedStates,exceptcertainsavingsandloanholdingcompaniesthataresubstantiallyengagedininsuranceunderwritingorcommercialactivities,asdescribedinthispreamble. ThefinalruleconsolidatesthreeseparatenoticesofproposedrulemakingthattheOCC,Board,andFDICpublishedintheFederalRegisteronAugust30,2012,withselected changes. Thefinalruleimplementsareviseddefinitionofregulatorycapital,anewcommonequitytier1minimum capitalrequirement,ahigherminimumtier1capitalrequirement,and,forbankingorganizationssubjecttotheadvancedapproachesrisk-based capitalrules,asupplementaryleverageratiothatincorporatesabroadersetofexposuresinthedenominator. Thefinalruleincorporatesthesenewrequirementsintotheagencies’promptcorrectiveaction(PCA)framework. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

25. P age |25 In addition,thefinalruleestablisheslimitsonabankingorganization’scapitaldistributionsandcertaindiscretionarybonuspaymentsifthebankingorganizationdoesnotholdaspecified amountofcommonequitytier1capitalinadditiontotheamountnecessarytomeetitsminimumrisk-based capitalrequirements. Further,thefinalruleamends themethodologiesfordeterminingrisk-weightedassetsforallbankingorganizations,andintroducesdisclosurerequirementsthatwouldapply to top-tierbanking organizationsdomiciled intheUnitedStateswith$50billionormoreintotalassets. Thefinalrulealsoadoptschangestotheagencies’regulatorycapitalrequirementsthatmeettherequirementsofsection171andsection939AoftheDodd-FrankWallStreetReformandConsumerProtectionAct. Thefinalrulealsocodifiestheagencies’regulatory capitalrules,whichhavepreviouslyresidedinvariousappendicestotheirrespectiveregulations,intoaharmonizedintegratedregulatoryframework. In addition,theOCCisamendingthemarketrisk capitalrule(marketriskrule)toapplytoFederalsavingsassociations,andtheBoardisamendingtheadvancedapproachesandmarketrisk rulestoapplytotop-tiersavingsandloan holdingcompaniesdomiciledintheUnitedStates,exceptforcertainsavingsandloanholdingcompaniesthatare substantiallyengagedininsuranceunderwritingorcommercialactivities,asdescribedinthispreamble. DATES:Effectivedate:January1,2014. Mandatorycompliancedate:January1,2014foradvancedapproachesbankingorganizationsthatarenotsavingsandloanholdingcompanies;January1,2015forallothercoveredbankingorganizations. Introduction OnAugust30,2012,theOfficeoftheComptrolleroftheCurrency(OCC)theBoardofGovernorsoftheFederalReserveSystem(Board),andtheFederalDepositInsuranceCorporation(FDIC)(collectively,the InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

26. P age |26 agencies)publishedintheFederalRegisterthreejointnoticesof proposedrulemakingseekingpubliccommentonrevisions to their risk-basedandleverage capitalrequirementsandonmethodologiesforcalculatingrisk-weightedassetsunderthestandardizedandadvancedapproaches(each,aproposal,andtogether,theNPRs,theproposedrules,ortheproposals). Theproposedrules,inpart,reflectedagreementsreachedbytheBaselCommitteeonBankingSupervision(BCBS)in“BaselIII:AGlobalRegulatoryFrameworkforMoreResilientBanks andBankingSystems”(BaselIII),includingsubsequentchangestotheBCBS’s capitalstandardsandrecentBCBSconsultativepapers. BaselIIIisintendedto improveboththequalityandquantityofbankingorganizations’ capital,aswellas to strengthenvariousaspectsoftheinternationalcapitalstandardsforcalculatingregulatory capital. TheproposedrulesalsoreflectaspectsoftheBaselIIStandardizedApproachand otherBaselCommitteestandards. Theproposalsalsoincluded changesconsistentwiththeDodd-FrankWallStreetReformandConsumerProtectionAct(theDodd-FrankAct); wouldapply therisk-basedandleveragecapitalrulesto top-tiersavingsandloanholdingcompanies(SLHCs)domiciledintheUnitedStates; andwouldapplythemarketriskcapitalrule(themarketriskrule)toFederalandstatesavingsassociations(asappropriatebasedontradingactivity). TheNPRtitled“RegulatoryCapitalRules: RegulatoryCapital,ImplementationofBaselIII,MinimumRegulatoryCapitalRatios,CapitalAdequacy,TransitionProvisions,andPromptCorrectiveAction”(theBaselIIINPR),providedfortheimplementationoftheBaselIIIrevisions to internationalcapitalstandardsrelatedtominimum capitalrequirements,regulatory capital,andadditionalcapital“buffer”standardstoenhancetheresilienceofbankingorganizationstowithstand periodsoffinancialstress. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

27. P age |27 Theproposalincludedtransitionperiodsformanyoftherequirements,consistentwithBaselIIIandtheDodd-FrankAct. TheNPRtitled“RegulatoryCapitalRules:StandardizedApproachforRisk-weightedAssets;MarketDisciplineandDisclosureRequirements”(theStandardizedApproachNPR), wouldrevisethemethodologiesforcalculatingrisk-weightedassetsintheagencies’generalrisk-basedcapitalrules(thegeneralrisk-based capitalrules),incorporatingaspectsoftheBaselIIstandardizedapproach,andestablishalternativestandardsofcreditworthinessinplaceofcreditratings,consistentwithsection939AoftheDodd-FrankAct. Theproposedminimumcapitalrequirementsinsection10(a)oftheBaselIIINPR,asdeterminedusingthestandardized capitalratiocalculationsinsection10(b),wouldestablishminimum capitalrequirementsthatwouldbethe“generallyapplicable”capitalrequirementsforpurposeofsection171oftheDodd-FrankAct. TheNPRtitled“RegulatoryCapitalRules:AdvancedApproachesRisk-BasedCapitalRule;MarketRisk CapitalRule”(theAdvanced ApproachesNPR) includedproposedchanges totheagencies’current advancedapproachesrisk-based capitalrules(theadvancedapproachesrule)toincorporateapplicableprovisionsofBaselIIIandthe“Enhancements totheBaselIIframework”(2009Enhancements)publishedinJuly200916andsubsequentconsultativepapers,to removereferences to creditratings,toapplythemarketrisk rule tosavingsassociationsandSLHCs,andtoapplytheadvancedapproachesruletoSLHCsmeetingthescopeofapplicationofthoserules. Takentogether,thethreeproposalsalsowouldhaverestructuredtheagencies’regulatory capitalrules (thegeneralrisk-based capitalrules,leveragerules,marketrisk rule,andadvancedapproachesrule)intoaharmonized,codifiedregulatory capitalframework. TheagenciesareadoptingtheBaselIIINPR,StandardizedApproachNPR,andAdvancedApproachesNPRinthisfinalrule,withcertainchangestotheproposals,asdescribedfurtherbelow. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

28. P age |28 Thisfinalruleappliestoallbankingorganizationscurrentlysubjecttominimum capitalrequirements,includingnationalbanks,statememberbanks,statenonmemberbanks,stateandFederalsavingsassociations,top-tierbankholdingcompanies(BHCs)thataredomiciledintheUnitedStatesandarenotsubjecttotheBoard’sSmallBankHoldingCompanyPolicyStatement,and top-tierSLHCsthataredomiciled intheUnitedStatesandthatdonotengagesubstantiallyin insuranceunderwritingorcommercialactivities,asdiscussedfurtherbelow(together,bankingorganizations). Generally,BHCswith totalconsolidatedassetsoflessthan$500million(smallBHCs)remainsubject totheBoard’sSmallBankHoldingCompanyPolicy Statement. Certain aspectsofthisfinalruleapplyonly to bankingorganizationssubjecttotheadvancedapproachesrule(advancedapproachesbankingorganizations)ortobankingorganizationswithsignificanttradingactivities,asfurtherdescribedbelow. Likewise,theenhanceddisclosurerequirementsinthefinalruleapplyonly tobankingorganizationswith$50billionormorein totalconsolidatedassets. Consistentwithsection171oftheDodd-FrankAct,aBHCsubsidiaryofaforeignbankingorganizationthatiscurrentlyrelyingontheBoard’sSupervisionandRegulationLetter(SR)01–1isnotrequiredtocomplywiththerequirementsofthefinalruleuntilJuly21,2015. Thereafter,alltop-tierU.S.-domiciledBHCsubsidiariesofforeignbankingorganizationswillberequiredtocomplywiththefinalrule,subjecttoapplicabletransitionarrangementssetforthinsubpartGoftherule. Thefinalrulereorganizestheagencies’regulatory capitalrules intoaharmonized,codifiedregulatory capitalframework. Asundertheproposal,theminimumcapitalrequirementsinsection10(a)ofthefinalrule,asdeterminedusingthestandardized capitalratiocalculationsinsection10(b),whichapply to allbankingorganizations, InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

29. P age |29 establishthe‘‘generallyapplicable’’capitalrequirementsundersection171oftheDodd-FrankAct. Underthefinalrule,asundertheproposal, in ordertodetermineitsminimumrisk-basedcapitalrequirements,anadvancedapproachesbankingorganizationthathascompletedtheparallelrunprocessandthathasreceivednotificationfromitsprimaryFederalsupervisorpursuanttosection121(d)ofsubpartEmust determineitsminimumrisk-basedcapitalrequirementsbycalculatingthethreerisk-basedcapitalratiosusingtotalrisk-weightedassetsunderthestandardizedapproachand,separately,totalrisk-weightedassetsundertheadvancedapproaches. Thelowerratioforeachrisk-basedcapitalrequirementis theratiothebankingorganizationmustusetodetermineitscompliancewiththeminimum capitalrequirement. Theseenhancedprudentialstandardshelpensurethatadvancedapproachesbankingorganizations,whichare amongthelargestandmostcomplexbankingorganizations,have capitaladequatetoaddresstheirmorecomplexoperationsandrisks. DefinitionofCapital CommonEquityTier1Capital Undertheproposedrule,commonequitytier1capitalwasdefinedasthesumofabankingorganization’soutstandingcommonequitytier1capitalinstrumentsthatsatisfythecriteriasetforthinsection20(b)oftheproposal,relatedsurplus(netoftreasurystock),retainedearnings,AOCI,andcommonequitytier1minorityinterestsubject tocertainlimitations,minusregulatoryadjustmentsanddeductions. Theproposedrulesetforthalistofcriteriathataninstrumentwouldberequiredtomeettobeincludedin commonequitytier1capital. Theproposedcriteriaweredesignedtoensurethatcommonequitytier1capitalinstrumentsdonotpossessfeaturesthatwouldcauseabankingorganization’sconditionto furtherweakenduringperiodsofeconomicandmarketstress. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

30. P age |30 In theproposals,theagenciesindicatedthattheybelievemostexistingcommonstock instrumentsissuedbyU.S.bankingorganizationsalreadywouldsatisfytheproposedcriteria. Theproposedcriteriaalsoappliedtoinstrumentsissuedbybankingorganizationssuchasmutualbankingorganizationswhereownershipoftheorganizationisnotfreelytransferableorevidencedbycertificatesofownershiporstock. Fortheseentities,theproposalprovidedthatinstrumentsissuedbysuchorganizationswouldbeconsideredcommonequitytier1capitaliftheyarefullyequivalenttocommonstock instrumentsintermsoftheirsubordinationandavailabilitytoabsorblosses,anddonotpossessfeaturesthatcouldcausetheconditionoftheorganizationtoweakenasagoingconcernduringperiodsofmarketstress. Theagenciesnotedintheproposalthatstockholders’votingrightsgenerallyareavaluablecorporategovernancetoolthatpermitspartieswithaneconomicinterest toparticipateinthedecision-makingprocessthroughvotesonestablishingcorporateobjectivesandpolicy,andinelectingthebankingorganization’sboardofdirectors. Therefore,theagenciesbelievethatvotingcommonstockholders'equity(netoftheadjustmentstoanddeductionsfromcommonequitytier1capitalproposedundertherule)shouldbethedominantelementwithincommonequitytier1capital. Theproposalalsoprovidedthattotheextentthatabankingorganizationissuesnon-votingcommonstockorcommonstockwithlimitedvotingrights,theunderlyingstock mustbeidenticaltothoseunderlyingthebankingorganization’svotingcommonstock inallrespectsexceptforanylimitationsonvotingrights. Toensurethatabankingorganization’scommonequitytier1capitalwouldbeavailabletoabsorblossesastheyoccur,theproposedrulewould haverequiredcommonequitytier1capitalinstrumentsissuedbyabankingorganization tosatisfy thefollowingcriteria: InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

31. P age |31 Theinstrumentispaid-in,issueddirectlybythebankingorganization,andrepresentsthemostsubordinatedclaiminareceivership,insolvency,liquidation,orsimilarproceedingofthebankingorganization. Theholderoftheinstrumentisentitledtoaclaimontheresidualassetsofthebankingorganizationthatisproportionalwiththeholder’sshareofthebankingorganization’sissuedcapitalafterallseniorclaimshavebeensatisfiedinareceivership,insolvency,liquidation,orsimilarproceeding. Thatis,theholderhasanunlimitedandvariableclaim,notafixedorcappedclaim. Theinstrumenthasnomaturitydate,canonlyberedeemedviadiscretionaryrepurchaseswiththepriorapprovalofthebankingorganization’sprimaryFederalsupervisor,anddoesnotcontainanytermorfeaturethatcreatesanincentivetoredeem. Thebankingorganizationdidnotcreateatissuanceoftheinstrument,throughany actionorcommunication,anexpectationthatitwillbuyback,cancel,orredeemtheinstrument,andtheinstrumentdoesnotincludeanytermorfeaturethatmightgiverisetosuchanexpectation. Anycashdividendpaymentsontheinstrumentarepaidoutofthebankingorganization’snetincomeandretainedearningsandarenotsubjecttoalimitimposedbythecontractualtermsgoverningtheinstrument. Thebankingorganizationhasfulldiscretionatalltimestorefrainfrompayinganydividendsandmakinganyothercapitaldistributionsontheinstrumentwithouttriggeringaneventofdefault,arequirementtomakeapayment-in-kind,oranimpositionofany otherrestrictionsonthebankingorganization. Dividendpaymentsandanyothercapitaldistributionsontheinstrumentmaybepaidonlyafteralllegalandcontractualobligationsofthebankingorganizationhavebeensatisfied,includingpaymentsdueonmoreseniorclaims. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

32. P age |32 Theholdersoftheinstrumentbearlossesastheyoccurequally,proportionately,andsimultaneouslywiththeholdersofallothercommonstockinstrumentsbeforeanylossesarebornebyholdersofclaimsonthebankingorganizationwithgreaterpriorityin areceivership,insolvency,liquidation,orsimilarproceeding. Thepaid-inamountisclassifiedasequityunderGAAP. Thebankingorganization,oranentitythatthebankingorganizationcontrols,didnotpurchaseordirectlyorindirectlyfundthepurchaseoftheinstrument. Theinstrumentisnotsecured,notcoveredbyaguaranteeofthebankingorganizationorofanaffiliateofthebankingorganization,andisnotsubjecttoany otherarrangementthatlegallyoreconomicallyenhancestheseniorityoftheinstrument. Theinstrumenthasbeenissuedinaccordancewithapplicablelawsandregulations. In mostcases,theagenciesunderstandthattheissuanceoftheseinstrumentswouldrequiretheapprovaloftheboardofdirectorsofthebankingorganizationor, whereapplicable,ofthebankingorganization’sshareholdersorofotherpersonsdulyauthorizedbythebankingorganization’sshareholders. The instrumentisreportedonthebankingorganization’sregulatoryfinancialstatementsseparatelyfromothercapitalinstruments. Theagenciesrequestedcommentontheproposedcriteriaforinclusionincommonequitytier1,andspecificallyonwhetheranyofthecriteriawouldbeproblematic,giventhemaincharacteristicsofexistingoutstandingcommonstock instruments. AdditionalTier1Capital ConsistentwithBaselIII,theagenciesproposedthatadditionaltier1capital wouldequalthesumof:additionaltier1capitalinstrumentsthatsatisfythecriteriasetforthinsection20(c)oftheproposal,related InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

33. P age |33 surplus,andanytier1minorityinterestthatisnotincludedinabankingorganization’scommonequitytier1capital(subject totheproposedlimitationsonminorityinterest),lessapplicableregulatoryadjustmentsanddeductions. Theagenciesproposedthefollowingcriteriaforadditionaltier1capitalinstrumentsinsection20(c): Theinstrumentisissuedandpaid-in. Theinstrumentissubordinatedtodepositors,generalcreditors,andsubordinateddebtholdersofthebankingorganizationinareceivership,insolvency,liquidation,orsimilarproceeding. Theinstrumentisnotsecured,notcoveredbyaguaranteeofthebankingorganizationorofanaffiliateofthebankingorganization,andnotsubject toany otherarrangementthatlegallyoreconomicallyenhancestheseniorityoftheinstrument. Theinstrumenthasnomaturitydateanddoesnotcontainadividendstep-uporany othertermorfeaturethatcreatesanincentive to redeem. Ifcallablebyitsterms,theinstrumentmaybecalledbythebankingorganizationonlyaftera minimumoffiveyearsfollowingissuance,exceptthatthetermsoftheinstrumentmayallow ittobe calledearlierthanfiveyearsupontheoccurrenceofaregulatoryevent(asdefinedintheagreementgoverningtheinstrument)thatprecludestheinstrumentfrombeing included in additionaltier1capitalorataxevent. In addition: ThebankingorganizationmustreceivepriorapprovalfromitsprimaryFederalsupervisortoexerciseacalloptionontheinstrument. Thebankingorganizationdoesnotcreateatissuanceoftheinstrument,throughanyactionorcommunication,anexpectationthatthecalloptionwillbeexercised. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

34. P age |34 Priortoexercisingthecalloption,orimmediatelythereafter,thebankingorganizationmusteither: Replacetheinstrumenttobecalledwithanequalamountofinstrumentsthatmeetthecriteriaundersection20(b)or(c)oftheproposedrule(replacement canbeconcurrentwithredemptionofexistingadditionaltier1capital instruments);or DemonstratetothesatisfactionofitsprimaryFederalsupervisorthatfollowingredemption,thebankingorganizationwillcontinue to holdcapitalcommensuratewithitsrisk. Redemptionorrepurchaseoftheinstrumentrequirespriorapprovalfromthebankingorganization’sprimaryFederalsupervisor. Thebankingorganizationhasfulldiscretionatalltimestocanceldividendsorothercapitaldistributionsontheinstrumentwithout triggeringaneventofdefault,arequirement tomakeapayment-in-kind,oranimpositionofotherrestrictionsonthebankingorganizationexceptinrelationtoanycapitaldistributions toholdersofcommonstock. Anycapital distributionsontheinstrumentarepaidoutofthebankingorganization’snetincomeandretainedearnings. Theinstrumentdoesnothaveacredit-sensitivefeature,suchasadividendratethatisresetperiodicallybasedinwholeorinpartonthebankingorganization’screditquality,butmayhaveadividendratethatisadjustedperiodicallyindependentofthebankingorganization’screditquality,inrelationtogeneralmarketinterestratesorsimilaradjustments. Thepaid-inamountis classifiedasequityunderGAAP. Thebankingorganization,oranentitythatthebankingorganizationcontrols,didnotpurchaseordirectlyorindirectlyfundthepurchaseoftheinstrument. Theinstrumentdoesnothaveanyfeaturesthatwouldlimitordiscourageadditionalissuanceofcapitalbythebankingorganization,suchasprovisionsthatrequirethebankingorganizationtocompensateholders InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

35. P age |35 oftheinstrumentifanewinstrumentisissuedatalowerpriceduringaspecifiedtimeframe. Iftheinstrumentisnotissueddirectlybythebankingorganizationorbyasubsidiaryofthebankingorganizationthatisanoperatingentity,theonlyassetoftheissuingentityisitsinvestmentinthe capitalofthebankingorganization,andproceedsmustbeimmediatelyavailablewithoutlimitation tothebankingorganizationorto thebankingorganization’s top-tierholdingcompanyinaformwhichmeetsorexceedsalloftheothercriteriaforadditionaltier1 capitalinstruments. Foranadvancedapproachesbankingorganization,thegoverningagreement,offeringcircular,orprospectusofaninstrumentissuedafterJanuary1,2013,mustdisclosethattheholdersoftheinstrumentmaybefullysubordinatedtointerestsheldbytheU.Sgovernmentintheevent thatthebankingorganizationentersintoareceivership, insolvency,liquidation,orsimilarproceeding. Theproposedcriteriaweredesignedtoensurethatadditionaltier1capitalinstrumentswouldbeavailableto absorblossesona going-concernbasis. TruPSandcumulativeperpetualpreferredsecurities,whichareeligibleforlimitedinclusionin tier1capitalunderthegeneralrisk-basedcapitalrulesforbankholdingcompanies,generallywouldnotqualifyforinclusionin additionaltier1capital. Asexplainedintheproposal,theagenciesbelievethatinstrumentsthatallow fortheaccumulationofinterestpayable,likecumulativepreferredsecurities,arenotlikelytoabsorblossestothedegreeappropriateforinclusionintier1capital.In addition,theexclusionoftheseinstrumentsfromthetier1capitalofdepositoryinstitutionholdingcompanieswould beconsistentwithsection171oftheDodd-FrankAct. TheagenciesnotedintheproposalthatunderBaselIII,instrumentsclassifiedasliabilitiesforaccountingpurposescouldpotentiallybeincludedin additionaltier1capital. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

36. P age |36 However,theagenciesproposedthataninstrumentclassifiedasaliabilityunderGAAP couldnotqualifyasadditionaltier1capital,reflectingtheagencies’viewthatallowingonlyinstrumentsclassifiedasequityunderGAAPintier1capital helpsstrengthentheloss-absorptioncapabilitiesofadditionaltier1capitalinstruments,therebyincreasingthequalityofthe capitalbaseofU.S.bankingorganizations. Tier2Capital ConsistentwithBaselIII,undertheproposedrule,tier2 capital wouldequalthesumof:tier2 capitalinstrumentsthatsatisfythecriteriasetforthinsection20(d)oftheproposal,relatedsurplus,totalcapitalminorityinterestnotincludedin abankingorganization’stier1capital(subject tocertainlimitationsandrequirements),andlimitedamountsoftheallowanceforloan andleaselosses(ALLL)lessanyapplicableregulatoryadjustmentsanddeductions. Consistentwiththegeneralrisk-basedcapitalrules,whencalculatingitstotalcapitalratiousingthestandardizedapproach,abankingorganizationwouldbepermittedtoincludeintier2capitaltheamountofALLLthatdoesnotexceed1.25percentofitsstandardizedtotal risk-weightedassetswhichwouldnotincludeanyamountoftheALLL. Abankingorganizationsubjecttothemarketriskrulewouldexcludeitsstandardizedmarketrisk-weightedassetsfromthe calculation. In contrast, when calculatingitstotalcapitalratiousingtheadvancedapproaches,abankingorganizationwouldbepermittedtoincludeintier2 capitaltheexcessofitseligiblecreditreservesoverits totalexpectedcreditloss,providedtheamountdoesnotexceed0.6percentofitscreditrisk-weightedassets. ConsistentwithBaselIII,theagenciesproposedthefollowingcriteriafortier2capitalinstruments: Theinstrumentisissuedandpaid-in. Theinstrumentissubordinatedtodepositorsandgeneralcreditorsofthebankingorganization. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

37. P age |37 Theinstrumentisnotsecured,notcoveredbyaguaranteeofthebankingorganizationorofanaffiliateofthebankingorganization,andnotsubject toany otherarrangementthatlegallyoreconomicallyenhancestheseniorityoftheinstrumentinrelationtomoreseniorclaims. Theinstrumenthasaminimumoriginalmaturityofatleastfiveyears. Atthebeginningofeachofthelastfiveyearsofthelifeoftheinstrument,theamountthatiseligibletobeincludedintier2capitalisreducedby20percentoftheoriginalamountoftheinstrument(netofredemptions)andisexcludedfromregulatorycapitalwhenremainingmaturityislessthanoneyear. In addition,theinstrumentmust nothaveanytermsorfeaturesthatrequire,orcreatesignificantincentivesfor,thebankingorganization toredeemtheinstrumentpriortomaturity. Theinstrument,byitsterms,maybecalledby thebankingorganizationonlyafteraminimumoffiveyearsfollowingissuance,exceptthatthetermsoftheinstrumentmayallow it to becalledsoonerupontheoccurrenceofaneventthatwouldprecludetheinstrumentfrombeingincludedintier2capital,orataxevent. In addition: ThebankingorganizationmustreceivethepriorapprovalofitsprimaryFederalsupervisortoexerciseacalloptionontheinstrument. Thebankingorganizationdoesnotcreateatissuance,through actionorcommunication,anexpectationthecalloptionwillbeexercised. Priortoexercisingthecalloption,orimmediatelythereafter,thebankingorganizationmusteither: Replaceany amountcalledwithanequivalentamountofaninstrument thatmeetsthecriteriaforregulatorycapitalundersection20oftheproposedrule; InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

38. P age |38 Demonstratetothesatisfactionofthebankingorganization’sprimaryFederalsupervisorthatfollowingredemption,thebankingorganizationwouldcontinue toholdanamountofcapitalthatiscommensuratewithitsrisk. Theholderoftheinstrumentmusthavenocontractualrighttoacceleratepaymentofprincipalorinterestontheinstrument,exceptintheeventofa receivership,insolvency,liquidation,orsimilarproceedingofthebankingorganization. Theinstrumenthasnocredit-sensitivefeature,suchasadividendorinterestratethatisresetperiodicallybasedinwholeorinpartonthebankingorganization’screditstanding,butmayhaveadividendratethatisadjustedperiodically independentofthebankingorganization’screditstanding, in relationtogeneralmarketinterestratesorsimilaradjustments. Thebankingorganization,oranentitythatthebankingorganizationcontrols,hasnotpurchasedandhasnotdirectlyorindirectlyfundedthepurchaseoftheinstrument. Iftheinstrumentisnotissueddirectlybythebankingorganizationorbyasubsidiaryofthebankingorganizationthatisanoperatingentity,theonlyassetoftheissuingentityisitsinvestmentinthe capitalofthebankingorganization,andproceedsmustbeimmediatelyavailablewithoutlimitation tothebankingorganizationorthebankingorganization’s top-tierholdingcompanyinaformthatmeetsorexceedsallthe othercriteriafortier2capitalinstrumentsunderthissection. Redemptionoftheinstrumentpriortomaturityorrepurchaserequiresthepriorapprovalofthebankingorganization’sprimaryFederalsupervisor. Foranadvancedapproachesbankingorganization,thegoverningagreement,offeringcircular,orprospectusofaninstrumentissuedafterJanuary1,2013,mustdisclosethattheholdersoftheinstrumentmaybefullysubordinatedtointerestsheldbytheU.S.governmentintheevent thatthebankingorganizationentersintoareceivership, insolvency,liquidation,orsimilarproceeding. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

39. P age |39 TheagenciesalsoproposedtoeliminatetheinclusionofaportionofcertainunrealizedgainsonAFSequitysecuritiesintier2capitalgiventhatunrealizedgainsandlossesonAFSsecuritieswouldflowthroughtocommonequitytier1capitalundertheproposedrules. Asaresultoftheproposednewminimumcommonequitytier1capitalrequirement,highertier1capitalrequirement,andthebroadergoalofsimplifyingthedefinitionoftier2capital,theproposaleliminatedtheexistinglimitationsontheamountoftier2 capitalthatcouldberecognizedintotalcapital,aswellastheexistinglimitationsontheamountofcertain capitalinstruments(thatis,termsubordinateddebt)thatcouldbeincludedin tier2capital. AddressingthePointofNon-ViabilityRequirementsunderBaselIII Duringtherecentfinancialcrisis,theUnitedStatesandforeigngovernmentslentto,andmadecapital investmentsin,bankingorganizations. Theseinvestmentshelpedtostabilizetherecipientbankingorganizationsandthefinancialsectorasawhole. However,becauseoftheinvestments,therecipient bankingorganizations’existingtier2capitalinstruments,and(insomecases)tier1capitalinstruments,didnotabsorbthebankingorganizations’creditlossesconsistentwiththepurposeofregulatorycapital. Atthesametime,taxpayersbecameexposedtopotentiallosses. OnJanuary13,2011,theBCBSissuedinternationalstandardsforalladditionaltier1andtier2capitalinstrumentsissuedbyinternationally-activebankingorganizationstoensurethatsuchregulatorycapital instrumentsfully absorblossesbeforetaxpayersareexposed tosuchlosses (theBaselnon-viabilitystandard). UndertheBaselnon-viabilitystandard,allnon-commonstockregulatorycapitalinstrumentsissuedbyaninternationally-activebanking InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

40. P age |40 organizationmustincludetermsthatsubjecttheinstruments to write-offorconversiontocommonequityatthepointatwhicheither: thewrite-offorconversionofthoseinstrumentsoccurs;or apublicsector injectionofcapital wouldbenecessarytokeepthebankingorganizationsolvent. Alternatively,ifthegoverningjurisdictionofthebankingorganization hasestablishedlawsthatrequiresuchtier1andtier2capitalinstrumentstobewrittenofforotherwisefully absorblossesbeforetaxpayersareexposed to loss,thestandardisalreadymet. Ifthegoverningjurisdictionhassuchlawsinplace,theBasel non-viabilitystandardstatesthatdocumentationforsuchinstrumentsshoulddisclosethatinformationtoinvestorsandmarketparticipants,andshouldclarifythattheholdersofsuchinstrumentswouldfully absorblossesbeforetaxpayersareexposedtoloss. U.S.lawisconsistentwiththeBaselnon-viabilitystandard.TheresolutionregimeestablishedinTitleII,section210ofthe Dodd-FrankActprovidestheFDICwiththeauthoritynecessarytoplace failingfinancialcompaniesthatposeasignificantrisktothefinancialstabilityoftheUnitedStatesintoreceivership. TheDodd-FrankActprovidesthatthisauthorityshallbeexercisedin amannerthatminimizessystemicrisk andmoralhazard,sothat creditorsandshareholderswillbearthelossesofthefinancialcompany; managementresponsiblefortheconditionofthefinancialcompanywillnotberetained;and theFDICandotherappropriateagencieswilltakestepsnecessaryandappropriate toensurethatallparties,including holdersofcapitalinstruments,management,directors,andthirdpartieshaving InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

41. P age |41 responsibilityfortheconditionofthefinancialcompany,bearlossesconsistentwiththeirrespective ownershiporresponsibility. Section11oftheFederalDepositInsuranceActhassimilarprovisionsfortheresolutionofdepositoryinstitutions. Additionally,underU.S.bankruptcylaw,regulatorycapitalinstrumentsissuedbyacompanywould absorblossesin bankruptcybeforeinstrumentsheldbymoreseniorunsecuredcreditors. ConsistentwiththeBaselnon-viabilitystandard,undertheproposal,additionaltier1andtier2capitalinstrumentsissuedbyadvancedapproachesbankingorganizationsafterthedateonwhichsuchorganizationswouldhavebeenrequiredtocomplywithanyfinalrulewouldhavebeenrequired to includeadisclosurethattheholdersoftheinstrumentmaybefullysubordinated tointerestsheldby theU.S.governmentintheeventthatthebankingorganizationentersintoa receivership,insolvency,liquidation,orsimilarproceeding. Theagenciesareadoptingthisprovisionoftheproposedrulewithoutchange. RegulatoryDeductionsfromCommonEquityTier1Capital Undertheproposal,abankingorganizationmustdeductfromcommonequitytier1capitalelementstheitemsdescribedinsection22oftheproposedrule. Abankingorganizationwouldexcludetheamountofthesedeductionsfromitstotalrisk-weightedassetsandleverageexposure. ThissectionBdiscussesthedeductionsfromregulatorycapitalelementsasrevisedforpurposesofthefinalrule. GoodwillandOtherIntangibles(otherthanMortgageServicingAssets) U.S.federalbankingstatutesgenerallyprohibittheinclusionofgoodwill(asitisan“unidentifiedintangibleasset”)in theregulatorycapitalofinsureddepositoryinstitutions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

42. P age |42 Accordingly,goodwillandother intangibleassetshavelongbeeneitherfullyorpartiallyexcludedfromregulatory capital intheUnitedStatesbecauseofthehighlevelofuncertaintyregardingtheabilityofthebankingorganization to realizevaluefromtheseassets,especiallyunderadversefinancialconditions. Undertheproposedrule,abankingorganizationwasrequired todeductfromcommonequitytier1capitalelementsgoodwillandother intangibleassets otherthanMSAsnetofassociateddeferredtaxliabilities(DTLs). Forpurposesofthisdeduction,goodwillwouldhaveincludedanygoodwillembeddedinthevaluationofsignificantinvestmentsin thecapitalofanunconsolidatedfinancialinstitutionintheformofcommon stock.Thisdeductionofembeddedgoodwillwouldhaveappliedtoinvestmentsaccountedforundertheequitymethod. ConsistentwithBaselIII,theseitemswouldhavebeendeductedfromcommonequitytier1capitalelements. MSAswouldhavebeensubjecttoadifferenttreatmentunderBaselIIIandtheproposal,asexplainedbelowinthissection. Onecommentersoughtclarificationregardingtheamountofgoodwillthatmustbedeductedfromcommonequitytier1capitalelementswhenabankingorganizationhas aninvestmentinthe capitalofanunconsolidatedfinancialinstitutionthatisaccountedforundertheequitymethodofaccountingunderGAAP. Theagencieshaverevisedsection22(a)(1)inthefinalruletoclarifythatitisthe amountofgoodwillthatisembeddedinthevaluationofasignificantinvestmentinthe capitalofanunconsolidatedfinancialinstitutionintheformofcommonstockthatis accountedforundertheequitymethod,andreflectedintheconsolidatedfinancialstatementsofthebankingorganizationthatabankingorganizationmustdeductfromcommonequitytier1capitalelements. Anothercommenterrequestedclarificationregardingtheamountofembeddedgoodwillthatabankingorganizationwouldberequiredto InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

43. P age |43 deductwherethereareimpairments totheembeddedgoodwillsubsequent totheinitialinvestment. Theagenciesnotethat,forpurposesofthefinalrule,abankingorganizationmustdeductfromcommonequitytier1capitalelementsanyembeddedgoodwillinthevaluationofsignificantinvestmentsin thecapitalofanunconsolidatedfinancialinstitutionintheformofcommon stocknetofanyrelatedimpairments(subsequent totheinitialinvestment)asdeterminedunderGAAP,notthegoodwillreportedonthebalancesheetoftheunconsolidatedfinancialinstitution. Theproposaldidnotincludeatransitionperiodfortheimplementation oftherequirementtodeductgoodwillfromcommonequitytier1capital. Anumberofcommentersexpressedconcernthatthiscoulddisadvantage U.S.bankingorganizationsrelative to thosein jurisdictionsthatpermitsuchatransitionperiod. Theagenciesnotethatsection221ofFIRREA(12U.S.C.1828(n))requiresallunidentifiableintangibleassets(goodwill)acquiredafterApril12,1989,to bedeductedfromabankingorganization’s capitalelements. Theonlyexceptiontothisrequirement,permittedunder12U.S.C.1464(t)(applicable to Federalsavingsassociation), has expired. Therefore,consistentwiththerequirementsofsection221ofFIRREA andthegeneralrisk-based capitalrules,theagenciesbelievethatitisnotappropriate topermitanygoodwillto beincludedin abankingorganization’s capital. Thefinalruledoesnotincludeatransitionperiodforthedeductionofgoodwill. Gain-on-saleAssociatedwithaSecuritizationExposure Undertheproposal,abankingorganizationwoulddeductfromcommonequitytier1capitalelementsanyafter-taxgain-on-saleassociatedwithasecuritizationexposure. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

44. P age |44 Undertheproposal,gain-on-salewasdefinedasanincreaseintheequitycapitalofabankingorganizationresultingfromasecuritization(otherthananincreaseinequity capitalresultingfromthebankingorganization’sreceiptofcashinconnectionwiththesecuritization). Anumberofcommentersrequestedclarificationthattheproposed deductionforgain-on-salewouldnotrequireadoubledeductionforMSAs. Accordingto thecommenters,asaleofloanstoasecuritizationstructurethatcreatesagainmayincludeanMSAthatalsomeetstheproposeddefinitionof“gain-on-sale.” TheagenciesagreethatadoubledeductionforMSAsisnotrequired,andthefinalruleclarifiesin thedefinitionof“gain-on-sale”thata gain-on-saleexcludesanyportionofthegainthatwasreportedby thebankingorganizationasanMSA. Theagenciesalsonotethatthedefinitionofgain-on-salewasintendedtorelateonlytogainsassociatedwiththesaleofloansforthepurposeoftraditionalsecuritization. Thus,thedefinitionofgain-on-salehasbeenrevisedinthefinalrule tomeananincreaseincommonequitytier1capitalofthebankingorganizationresultingfromatraditionalsecuritizationexceptwheresuchan increaseresultsfromthebankingorganization’sreceipt ofcashinconnectionwiththesecuritizationorinitialrecognitionofanMSA. DefinedBenefitPensionFundNetAssets Forbankingorganizations otherthaninsureddepositoryinstitutions,theproposalrequiredthedeductionofanetpensionfundassetincalculatingcommonequitytier1capital. AbankingorganizationwaspermittedtomakesuchdeductionnetofanyassociatedDTLs. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

45. P age |45 Thisdeductionwouldberequiredwhereadefinedbenefitpensionfundisover-fundeddue tothehighlevelofuncertaintyregardingtheabilityofthebankingorganization to realizevaluefromsuchassets. TheproposaldidnotrequireaBHCorSLHCtodeductthenetpensionfundassetofitsinsureddepositoryinstitutionsubsidiary. Theproposalprovidedthat,withsupervisoryapproval,abankingorganizationwouldnothavebeenrequiredtodeductdefined benefitpensionfundassetstowhichthebankingorganizationhadunrestrictedandunfetteredaccess. In thiscase,theproposalestablishedthatthebankingorganizationwouldhaveassignedto suchassetstherisk weighttheywouldreceiveiftheassetsunderlyingtheplanweredirectly ownedandincludedonthebalancesheetofthebankingorganization. Theproposalsetforththatunrestrictedandunfetteredaccesswouldmeanthatabankingorganizationwouldnothavebeenrequiredtorequestandreceivespecificapprovalfrompensionbeneficiarieseachtimeit accessedexcessfundsintheplan. Onecommenteraskedwhethersharesofabankingorganizationthatareownedbythebankingorganization’spensionfundaresubjecttodeduction. Theagenciesnotethatthefinalruledoesnotrequiredeductionof bankingorganizationshares ownedbythepensionfund. AnothercommenteraskedforclarificationregardingthetreatmentofanoverfundedpensionassetataninsureddepositoryinstitutionifthepensionplansponsoristheparentBHC. Theagenciesclarifythattherequirementto deductadefinedbenefitpensionplannetassetisnotdependentuponthesponsoroftheplan;ratheritisdependentuponwhetherthenetpensionfundassetisanassetofaninsureddepositoryinstitution. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

46. P age |46 Theagenciesalsoreceivedquestionsregardingtheappropriaterisk-weighttreatmentforapensionfundasset. Asdiscussedabove,withtheprioragencyapproval,abankingorganizationthatisnotaninsureddepositoryinstitutionmayelecttonotdeductanydefinedbenefitpensionfundnetasset to theextentsuch bankingorganizationhasunrestrictedandunfetteredaccesstotheassetsinthatdefinedbenefitpensionfund. Anyportionofthedefinedbenefitpensionfundnetassetthatisnotdeductedbythebankingorganizationmustberisk-weightedasifthebankingorganizationdirectlyholdsaproportionalownershipshareofeachexposureinthedefinedbenefitpensionfund. Forexample,ifthebankingorganizationhas adefinedbenefitpensionfundnetassetof$10andithasunfetteredandunrestrictedaccess to theassetsofdefinedbenefitpensionfund,andassuming20percentofthedefinedbenefitpensionfundiscomposedofassetsthatarerisk-weightedat100percentand80percentiscomposedofassetsthatarerisk-weightedat300percent,thebankingorganizationwouldrisk weight$2at100percentand$8at300percent. Thistreatmentisconsistentwiththefulllook-throughapproachdescribedinsection53(b)ofthefinalrule. Ifthedefinedbenefitpensionfundinvestsin thecapitalofafinancialinstitution,includingan investment in thebankingorganization’s owncapitalinstruments,thebankingorganizationwouldrisk weighttheproportionalshareofsuchexposureinaccordancewiththetreatmentundersubpartsDorE,asappropriate. Theagenciesareadoptingasfinalthissectionoftheproposalwiththechangesdescribedabove. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

47. P age |47 EBAlaunchesnewSingleRulebookQ&Atool TheEuropeanBankingAuthority(EBA)launchesanewonline"SingleRulebookQ&A"toolwhichwillallow institutions,supervisorsandotherstakeholders tosubmittheirquestionsontheCRDIVpackage,on therelatedTechnicalStandardsdevelopedbytheEBAandadoptedbytheEuropeanCommission(RTSandITS),aswellasontheEBAGuidelines. ThepurposeofthisQ&AtoolistoensureconsistentandeffectiveapplicationofthenewregulatoryframeworkacrosstheSingleMarketandtocontributetothebuildingoftheSingleRulebookinbanking. TheunderlyingprocessentailscloseandongoinginteractionbetweentheEBAandtheEuropean Commissiontoensurethattheresponses tothequestionssubmittedremainfullyconsistentwiththeEuropeanlegislativetexts. Institutions,supervisorsandallstakeholders cansubmitanyrelevantquestionsusingtheformavailableonthe"SingleRulebookQ&A"page. Institutions,supervisorsand otherstakeholders canusetheSingleRulebookQ&AtoolforsubmittingquestionsonDirective2013/36/EU(theCapitalRequirementsDirectiveorCRD)andRegulation(EU)No575/2013(theCapitalRequirementsRegulationorCRR),ontherelatedTechnicalStandardsdevelopedbytheEBAandadoptedbytheEuropeanCommission(RTSandITS),aswellasontheEBAGuidelines. AllquestionsandrelatedEBAanswerscanberetrievedunderthe"searchforQ&As"tab. TheoverallobjectiveoftheQ&AtoolistoensureconsistentandeffectiveapplicationofthenewregulatoryframeworkacrosstheSingleMarket,andhencecontribute to thebuildingoftheSingleRulebookinbanking. TheprocessentailscloseandongoinginteractionbetweentheEBAandtheEuropeanCommissiontoensurethattheresponsestothequestionssubmittedremainfullyconsistentwiththeEuropeanlegislative texts. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

48. P age |48 Whydowe needaSingleRulebook? EuropeanbankinglegislationiscurrentlybasedonaDirectivewhichleavesroomforsignificantdivergencesinnationalrules. Thishascreatedaregulatorypatchwork,leadingto legaluncertainty,enabling institutionsto exploitregulatoryloopholes,distortingcompetition,andmakingitburdensomeforfirmsto operateacrosstheSingleMarket. Moreover,thefinancialcrisishasshownthatinintegratedfinancial markets,thesedivergences canhaveverydisruptiveeffects. Oncerisksgeneratedunderthecurtainofminimumharmonisationmaterialise,theimpactissurelynotcontainedwithinnationalboundariesbutspread acrosstheEUsinglemarket. Itis,therefore,crucialto useexactlythesamedefinitionofregulatoryaggregatesandthesamemethodologiesforthecalculationofkeyrequirements,suchas thecapitalratio. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

49. P age |49 • ASingleRulebookforamoreresilient,transparentandefficientbankingsector • ASingleRulebookbasedonaregulationwilladdresstheseshortcomingsandwilltherebyleadto amoreresilient,moretransparent,andmoreefficientEuropeanbankingsector: • AmoreresilientEuropeanbankingsector:ASingleRulebookwillensurethatprudentialsafeguardsare,whereverpossible,appliedacrosstheEUandnotlimited to individualMemberStatesas thecrisishighlightedtheextent towhichMemberStates'economiesareinterconnected. • AmoretransparentEuropeanbankingsector:ASingleRulebookwillensurethatinstitutions'financialsituationismoretransparentandcomparableacrosstheEUforsupervisors,deposit-holdersandinvestors. • ThefinancialcrisishasdemonstratedthattheopaquenessofregulatoryrequirementsindifferentMemberStateswasamajorcauseoffinancialinstability. • Lackoftransparencyisanobstacletoeffectivesupervisionbutalsotomarketandinvestorconfidence. • AmoreefficientEuropeanbankingsector:ASingleRulebookwillensurethatinstitutionsdonothavetocomplywith27differingsetsofrules. • SingleRulebookandflexibility • AlthoughaSingleRulebookisakeyforEurope,itistruethatthenewregulatoryframeworkhas tobeshapedinsuchaway to leaveacertain degreeofnationalflexibilityintheactivationofmacroprudentialtools,ascreditandeconomiccyclesarenotsynchronisedacrosstheEU. • Forthisreason,MemberStateswillretainsomepossibilitiesto requiretheir institutionstohold more capital. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

50. P age |50 Forexample,MemberStateswillretainthepossibility tosethighercapitalrequirementsforrealestatelending,therebybeingabletoaddressrealestatebubbles. Iftheydo,thiswillalsoapplytoinstitutionsfromotherMemberStatesthatdobusinessinthat MemberState. Moreover,eachMemberStateisresponsibleforadjustingthelevelofitscountercyclicalbuffertoitseconomicsituationandtoprotecteconomy/bankingsectorfromany otherstructuralvariablesandfromtheexposureofthebankingsectortoanyotherriskfactorsrelatedtorisksto financialstability. Furthermore,MemberStateswouldnaturallyretaincurrentpowersunder"pillar2",i.e.theabilitytoimposeadditionalrequirementsonaspecificbankfollowingthesupervisoryreviewprocess. EBA'sroleinbuildingoftheSingleRulebook TheEuropeanBankingAuthorityplaysakeyrolein buildingupoftheSingleRulebookinbanking. TheEBAismandatedtoproduceanumberofBindingTechnicalStandards(BTS)fortheimplementationoftheCRDIVpackage. BTSarelegalactswhichspecifyparticularaspectsofanEUlegislativetext(DirectiveorRegulation)andaimatensuringconsistentharmonisationinspecific areas. BTSarealwaysfinallyadoptedbytheEuropeanCommissionbymeansofregulationsordecisions. TheywillbelegallybindinganddirectlyapplicableinallMemberStates. Thismeansthat,onthedateoftheirentryintoforce,theybecomepartofthenationallawoftheMemberStatesandtheirimplementationintonationallawisnotonlyunnecessarybutalsoprohibited. Furthermore,theEBAiscoordinatingaSingleRulebookQ&Aprocess. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com