Unfunded Commitments And Letters Of Credit Under The New “Basel III” US Capital Rules
The US banking regulators have issued final Basel III-related capital rules. For advanced approaches banks (generally those owned by bank holding companies with $250 billion or more in total assets or $10 billion or more in foreign assets) the new rules affect the treatment of unfunded commitments and letters of credit under both (1) a new supplementary leverage ratio test that measures capital against on- and off-balance sheet assets and (2) a revised risk-based capital framework. Non advanced approaches banks will be affected by a new risk-based capital “standardized approach” that will replace the existing US “general risk-based capital rules” derived from the original 1988 Basel Accord (“Basel I”). As with existing capital rules, the new rules will apply to banks and to their holding companies on a consolidated basis.