In August, the Office of the Comptroller of the Currency proposed a rule that would eliminate the 20% risk weighting,for securities lending and repurchase agreement transactions --frequent among small banks in Texas and California -- as well as certain collateralized letters of credit. In effect, these transactions will require no capital under the proposed rule.

The OCC says these transactions have nil operating and credit risk and the rule would align national banks with foreign bank regulations.

The comment period ended Sept. 17, and here's a sample:

Many bankers who enter into collateralized transactions assume that there is no risk to the transactions simply because there is a representation that the underlying collaters eliminate transaction risk.

This is not the case. The bank risk in transactions which are collateralized is only reduced when, in fact, the bank has the capacity and demonstrated ability to identify, measure, and manage the risk.

Absent this demonstrated ability, we see no evidence which would support a reduction in the capital risk weight treatment of such transactions.

Malcom P. Northam


Securities Risk

Management Ltd.

Alexandria, Va.

In order to insure a continued role for U.S. banking in the development of trade with the Pacific Rim and the potential North American Free Trade Zone, the proposed revisions are critical to ensuring that U.S. banks can compete on an even playing field with their foreign competitors.

It is important to place U.S. institutions in a more favorable competitive position compared to foreign banks whose governments already allow them to place low-risk, collateralized transactions in the zero-risk-weight basket.

Christopher E. Chenowith

Senior vice president and

general counsel

California Bankers Association

San Francisco

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