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TCH Submits Comment Letter on Capital Treatment for Fronting Commitments

The Clearing House (TCH) submitted a comment letter to the Fed, OCC and FDIC regarding the treatment of fronting commitment exposures for purposes of risk-based capital and leverage calculations.  In the letter, TCH proposed that a fronting bank should include only the exposure amount corresponding to its pro rata share of the fronting commitment as an off-balance-sheet exposure for both risk-based capital purposes and for its total leverage exposure in calculating its supplementary leverage ratio. The letter notes that such treatment is consistent with the Federal banking agencies’ capital rules as well as the reporting instructions for the consolidated regulatory financial statements for both bank holding companies and their depository institution subsidiaries.