Subject: File No. S7-08-12
From: Matthew Shaw

February 22, 2013

I have serious concerns with this rule due to the fact that it will allow large banks to continue to use internal risk models when setting their minimum capital requirements. Under this rule, the standard for allowing a bank to use internal models will be a bank's "trustworthiness." This is a completely arbitrary bar, and potentially a way for the SEC to influence the market (un/knowingly). Furthermore, it was the financial institutions that had the trust of the SEC that were the major culprits in the financial crisis! Bear Stearns, Lehman Brothers, Merrill Lynch, etc were all considered financially sound by the SEC (at least publicly) until days before their respective demises. The term "trust" appears to be one huge loophole for lack of oversight/transparency. Additionally, models (internal or SEC provided) tend to fail when market conditions are volatile and particularly during a crisis. If, and when, the model fails, the minimum capital requirement may fall far short of the liquid demands. In a crisis situation this would happen to numerous institutions, and could lead to a run on the banks. Furthermore, by tying capital requirements to assumed risk as per the model being used and not hard values, the SEC essentially isn't applying this rule to those "trusted" banks. who . Large financial institutions, who by the size of their balance sheets alone are exposed to significant risk, will be able lower their assumed risk through internal models. The burden of the capital needed to meet this requirement will lessen, and allow that institution to continue to accrue massive institutional risk. Smaller institutions, who need to invest every dollar wisely, face an unequal burden in meeting this requirement. Unlike large-institutions, who go head-to-head while policing themselves, smaller institutions would face a true minimum (those who do not qualify for the 8%+ category). However, this minimum is so high that it will prevent many from entering the market.