The Office of the Comptroller of the Currency (OCC) along with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board (FRB), have approved a final rule revising regulatory capital rules applicable to national banks and federal savings associations. The rule, released for comment today, proposes doubling the leverage ratio standards for the largest interconnected U.S. banking organizations.
Under the proposed rule, bank holding companies with more than $700 billion in consolidated total assets or $10 trillion in assets under custody would be required to maintain a tier 1 capital leverage buffer of at least 2 percent above the minimum supplementary leverage ratio requirement of 3 percent, for a total of 5 percent. Failure to exceed the 5 percent ratio would subject covered bank holding companies (BHCs) to restrictions on discretionary bonus payments and capital distributions. In addition to the leverage buffer for covered BHCs, the proposed rule would require insured depository institutions of covered BHCs to meet a 6 percent supplementary leverage ratio to be considered "well capitalized" for prompt corrective action purposes. The proposed rule would currently apply to the eight largest, most systemically significant U.S. banking organizations.
Under the new capital rule, banking organizations with more than $50 billion in assets have enhanced disclosure requirements related to regulatory capital adequacy and risk management. Banking organizations subject to the advanced approaches capital rules also must meet a supplementary leverage ratio requirement that incorporates a broader set of exposures, a countercyclical capital buffer, and additional capital charges and standards for derivatives exposures.
The new rule, which if adopted would take effect on January 1, 2018, makes three key changes in the June 12, 2012 proposal to help reduce the burden on smaller banking organizations. First, the new capital rule does not change the current treatment of residential mortgage exposures, an important issue for many community banks.
Second, banking organizations that are not subject to the advanced approaches capital rules can opt not to incorporate most amounts reported as Accumulated Other Comprehensive Income (AOCI) in the calculation of their regulatory capital. This option is consistent with the treatment of AOCI under the current rules, and should help smaller banking organizations avoid volatility in their regulatory capital requirements.
Lastly, depository institution holding companies with assets under $15 billion and certain mutual holding companies regardless of size will be allowed to continue to count most Trust Preferred Securities issued prior to May 19, 2010 as Tier 1 capital rather than phasing them out of regulatory capital. This will provide greater consistency with the Dodd-Frank Act provisions that limit inclusion of such securities in regulatory capital.
"With the new capital rule, the federal banking agencies are taking an important step to strengthen the banking system and protect it from future financial crises," said Comptroller of the Currency Thomas J. Curry. "I'm pleased that the new capital rule not only improves the quantity and quality of capital, but does so in a way that minimizes the burden on community banks and federal savings associations."
The three agencies will accept comments on the notice of proposed rulemaking for 60 days following its publication in the Federal Register. To aid smaller, less complex institutions understand and implement the final rule, the OCC is publishing a quick reference pamphlet and a short guide for national banks and federal savings associations. The guides are available on the OCC website.
