July 09, 2019

US Agencies (FDIC, FED, and OCC) adopted a final rule that reduces regulatory burden by simplifying several requirements in the regulatory capital rules for banks. The simplifications in the final rule only apply to banking organizations that do not use the “advanced approaches” capital framework, which are generally firms with less than USD 250 billion in consolidated assets and less than USD 10 billion in total foreign exposure. For the amendments to simplify capital rules, the final rule will be effective as of April 01, 2020; for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments, the rule will be effective as of October 01, 2019.

The final rule is intended to simplify the capital treatment for certain acquisition, development, and construction loans; mortgage servicing assets; certain deferred tax assets; investments in the capital instruments of unconsolidated financial institutions; and minority interest. The final rule also would allow bank holding companies and savings and loan holding companies to redeem common stock without prior approval unless otherwise required. In addition, the final rule makes technical amendments to, and clarifies certain aspects of, the agencies’ capital rule for both non-advanced approaches banking organizations and advanced approaches banking organizations (technical amendments). Revisions to the definition of high-volatility commercial real estate (HVCRE) exposure in the agencies’ capital rule are being addressed in a separate rulemaking. The final rule:

  • Increases common equity tier 1 (CET1) capital threshold deductions from 10% to 25% for mortgage servicing assets, deferred tax assets arising from temporary differences (temporary difference DTAs), and non-significant and significant investments in the capital of unconsolidated financial institutions.
  • Removes the need to distinguish between non-significant and significant investments in the capital of unconsolidated financial institutions.
  • Removes the aggregate 15% CET1 threshold deduction for mortgage servicing assets, deferred tax assets, and significant investments in the capital of unconsolidated financial institutions.
  • Replaces the complicated methodology to determine the amount of minority interest "includable" in capital with a simple limit of 10% for minority interest includable in each tier of regulatory capital (not including the minority interest itself), less any deductions and adjustments.
  • Retains the 250% risk-weight applicable to non-deducted amounts of mortgage servicing assets and temporary difference deferred tax assets.
  • Requires a bank to apply the risk-weight applicable to the exposure category of the investment for any non-deducted amount of investments in the capital of unconsolidated financial institutions.
  • Removes the 250% risk-weight to be applied to non-deducted amounts of significant investments in the capital of unconsolidated financial institutions.

 

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Effective Date: April 01, 2020 (capital rules); October 1, 2019 (other amendments)

Keywords: Americas, US, Banking, CET 1, Technical Amendments, HVCRE, Regulatory Capital, Non-Advanced Approaches Organizations, EGRRCP Act, US Agencies

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