US Agencies (FDIC, FED, and OCC) issued an interim final rule to revise the capital rules to allow investments of the U.S. Treasury, under the Emergency Capital Investment Program (ECIP), to qualify as regulatory capital. A banking institution is generally eligible to receive capital investments from Treasury if it is a low- and moderate-income community financial institution, which is defined to include any financial institution that is a community development financial institution or minority depository institution and an insured depository institution, bank holding company, savings and loan holding company, or federally insured credit union (also known as eligible banking organizations). The revised rule specifies that the preferred stock issued under the ECIP would qualify as additional tier 1 capital and the subordinated debt issued under the ECIP would qualify as tier 2 capital under the capital rule. The rule will become effective on March 22, 2021 while comments will be accepted until May 21, 2021.
Nevertheless, the authority of the U.S. Treasury to make capital investments under ECIP is time limited. The Program will end six months after the date on which the national emergency concerning the COVID–19 outbreak terminates. On March 04, 2021, Treasury published the terms of the Senior Preferred Stock and Subordinated Debt. As described in the terms published by Treasury, Senior Preferred Stock issued under ECIP will be noncumulative, perpetual preferred stock that is senior to the issuer’s common stock and pari passu with (or, in some cases, senior to) the issuer’s most senior class of existing preferred stock. Subordinated Debt issued under ECIP will be unsecured subordinated debt that will rank junior to all other debt of the issuer, except to mutual capital certificates or similar instruments issued by a mutual banking organization and to any equity instruments issued by an S corporation. On March 04, 2021, Treasury also issued an interim final rule that established restrictions on executive compensation, capital distributions, and luxury expenditures for entities, under the ECIP.
Overall, the ECIP is intended to support the efforts of minority depository institutions and community development financial institutions to provide loans, grants, and forbearance to small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities, which may be disproportionately affected by COVID-19 pandemic. Under the program, the Treasury will purchase preferred stock or subordinated debt from qualifying minority depository institutions and community development financial institutions, with the corresponding dividend or interest rate based on the institution meeting lending targets. Through the interim final rule of the US Agencies, one of the issues the agencies seek comments on involves the regulatory capital treatment of the preferred stock and subordinated debt issued under ECIP.
Comment Due Date: May 21, 2021
Effective Date: March 22, 2021
Keywords: Americas, US, Banking, Regulatory Capital, ECIP, COVID-19, Basel, US Agencies
Previous ArticleSRB Sketches Path to Further Ensure Bank Resolvability
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.