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    US Agencies Revise Definition of Eligible Retained Income for Banks

    March 20, 2020

    In light of the recent disruptions in economic conditions caused by COVID-19, US Agencies (FDIC, FED, and OCC) announced two actions. The first one is in the form of a statement encouraging banks to use their resources to support households and businesses and this statement is accompanied by a questions and answers (Q&A) document. The second measure is a technical change to gradually phase in, as intended, the automatic distribution restrictions if the capital levels of a firm decline. The technical change is an interim final rule that revises the definition of eligible retained income for all depository institutions, bank holding companies, and savings and loan holding companies subject to the agencies' capital rule. This rule impacts the three FFIEC call reports and the FR Y-9 family of reporting forms. The interim final rule becomes effective on March 20, 2020 and comments on this rule must be received by May 04, 2020.

    The revised definition of eligible retained income will make any automatic limitations on capital distributions that could apply under the agencies' capital rules more gradual. The interim final rule revises the definition of eligible retained income to the greater of

    • A banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income
    • The average of a banking organization's net income over the preceding four quarters

    This definition will apply with respect to all of a banking organization's buffer requirements, including the fixed 2.5% capital conservation buffer, and, if applicable, the countercyclical capital buffer, the global systemically important bank holding companies (G-SIB) surcharge, and enhanced supplementary leverage ratio standards. The revised definition of eligible retained income is intended to strengthen the incentives for banking organizations to use their capital buffers as intended in adverse conditions and serve as a financial intermediary and source of credit to the economy. This revision would reduce the likelihood that a banking organization is suddenly subject to abrupt and restrictive distribution limitations in a scenario of lower than expected capital levels. FED, FDIC, and OCC also issued a statement encouraging banking organizations to use their capital and liquidity buffers as they respond to the challenges presented by the effects of the coronavirus. The agencies support banking organizations that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner. The agencies expect banking organizations to continue to manage their capital actions and liquidity risk prudently.

    Additionally, the interim final rule affects the agencies' current information collections for the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051. The changes to the Call Reports and their related instructions will be addressed in a separate Federal Register notice. Also, FED has temporarily revised the Consolidated Financial Statements for Holding Companies (FR Y-9; OMB No. 7100-0128) to reflect the changes made in this interim final rule. FED is inviting comment on a proposal to extend the FR Y-9 reports for three years, with revision. Comments must be submitted on or before May 19, 2020.

     

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    Comment Due Date: May 04, 2020 (Interim Final Rule); May 19, 2020 (FR Y-9)

    Effective Date: March 20, 2020

    Keywords: Americas, US, Banking, Securities, Regulatory Capital, COVID 19, Reporting, Call Reports, FR Y-9C, CCyB, US Agencies

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