US Agencies Amend Capital Rule to Facilitate Emergency Investment
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.
Related Links
Comment Due Date: May 21, 2021
Effective Date: March 22, 2021
Keywords: Americas, US, Banking, Regulatory Capital, ECIP, COVID-19, Basel, US Agencies
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
SRB Sketches Path to Further Ensure Bank ResolvabilityRelated Articles
EBA Launches Stress Tests for Banks, Issues Other Updates
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.