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    FDIC Allows Early Adoption of Capital Simplifications Final Rule

    September 17, 2019

    FDIC finalized a joint rule of US Agencies that would permit non-advanced approaches banking organizations to use the simpler regulatory capital requirements for certain instruments when measuring their tier 1 capital as of January 01, 2020, instead of on the previous effective date of April 01, 2020. These simpler capital requirements relate to mortgage-servicing assets, certain deferred tax assets arising from temporary differences, investments in the capital of unconsolidated financial institutions, and the calculation of minority interest. Banking organizations may use this new measure of tier 1 capital under the community bank leverage ratio, or CBLR, framework. The revisions to the Capital Simplifications Final Rule become effective on January 01, 2020.

    The Capital Simplifications Final Rule also simplifies, for non-advanced approaches banking organizations, the calculation for the amount of capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to as a minority interest) that is includable in regulatory capital. The simpler capital requirements are implemented through the Capital Simplifications Final Rule via amendments to 12 CFR 3.21, 3.22, 3.300, 217.21, 217.22, 217.300(b) and (d), 324.21, 324.22, and 324.300 that were originally effective April 01, 2020. The agencies initially set an effective date of April 01, 2020, for those amendments to the capital rule, in part, to give institutions sufficient time to update their recordkeeping and reporting systems. Subsequent to the publication of the Capital Simplifications Final Rule, the agencies received letters from the banking industry groups seeking the ability to adopt the Capital Simplifications Final Rule earlier than on April 01, 2020. After considering these requests, it has been determined that allowing non-advanced approaches banking organizations to implement the Capital Simplifications Final Rule in the first quarter of 2020 would be appropriate.

    Allowing non-advanced approaches banking organizations to implement the Capital Simplifications Final Rule in the first quarter of 2020 would permit banking organizations that have updated their reporting systems to implement the simplifications and obtain regulatory burden relief one quarter earlier than initially provided in the Capital Simplifications Final Rule. This direct final rule is being adopted to permit non-advanced approaches banking organizations to implement the sections of the Capital Simplifications Final Rule that were originally effective on April 01, 2020, beginning on January 01, 2020. Thus, the sections in the Capital Simplifications Final Rule that were effective from April 01, 2020 under that rule are now effective from January 01, 2020. Non-advanced approaches banking organizations can elect whether to implement the changes in the quarter beginning January 01, 2020, or to implement them in the quarter beginning April 01, 2020. If a non-advanced approaches banking organization elects to adopt these revisions for the quarter beginning January 01, 2020, it must adopt all of these revisions for that quarter and thereafter.

     

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    Effective Date: January 01, 2020

    Keywords: Americas, US, Banking, Capital Simplification Rule, Regulatory Capital, Non-Advanced Approaches Organizations, Tier 1 Capital, CBLR Framework, FDIC

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