Regulators Double Leverage Ratio Requirement For Large Banks

ThernOffice of the Comptroller of the Currency (OCC) along with thernFederal Deposit Insurance Corporation (FDIC) and the Federal ReservernBoard (FRB),  have approved a final rule revising regulatoryrncapital rules applicable to national banks and federal savingsrnassociations. The rule, released for comment today, proposesrndoubling the leverage ratio standards for the largest interconnectedrnU.S. banking organizations.rn</p

Underrnthe proposed rule, bank holding companies with more than $700 billionrnin consolidated total assets or $10 trillion in assets under custodyrnwould be required to maintain a tier 1 capital leverage buffer of atrnleast 2 percent above the minimum supplementary leverage ratiornrequirement of 3 percent, for a total of 5 percent. Failure to exceedrnthe 5 percent ratio would subject covered bank holding companiesrn(BHCs) to restrictions on discretionary bonus payments and capitalrndistributions. In addition to the leverage buffer for covered BHCs,rnthe proposed rule would require insured depository institutions ofrncovered BHCs to meet a 6 percent supplementary leverage ratio to bernconsidered “well capitalized” for prompt corrective actionrnpurposes. The proposed rule would currently apply to the eightrnlargest, most systemically significant U.S. banking organizations. </p

Under the newrncapital rule, banking organizations with more than $50 billion inrnassets have enhanced disclosure requirements related to regulatoryrncapital adequacy and risk management.  Banking organizationsrnsubject to the advanced approaches capital rules also must meet arnsupplementary leverage ratio requirement that incorporates a broaderrnset of exposures, a countercyclical capital buffer, and additionalrncapital charges and standards for derivatives exposures.  </p

Thernnew rule, which if adopted would take effect on January 1, 2018,rnmakes three key changes in the June 12, 2012 proposal to help reducernthe burden on smaller banking organizations. First, the new capitalrnrule does not change the current treatment of residential mortgagernexposures, an important issue for many community banks. </p

Second,rn banking organizations that are not subject to the advancedrnapproaches capital rules can opt not to incorporate most amountsrnreported as Accumulated Other Comprehensive Income (AOCI) in therncalculation of their regulatory capital.  This option isrnconsistent with the treatment of AOCI under the current rules, andrnshould help smaller banking organizations avoid volatility in theirrnregulatory capital requirements.</p

Lastly,rndepository institution holding companies with assets under $15rnbillion and certain mutual holding companies regardless of size willrnbe allowed to continue to count most Trust Preferred Securitiesrnissued prior to May 19, 2010 as Tier 1 capital rather than phasingrnthem out of regulatory capital. This will provide greaterrnconsistency with the Dodd-Frank Act provisions that limit inclusionrnof such securities in regulatory capital. </p

“With the newrncapital rule, the federal banking agencies are taking an importantrnstep to strengthen the banking system and protect it from futurernfinancial crises,” said Comptroller of the Currency Thomas J.rnCurry.  “I’m pleased that the new capital rule not onlyrnimproves the quantity and quality of capital, but does so in a wayrnthat minimizes the burden on community banks and federal savingsrnassociations.”</p

 The threernagencies will accept comments on the notice of proposed rulemakingrnfor 60 days following its publication in the FederalrnRegister.rn To aid smaller, less complex institutions understand and implementrnthe final rule, the OCC is publishing a quick reference pamphlet andrna short guide for national banks and federal savings associations.rnThe guides are available on the OCC website.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.