Banking Agencies Extend Transitional Regulatory Capital Rules

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the FDIC (collectively, the “agencies”) issued a final rule extending current transitional provisions under the capital rules for certain capital deductions, risk weights and minority interest requirements. The final rule extends provisions that were set to relinquish at the end of the year. The extension is only applicable to banks that are not subject to the capital rules’ advanced approaches (institutions with total assets under $1 billion).

As previously covered, the agencies in 2013 adopted more stringent capital requirements for banking entities and organizations. These rules established certain limits on minority interests (i.e. on including assets owned by subsidiaries in regulatory capital calculations), as well as other mandates for deducting certain assets from an organization’s regulatory capital. The rules were subject to transitional provisions that allowed organizations to make appropriate preparations for the new requirements. In September 2017, the agencies proposed related capital rule simplifications that would make changes related to the treatment of certain loans, items subject to threshold deduction, and minority interest requirements. As stated in the Financial Institution Letter FIL-60-2017, the final rule extends the 2017 transition provisions for “Mortgage servicing assets; Deferred tax assets arising from differences that could not be realized through net operating loss carrybacks; Significant investments in the capital of unconsolidated financial institutions in the form of common stock; Non-significant investments in the capital of unconsolidated financial institutions; and Significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock.”

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