Wednesday, October 23, 2013

In With the New: Federal Reserve and OCC Issue Final Risk-Based and Leverage Capital Rules

The Office of the Comptroller of the Currency (OCC) and Board of Governors of the Federal Reserve System (Fed) published final rules in the Federal Register on October 11, 2013 revising risk-based and leverage capital requirements for banking organizations and replacing existing interim rules. The final rules consolidate three separate notices of proposed rulemaking that the OCC, Board, and FDIC published in the Federal Register on August 30, 2012, with selected changes. The rules establish a new regulatory capital framework that incorporates Basel III standards and other elements. The rule applicable to all national banks and federal savings associations "strengthens the definition of regulatory capital, increases risk-based capital requirements, and amends the methodologies for determining risk-weighted assets."  Pursuant to a schedule of transition periods, the rule is effective for advanced approaches banks on January 1, 2014, and for all other banks on January 1, 2015.

Among other things, these final rules:

  • implement a revised definition of regulatory capital, a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches risk-based capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator; 
  • incorporate these new requirements into the agencies’ prompt corrective action (PCA) framework;
  • establish limits on a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements;
  • amend the methodologies for determining risk-weighted assets for all banking organizations;
  • introduces disclosure requirements that would apply to top-tier banking organizations domiciled in the United States with $50 billion or more in total assets;
  • adopt changes to the agencies’ regulatory capital requirements that meet the requirements of section 171 and section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and
  • codify the agencies’ regulatory capital rules, which have previously resided in various appendices to their respective regulations, into a harmonized integrated regulatory framework. 
In addition, the OCC is amending the market risk capital rule to apply to Federal savings associations, and the Fed is amending the advanced approaches and market risk rules to apply to top-tier savings and loan holding companies domiciled in the United States, except for certain savings and loan holding companies that are substantially engaged in insurance underwriting or commercial activities.

The full text of the new rules is available at: