Agencies Finalize Regulatory Capital Standards Rule

Reprinted from the CCH Federal Banking Law Reporter, Jan. 27, 2010.

The federal banking and thrift regulatory agencies have finalized a risk-based capital rule related to the Financial Accounting Standards Board’s adoption of Statements of Financial Accounting Standards Nos. 166 and 167. These new accounting standards make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations’ balance sheets.

Banking organizations affected by the new accounting standards generally will be subject to higher risk-based regulatory capital requirements. The rule, jointly issued by the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corp. and Office of Thrift Supervision, is intended to better align risk-based capital requirements with the actual risks of certain exposures.

According to the agencies, the rule:

  • eliminates the exclusion of certain consolidated asset-backed commercial paper programs from risk-weighted assets;
  • provides for an optional two-quarter implementation delay, followed by an optional two-quarter partial implementation, of the effect on risk-weighted assets that will result from the new standards;
  • provides for an optional two-quarter delay, followed by an optional two quarter phase-in, of the application of the agencies’ regulatory limit on the inclusion of the allowance for loan and lease losses (ALLL) in tier 2 capital for the portion of the ALLL associated with the assets a banking organization consolidates as a result of the change; and
  • reserves the agencies’ authority to require a banking organization to treat entities that are not consolidated under accounting standards as if they were consolidated for risk-based capital purposes.

Banking organizations may choose to comply with the final rule as of the beginning of their first annual reporting period after Nov. 15, 2009.