This site uses cookies to improve your browsing experience, gather site analytics and activity, track shopping cart contents, and deliver relevant marketing information.
View our privacy policy and manage your settings here. By using our site you agree to these terms.

1.3 Leverage and Risk-based Capital Requirements

<< Title I Overview

1.3 Leverage and Risk-based Capital Requirements

The following links provide expanded analysis within this section:


1.3.     Leverage and Risk-based Capital Requirements. 

The Act seeks to generally impose capital requirements at the depository institution holding company and Significant Nonbank level that are at least as strict as those that were in effect at the insured depository institution level on the date of enactment of the Act.  This provision has particular importance for the capital treatment of trust preferred securities, which have been accorded more favorable capital treatment at the holding company level than at the depository institution level. [§ 171]   

 

An amendment by Senator Collins (R-ME) regarding minimum capital requirements was initially adopted in the Senate and would have prohibited BHCs from including trust preferred securities, TARP investments, and potentially other types of hybrid capital as holding company regulatory capital.  The Conference Report, however, substantially changed the amendment to grandfather the current capital holdings of companies with less than $15 billion in total consolidated assets and to push back the effective date for new capital requirements for larger bank holding companies to January 1, 2013 with a three-year phase-in period, the details of which will be determined by regulation. (See section 1.3.4.2. below.)

 

1.3.1.   Leverage Capital Requirements.  The appropriate Federal banking agencies are required to establish minimum leverage capital requirements on a consolidated basis for insured depository institutions, depository institution holding companies, and Significant Nonbanks.  The minimum leverage capital requirements shall not be less than the generally applicable leverage capital requirements which shall serve as a floor for any capital requirements the agency may require.  Nor shall such minimum leverage capital requirements be quantitatively lower than generally applicable leverage capital requirements that were in effect for insured depository institutions as of the date of enactment of the Act.

1.3.2.    Risk-based Capital Requirements.  The appropriate Federal banking agencies are required to establish risk-based capital requirements on a consolidated basis for insured depository institutions, depository institution holding companies, and Significant Nonbanks.  The minimum leverage capital requirements shall not be less than the generally applicable risk-based capital requirements which shall serve as a floor for any capital requirements the agency may require.  Nor shall such minimum risk-based capital requirements be quantitatively lower than generally applicable leverage capital requirements that were in effect for insured depository institutions as of the date of enactment of the Act.

1.3.3.      Treatment of Investments in Financial Subsidiaries.  Investments in financial subsidiaries, which are required to be deducted from regulatory capital under the National Bank Act and the FDI Act, need not be deducted from regulatory capital by depository institution holding companies or Significant Nonbanks supervised by the Fed, unless such capital deduction is required by the Fed or the primary financial regulatory agency in the case of Significant Nonbank supervised by the Fed.

1.3.4.         Effective Dates            

1.3.4.1.   Debt or Equity Instruments Issued on or After May 19, 2010.  Debt or equity instruments issued on or after May 19, 2010 by a depository institution holding company or a Significant Nonbank are not subject to any grandfathering treatment.  They are to be treated as if this provision of the Act was in effect on May 19, 2010.

1.3.4.2.     Debt or Equity Instruments Issued Before May 19, 2010.  Debt or equity instruments issued before May 19, 2010 by a depository institution holding company or Significant Nonbank are generally subject to a limited grandfathering.  Any required regulatory capital deductions with respect to such instruments are to be phased in incrementally over a three-year period that begins on January 1, 2013.

1.3.4.2.1.   Exception for Smaller Institutions.  Any capital deductions that would otherwise apply do not apply to debt or equity instruments issued before May 19, 2010 by a depository institution holding company with consolidated assets of less than $15 billion as of December 31, 2009, and by organizations that were mutual holding companies on May 19, 2010.          

1.3.4.3.     Depository Institution Holding Companies not Previously Supervised by the Fed.  The requirements imposed under this provision will not apply to any depository institution holding that was not supervised by the Fed as of May 19, 2010 until 5 years after the enactment of the Act, except for the general provisions regarding debt and equity instruments issued before May 19, 2010 or on or after May 19, 2010.

1.3.4.4.        Treatment for Certain Bank Holding Company Subsidiaries of Foreign Banking Organizations.  With respect to bank holding company subsidiaries of foreign banking organizations that have relied on Fed Supervision and Regulation Letter SR-01-1, the requirements of this provision except for the provision regarding debt and equity instruments issued on or after May 19, 2010 will not apply until 5 years after the date of enactment of the Act.

1.3.4.5. Additional Exceptions.  This provision of the Act does not apply to: (i) debt or equity instruments issued to the U.S. or any of its agencies or instrumentalities prior to October 4, 2010 – TARP securities, (ii) any Federal Home Loan Bank, or (iii) any small bank holding company subject to the Fed's Small Bank Holding Company Policy Statement as in effect on May 19, 2010.      

1.3.5.    Capital Requirements to Address Activities that Pose Risks to the Financial System. 

Subject to the recommendations of the Oversight Council, the Federal banking agencies are directed to develop capital requirements applicable to insured depository institutions, depository institution holding companies, and Significant Nonbanks that address the risks that the activities of such institutions pose to the institution engaging in the activity and to other public and private parties in the event of the adverse performance, disruption, or failure of the institution or activity.  The rules must address risks arising from (i) significant volumes of activity in derivatives, securitized products, financial guaranties, securities borrowing and lending, and repurchase agreements and reverse repurchase agreements; (ii) concentrations in assets for which the values presented in financial reports are based on models rather than historical cost or prices derived from deep and liquid markets; and (iii) concentrations in market share for any activity that would substantially disrupt financial markets if the institution is forced to unexpectedly cease the activity.  

1.3.6.      Study Regarding Small Institution Access to Capital. 

The Comptroller General after consultation with the Federal banking agencies is directed to conduct a study of access to capital by depository institutions with consolidated assets of less than $5 billion.  The study and any recommendations for legislative action are to be submitted to Congress not later than 18 months after the date of enactment of the Act.