Agencies Issue NPR on Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy and Transition Provisions

June 19 - The federal bank regulatory agencies have jointly issued a notice of proposed rulemaking that would revise the general risk-based capital rules to incorporate certain revisions by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The proposed rule would generally revise the definition of regulatory capital components and related calculations.

Highlights:

The proposed rule:

• Revises the definition of regulatory capital components and related calculations.
• Adds a new common equity Tier 1 capital ratio.
• Increases the minimum Tier 1 capital ratio requirement from 4 percent to 6 percent.
• Imposes different limitations to qualifying minority interest in regulatory capital than those currently applied.
• Incorporates the revised regulatory capital requirements into the prompt corrective action framework.
• Implements a new capital conservation buffer that would limit payment of capital distributions and certain discretionary bonus payments to executive officers and key risk takers if the banking organization does not hold certain amounts of common equity Tier 1 capital in addition to those needed to meet its minimum risk-based capital requirements.
• Provides a transition period for several aspects of the proposed rule, including the phase-out period for certain non-qualifying capital instruments, the new minimum capital ratio requirements, the capital conservation buffer, and the regulatory capital adjustments and deductions.
• For advanced approaches banks, introduces a countercyclical capital buffer and a supplemental leverage ratio.

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