Sept 18 - In July 2013, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC enacted significant changes to the regulatory capital requirements for community and national banks, these changes are collectively known as Basel III. To help its clients and other interested parties understand the key provisions of the Basel III New Capital Rule, including the potential impact on Bank-Owned Life Insurance, Equias Alliance has prepared an overview of the new rule.
The new capital rule revises the definition of regulatory capital components; adds a new common equity Tier 1 risk-based capital level; incorporates the revised capital requirements into the Prompt Corrective Action framework; implements a new capital conservation buffer; and provides a transition period for several aspects of the new rule. For community banks, the new rule implementation period begins Jan. 1, 2015.
Because more than half of the banks in the United States have purchased BOLI, there is a great deal of interest among bankers regarding whether Basel III will adversely impact a bank’s BOLI holdings. According to Becky Pressgrove, CPA, senior vice president and chief operating officer of Equias Alliance, the new rule does not negatively impact a bank’s general account BOLI holdings or administration.
However, Pressgrove also stated, “Since banks can no longer rely solely on the national rating agencies to determine the risk-based capital weighting of the assets in their investment portfolios because of the Dodd-Frank Act, portfolio managers and banks will need to determine the best approach for assigning risk-based capital weightings to assets invested in hybrid separate account and variable separate account BOLI policies.”
According to David Shoemaker, CPA/PFS, CFP, president of Equias Alliance, “I expect that during the next three to four months, many of the issues relating to the risk-weighting of BOLI assets will be resolved so that we will be in a better position to determine their impact on BOLI policyholders. My preliminary assessment is that the risk-weightings for some, but not many, BOLI hybrid and variable separate accounts may be negatively impacted resulting in higher-risk-weightings being assigned to these portfolios.”
To help its clients and other interested parties understand the key provisions of the Basel III New Capital Rule, including the potential impact on bank-owned life insurance, Equias Alliance has prepared an overview of the new rule. To view this special edition of Equias InSIGHTS, please visit the Equias Alliance website at www.equiasalliance.com and look under the News and Events section.