Joint Agency Capital Simplification

Pursuant to the 2017 review under the Economic Growth and Regulatory Paperwork Reduction Act, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System (the agencies) made a final ruling on the simplification of the capital rule last month. In their March 2017 report to Congress, the agencies committed to reducing the regulatory burden on community banking organizations. After several other capital rule makings in the last two years, the May 2019 ruling applies more straightforward regulatory capital requirements.

 The new ruling requires non-advanced approaches banking organizations to deduct from common equity tier 1 capital any amount of temporary difference deferred tax assets, investments in the capital of unconsolidated financial institutions and mortgage servicing assets that are over 25 percent of common equity tier 1 capital of the banking organization. The proposal also simplifies the minority interest that is included in regulatory capital by basing limitations on the parent’s capital levels. 

The agencies believe the changes will reduce the compliance burden but will not have a significant impact on the capital ratios for most institutions. They think that non-advanced approaches institutions may find a capital benefit if they have substantial MSA holdings, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions. These changes are effective on April 1, 2020.