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The New Capital Framework Proposals Enhanced Burdens Across the Banking Industry
13 June 2012
On June 7, 2012, the Board of Governors of the Federal Reserve System (the “Board”) voted in favor of a comprehensive set of three capital proposals (collectively, the “Proposals”) ultimately designed to apply, in whole or in part, to all insured banks and thrifts, savings and loan holding companies (“SLHCs”), and bank holding companies (“BHCs”) with consolidated assets over $500 million. On June 12, 2012, the Board, the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Agencies”) jointly published the Proposals, and they soon will be published in the Federal Register with a comment period extending (only) until September 7, 2012. Given the fundamental importance of capital to all activities and investments of a banking organization, the banking industry and their trade groups can reasonably expect to be heavily engaged throughout this process.
In large part, the Proposals implement and seek to harmonize the regulatory capital standards promulgated by the Basel Committee on Banking Supervision (the “BCBS”), an international committee consisting of representatives of central banks and other agencies, in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”), and the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).
The Proposals consist of three components:
“Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action” focuses on establishing new risk-based and leverage capital ratios, as well as what constitutes “capital” (i.e., the numerator of the capital ratios), and will be phased in from 2013 through 2019;
“Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements” focuses primarily on the risk-weighting of the assets and activities in which banking organizations engage (i.e., the denominator of the capital ratios, effective on January 1, 2015); and
“Regulatory Capital Rules: Advanced Approaches Risk-based Capital Rule; Market Risk Capital Rule” includes revisions to the advanced approaches risk-based capital rules (Basel II) that apply only to the largest or most internationally active U.S. banking organizations (referred to herein as “advanced approaches institutions”), to bring them in line with Basel III and Dodd-Frank.
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