Fed Finalizes Capital Criteria for Non-Stock BHCs

The Federal Reserve today finalized a rule offering examples of how the Basel III requirements for common equity tier 1 capital would be satisfied by bank holding companies not organized as stock corporations, such as limited liability companies and partnerships.

LLC membership interests and partnership interests will generally qualify as common equity tier 1 capital as long as they meet other criteria, the Fed said. For example, senior classes of interests issued by an LLC will not qualify as they are not the most subordinate claim. While the rule takes effect on Jan. 1, LLCs and partnerships with non-qualifying capital instruments will have until July 1, 2016, to assess and modify their instruments to be counted as CET1 under Reg Q.

Since estate and family-owned trust savings and loan holding companies do not issue capital instruments, the rule exempts estate and family-owned trusts from the regulatory capital requirements, pending further rulemaking. It is also exempting employee stock ownership plans that are BHCs and SHLCs, which will instead be evaluated based on the regulatory capital of their sponsor banks until a proposal on the matter is issued.