In First Step to Simplify Capital Rules, Agencies Pause Basel III Phase-In for Most Banks

The Federal Reserve, FDIC and OCC today issued a proposed rule that would pause the transition to the Basel III capital framework for banks not using the Basel advanced approaches. The rule comes as regulators are working on a broader effort to simplify the regulatory capital rules for non-advanced approaches banks as has been long advocated by the American Bankers Association and championed in the Treasury Department report on financial reform.

“As part of the recent review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act, the agencies announced that they are developing a proposal that would simplify the capital rules to reduce regulatory burden, particularly for community banks,” the agencies said. “That proposal would simplify the capital rules’ treatment of mortgage servicing assets and other items. However, under the current capital rules, the transitional treatment for those items is scheduled to be replaced with a different treatment on Jan. 1, 2018.”

The proposed rule would pause the full transition to the Basel III treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital of unconsolidated financial institutions and minority interests pending a new rulemaking addressing these topics. Since advanced approaches are principally used by banking organizations with over $250 billion in assets or foreign bank subsidiaries with over $10 billion in assets, the pause would apply broadly to community, midsize and even several regional banks.

ABA plans to comment on the proposal and will strongly urge the agencies to include the advanced approaches banks in both the extended transition period and the future rulemaking simplifying the capital framework. Comments on the proposed pause are due 30 days after the rule is published in the Federal Register. For more information, contact ABA’s Hugh Carney or Barry Mills.