The FDIC voted this week to approve a final interagency rule that would simplify the complex Basel III regulatory capital calculations for all but the very largest banks. The final rule would simplify the treatment of assets subject to common equity tier 1 capital threshold deductions and limitations on minority interest with a more straightforward measure.
Consistent with ABA advocacy, the final rule would simplify regulatory capital requirements for mortgage servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions (such as investments in trust preferred securities) by effectively raising the deduction threshold for each of these to 25%. The final rule also simplifies the calculation for capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to a minority interest) that is includable in regulatory capital.
While the key changes in the final rule are limited to banks not using the Basel advanced approaches, ABA continues to advocate for these and other simplification efforts to apply to all banks. In addition, the association noted with concern that under the final rule, banks do not have the option to early-adopt the relief provisions, which do not take effect until 2020.