The financial regulatory agencies today issued a joint final rule to simplify the Basel III regulatory capital calculations for all but the very largest banks. The final rule simplifies the treatment of assets subject to common equity tier 1 capital threshold deductions and limitations on minority interest.
As advocated by the American Bankers Association, the final rule simplifies 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%. It 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. Moreover, ABA is concerned that banks do not have the option to early adopt the relief provisions, which don’t take effect until April 1, 2020.