The American Bankers Association today expressed support for Federal Reserve efforts to develop a more uniform regulatory treatment for mutual capital certificates, and offered revisions to proposals to further improve regulation of mutual capital.
Last year, the Fed released an FAQ and two draft templates (here and here) for mutual banks to use as they consider raising capital. Vice Chair for Supervision Michelle Bowman said the resources are meant to provide options for mutual banks to issue capital instruments that could qualify as tier 1 common equity or as additional tier 1 equity.
In a letter, ABA said its mutual bank members support the Fed’s efforts to develop a workable and scalable framework that enables mutual institutions to raise external capital while preserving their ownership structure and mission. Still, the association had several recommendations to address potential concerns with the templates:
- The Fed should provide greater certainty regarding the qualification of mutual capital instruments as Tier 1 capital, including clear alignment with Regulation Q criteria;
- The Fed should pursue revisions that provide institutions with greater flexibility in structuring dividend features, redemption provisions, and loss-absorption mechanics, while remaining within prudential guardrails;
- The templates should reflect terms that are competitive with other capital instruments, including appropriate economic incentives and transparency on rights and risks;
- Certain provisions in the draft templates may present implementation challenges for mutual institutions and need revision;
- The framework must work not only for larger or more complex institutions, but also for smaller mutual banks seeking modest capital raises to support growth and resilience;
- Nothing should be done to undermine or foreclose the use of other capital tools, such as shared deposits, that are available to mutual banks under state laws.
