35234 Federal Register / Vol. 84, No. 140 / Monday, July 22, 2019 / Rules and Regulations
1 82 FR 49984 (October 27, 2017).
2 The Board and the OCC issued a joint final rule
on October 11, 2013 (78 FR 62018) and the FDIC
issued a substantially identical interim final rule on
September 10, 2013 (78 FR 55340). In April 2014,
the FDIC adopted the interim final rule as a final
rule with no substantive changes. 79 FR 20754
(April 14, 2014).
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2017–0018]
RIN 1557–AE10
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R–1576]
RIN 7100 AE74
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE59
Regulatory Capital Rule:
Simplifications to the Capital Rule
Pursuant to the Economic Growth and
Regulatory Paperwork Reduction Act
of 1996
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are adopting
a final rule (final rule) to simplify
certain aspects of the capital rule. The
final rule is responsive to the agencies’
March 2017 report to Congress pursuant
to the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, in
which the agencies committed to
meaningfully reduce regulatory burden,
especially on community banking
organizations. The key elements of the
final rule apply solely to banking
organizations that are not subject to the
advanced approaches capital rule (non-
advanced approaches banking
organizations). Under the final rule,
non-advanced approaches banking
organizations will be subject to simpler
regulatory capital requirements for
mortgage servicing assets, certain
deferred tax assets arising from
temporary differences, and investments
in the capital of unconsolidated
financial institutions than those
currently applied. The final rule also
simplifies, for non-advanced approaches
banking organizations, the calculation
for the amount of capital issued by a
consolidated subsidiary of a banking
organization and held by third parties
(sometimes referred to as a minority
interest) that is includable in regulatory
capital. In addition, the final rule makes
technical amendments to, and clarifies
certain aspects of, the agencies’ capital
rule for both non-advanced approaches
banking organizations and advanced
approaches banking organizations
(technical amendments). Revisions to
the definition of high-volatility
commercial real estate exposure in the
agencies’ capital rule are being
addressed in a separate rulemaking.
DATES: This rule is effective October 1,
2019, except for the amendments to 12
CFR 3.21, 3.22, 3.300, 217.21, 217.22,
217.300(b) and (d), 324.21, 324.22, and
324.300, which are effective April 1,
2020. For more information, see
SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT:
OCC: David Elkes, Risk Expert,
Capital and Regulatory Policy (202)
649–6370; or Carl Kaminski, Special
Counsel, or Henry Barkhausen, Counsel,
or Chris Rafferty Attorney, Chief
Counsel’s Office, (202) 649–5490, for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526; or
Andrew Willis, Lead Financial
Institutions Policy Analyst, (202) 912–
4323, Division of Supervision and
Regulation; or Benjamin McDonough,
Assistant General Counsel (202) 452–
2036; Gillian Burgess, Senior Counsel
(202) 736–5564, or Mark Buresh,
Counsel (202) 452–5270, Legal Division,
Board of Governors of the Federal
Reserve System, 20th and C Streets NW,
Washington, DC 20551.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov;
Richard Smith, Capital Markets Policy
Analyst, rismith@fdic.gov; Michael
Maloney, Senior Policy Analyst,
mmaloney@fdic.gov; regulatorycapital@
fdic.gov; Capital Markets Branch,
Division of Risk Management
Supervision, (202) 898–6888; or
Catherine Wood, Counsel, cawood@
fdic.gov; Michael Phillips, Counsel,
mphillips@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION: The
portions of the final rule related to
simpler requirements for mortgage
servicing assets, certain deferred tax
assets, investments in the capital of
unconsolidated financial institutions,
and minority interest (incorporated in
the amendatory instructions 7, 8, 24, 30,
31, 47.b, 53, 54, and 70) are effective on
April 1, 2020. The portions of the final
rule related to the technical
amendments (incorporated in the
amendatory instructions 1–6, 9–23, 25–
29, 32–46, 47.a, 48–52, and 55–69) are
effective October 1, 2019. Any banking
organization subject to the capital rule
may elect to adopt the technical
amendments that are effective October
1, 2019, prior to that date.
Table of Contents
I. Introduction
A. Related Rulemakings
B. Current Capital Treatment
1. MSAs, Temporary Difference DTAs and
Investments in the Capital of
Unconsolidated Financial Institutions
2. Minority Interest
II. Summary of the Simplifications Proposal
A. Proposed Simplifications to the Capital
Rule
B. Summary of Comments Received on the
Simplifications Proposal
III. Final Rule
A. MSAs, Temporary Difference DTAs, and
Investments in the Capital of
Unconsolidated Financial Institutions
1. MSAs and Temporary Difference DTAs
2. Investments in the Capital of
Unconsolidated Financial Institutions
3. Regulatory Treatment for Advanced
Approaches Banking Organizations
B. Minority Interest
C. Capital Treatment for Advanced
Approaches Banking Organizations
D. Technical Amendments to the Capital
Rule
E. Effective Dates of Amendments
IV. Abbreviations
V. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995 Determination
E. Riegle Community Development and
Regulatory Improvement Act of 1994
I. Introduction
On October 27, 2017, the Office of the
Comptroller of the Currency (OCC), the
Board of Governors of the Federal
Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC)
published a notice of proposed
rulemaking (simplifications proposal) 1
with the goal of reducing regulatory
compliance burden, particularly on
community banking organizations, by
simplifying certain aspects of the
agencies’ risk-based and leverage capital
requirements (capital rule).2
VerDate Sep<11>2014 17:24 Jul 19, 2019 Jkt 247001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\22JYR2.SGM 22JYR2
jbell on DSK3GLQ082PROD with RULES2
1 82 FR 49984 (October 27, 2017).
2 The Board and the OCC issued a joint final rule
on October 11, 2013 (78 FR 62018) and the FDIC
issued a substantially identical interim final rule on
September 10, 2013 (78 FR 55340). In April 2014,
the FDIC adopted the interim final rule as a final
rule with no substantive changes. 79 FR 20754
(April 14, 2014).
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 3
[Docket ID OCC–2017–0018]
RIN 1557–AE10
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R–1576]
RIN 7100 AE74
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 324
RIN 3064–AE59
Regulatory Capital Rule:
Simplifications to the Capital Rule
Pursuant to the Economic Growth and
Regulatory Paperwork Reduction Act
of 1996
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are adopting
a final rule (final rule) to simplify
certain aspects of the capital rule. The
final rule is responsive to the agencies’
March 2017 report to Congress pursuant
to the Economic Growth and Regulatory
Paperwork Reduction Act of 1996, in
which the agencies committed to
meaningfully reduce regulatory burden,
especially on community banking
organizations. The key elements of the
final rule apply solely to banking
organizations that are not subject to the
advanced approaches capital rule (non-
advanced approaches banking
organizations). Under the final rule,
non-advanced approaches banking
organizations will be subject to simpler
regulatory capital requirements for
mortgage servicing assets, certain
deferred tax assets arising from
temporary differences, and investments
in the capital of unconsolidated
financial institutions than those
currently applied. The final rule also
simplifies, for non-advanced approaches
banking organizations, the calculation
for the amount of capital issued by a
consolidated subsidiary of a banking
organization and held by third parties
(sometimes referred to as a minority
interest) that is includable in regulatory
capital. In addition, the final rule makes
technical amendments to, and clarifies
certain aspects of, the agencies’ capital
rule for both non-advanced approaches
banking organizations and advanced
approaches banking organizations
(technical amendments). Revisions to
the definition of high-volatility
commercial real estate exposure in the
agencies’ capital rule are being
addressed in a separate rulemaking.
DATES: This rule is effective October 1,
2019, except for the amendments to 12
CFR 3.21, 3.22, 3.300, 217.21, 217.22,
217.300(b) and (d), 324.21, 324.22, and
324.300, which are effective April 1,
2020. For more information, see
SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT:
OCC: David Elkes, Risk Expert,
Capital and Regulatory Policy (202)
649–6370; or Carl Kaminski, Special
Counsel, or Henry Barkhausen, Counsel,
or Chris Rafferty Attorney, Chief
Counsel’s Office, (202) 649–5490, for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526; or
Andrew Willis, Lead Financial
Institutions Policy Analyst, (202) 912–
4323, Division of Supervision and
Regulation; or Benjamin McDonough,
Assistant General Counsel (202) 452–
2036; Gillian Burgess, Senior Counsel
(202) 736–5564, or Mark Buresh,
Counsel (202) 452–5270, Legal Division,
Board of Governors of the Federal
Reserve System, 20th and C Streets NW,
Washington, DC 20551.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov;
Richard Smith, Capital Markets Policy
Analyst, rismith@fdic.gov; Michael
Maloney, Senior Policy Analyst,
mmaloney@fdic.gov; regulatorycapital@
fdic.gov; Capital Markets Branch,
Division of Risk Management
Supervision, (202) 898–6888; or
Catherine Wood, Counsel, cawood@
fdic.gov; Michael Phillips, Counsel,
mphillips@fdic.gov; Supervision
Branch, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION: The
portions of the final rule related to
simpler requirements for mortgage
servicing assets, certain deferred tax
assets, investments in the capital of
unconsolidated financial institutions,
and minority interest (incorporated in
the amendatory instructions 7, 8, 24, 30,
31, 47.b, 53, 54, and 70) are effective on
April 1, 2020. The portions of the final
rule related to the technical
amendments (incorporated in the
amendatory instructions 1–6, 9–23, 25–
29, 32–46, 47.a, 48–52, and 55–69) are
effective October 1, 2019. Any banking
organization subject to the capital rule
may elect to adopt the technical
amendments that are effective October
1, 2019, prior to that date.
Table of Contents
I. Introduction
A. Related Rulemakings
B. Current Capital Treatment
1. MSAs, Temporary Difference DTAs and
Investments in the Capital of
Unconsolidated Financial Institutions
2. Minority Interest
II. Summary of the Simplifications Proposal
A. Proposed Simplifications to the Capital
Rule
B. Summary of Comments Received on the
Simplifications Proposal
III. Final Rule
A. MSAs, Temporary Difference DTAs, and
Investments in the Capital of
Unconsolidated Financial Institutions
1. MSAs and Temporary Difference DTAs
2. Investments in the Capital of
Unconsolidated Financial Institutions
3. Regulatory Treatment for Advanced
Approaches Banking Organizations
B. Minority Interest
C. Capital Treatment for Advanced
Approaches Banking Organizations
D. Technical Amendments to the Capital
Rule
E. Effective Dates of Amendments
IV. Abbreviations
V. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995 Determination
E. Riegle Community Development and
Regulatory Improvement Act of 1994
I. Introduction
On October 27, 2017, the Office of the
Comptroller of the Currency (OCC), the
Board of Governors of the Federal
Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC)
published a notice of proposed
rulemaking (simplifications proposal) 1
with the goal of reducing regulatory
compliance burden, particularly on
community banking organizations, by
simplifying certain aspects of the
agencies’ risk-based and leverage capital
requirements (capital rule).2
VerDate Sep<11>2014 17:24 Jul 19, 2019 Jkt 247001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\22JYR2.SGM 22JYR2
jbell on DSK3GLQ082PROD with RULES2
35235Federal Register / Vol. 84, No. 140 / Monday, July 22, 2019 / Rules and Regulations
3 12 CFR part 3, subparts D & E (OCC); 12 CFR
part 217, subparts D & E (Board); 12 CFR part 324,
subparts D & E (FDIC).
4 12 CFR 3.1(c), 12 CFR 3.100(b) (OCC); 12 CFR
217.1(c), 12 CFR 217.100(b) (Board); 12 CFR
324.1(c), 12 CFR 324.100(b) (FDIC). Advanced
approaches banking organizations are required to
calculate capital ratios under both the standardized
and advanced approaches in the capital rule and are
subject to whichever ratio is lower between the two
approaches.
5 EGRPRA requires that regulations prescribed by
the agencies be reviewed at least once every 10
years. The purpose of this review is to identify,
with input from the public, outdated or
unnecessary regulations and consider how to
reduce regulatory burden on insured depository
institutions while, at the same time, ensuring their
safety and soundness and the safety and soundness
of the financial system. Public Law 104–208, 110
Stat. 3009 (1996).
6 79 FR 32172 (June 4, 2014); 80 FR 7980
(February 13, 2015); 80 FR 32046 (June 5, 2015);
and 80 FR 79724 (December 23, 2015).
7 Comments received during the EGRPRA review
process and transcripts of outreach meetings can be
found at http://egrpra.ffiec.gov/.
8 82 FR 15900 (March 30, 2017).
9 Temporary differences arise when financial
events or transactions are recognized in one period
for financial reporting purposes and in another
period, or periods, for tax purposes.
10 Minority interest is the amount of capital that
can count toward regulatory requirements in cases
in which a banking organization’s consolidated
subsidiary has issued capital that is held by third
parties.
11 82 FR 55309 (Nov. 21, 2017). These changes to
the capital rule’s transition provisions did not apply
to advanced approaches banking organizations.
12 Public Law 115–174 (May 24, 2018).
13 83 FR 48990 (September 28, 2018).
14 Public law 115–174, section 201; 84 FR 3062
(February 8, 2019).
15 84 FR 3062 (February 8, 2019).
16 See 12 CFR 3.10(a) (OCC); 12 CFR 217.10(a)
(Board); 12 CFR 324.10(a) (FDIC).
17 83 FR 61408 (November 29, 2018); 83 FR 66024
(December 21, 2018). See also https://
www.federalreserve.gov/newsevents/pressreleases/
bcreg20190408a.htm.
The agencies had previously adopted
in 2013 rules designed to strengthen the
capital rule’s requirements and improve
risk sensitivity. These rules were
intended to address weaknesses that
became apparent during the financial
crisis of 2007–08. Since 2013, the
quality of banking organizations’ capital
has significantly improved and the
quantity of capital has increased.
The capital rule adopted in 2013
provides two methodologies for
determining risk-weighted assets: (i) A
standardized approach and (ii) a more
complex, models-based approach,
which includes both the internal
ratings-based approach for measuring
credit risk exposure and the advanced
measurement approach for measuring
operational risk exposure (advanced
approaches).3 The standardized
approach applies to all banking
organizations that are subject to the
agencies’ risk-based capital rule,
whereas the advanced approaches apply
only to certain large or internationally
active banking organizations (advanced
approaches banking organizations).4
In connection with the agencies’
review of all the banking regulations
under the Economic Growth and
Regulatory Paperwork Reduction Act of
1996 (EGRPRA),5 the agencies received
over 230 comment letters from
depository institutions and their
holding companies, trade associations,
consumer and community groups, and
other interested parties.6 The agencies
also received numerous oral and written
comments at public outreach meetings.7
Many of the commenters stated that
certain aspects of the capital rule are
unduly burdensome and complex. After
reviewing the comments, the agencies
issued a Joint Report to Congress:
Economic Growth and Regulatory
Paperwork Reduction Act (the 2017
EGRPRA report) in March 2017,8
highlighting the agencies’ intent to
meaningfully reduce regulatory burden,
especially on community banking
organizations, while maintaining safety
and soundness in the banking system
and retaining the quality and quantity of
regulatory capital.
In particular, the agencies indicated
in the 2017 EGRPRA report their intent
to issue a rule that would simplify, for
non-advanced approaches banking
organizations, (i) the current regulatory
capital treatment for concentrations of
mortgage servicing assets (MSAs),
deferred tax assets (DTAs) arising from
temporary differences that an institution
could not realize through net operating
loss carrybacks (temporary difference
DTAs), and investments in the capital of
unconsolidated financial institutions;
and (ii) the calculation for the amount
of minority interest includable in
regulatory capital.9 10 The 2017 EGRPRA
report also highlighted the agencies’
intent to replace the capital rule’s
treatment of high volatility commercial
real estate (HVCRE) exposures with a
simpler treatment for most acquisition,
development, or construction
exposures.
A. Related Rulemakings
The agencies have issued several
other rulemakings over the last two
years to simplify certain aspects of the
capital rule. For example, the capital
rule included transitional arrangements
for certain requirements. Under such
transitional arrangements in the capital
rule, any amount of MSAs, temporary
difference DTAs, and investments in the
capital of unconsolidated financial
institutions that a banking organization
did not deduct from common equity tier
1 capital was risk weighted at 100
percent until January 1, 2018. In 2017,
the agencies adopted a rule (transition
rule) to allow non-advanced approaches
banking organizations to continue to
apply the transition treatment in effect
in 2017 (including the 100 percent risk
weight for MSAs, temporary difference
DTAs, and significant investments in
the capital of unconsolidated financial
institutions) while the agencies
considered the simplifications proposal.
This final rule supersedes the transition
rule and eliminates the transition
provisions that are no longer
operative.11
On May 24, 2018, the Economic
Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA) 12
became law. As described in more detail
below, section 214 of EGRRCPA
amended the capital treatment for
HVCRE exposures. Accordingly, the
agencies proposed changes to the
regulatory capital treatment of HVCRE
exposures to implement section 214
through a separate rulemaking.13
Additionally, consistent with section
201 of EGRRCPA,14 the agencies issued
a notice of proposed rulemaking
providing an optional simple leverage-
based measure of capital adequacy for
certain community banking
organizations (community bank leverage
ratio (CBLR) proposal).15 Under the
CBLR proposal, certain qualifying
community banking organizations that
maintain a community bank leverage
ratio above 9 percent would be
considered to have met the well
capitalized ratio requirements for
purposes of section 38 of the Federal
Deposit Insurance Act, as applicable,
and the generally applicable capital
requirements under the capital rule.16
The agencies recently published two
notices of proposed rulemakings on
frameworks that would more closely
match the regulatory capital and
liquidity requirements for certain large
banking organizations with their risk
profiles (tailoring proposals).17 The
tailoring proposals, which are consistent
with changes mandated by section 401
of EGRRCPA, would revise the scope of
which banking organizations meet the
definition of advanced approaches
banking organizations, thereby
potentially affecting which banking
organizations would be able to apply the
final rule. Each of these related
rulemakings and their interactions are
described in further detail in various
sections of this Supplementary
Information.
VerDate Sep<11>2014 17:24 Jul 19, 2019 Jkt 247001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\22JYR2.SGM 22JYR2
jbell on DSK3GLQ082PROD with RULES2
3 12 CFR part 3, subparts D & E (OCC); 12 CFR
part 217, subparts D & E (Board); 12 CFR part 324,
subparts D & E (FDIC).
4 12 CFR 3.1(c), 12 CFR 3.100(b) (OCC); 12 CFR
217.1(c), 12 CFR 217.100(b) (Board); 12 CFR
324.1(c), 12 CFR 324.100(b) (FDIC). Advanced
approaches banking organizations are required to
calculate capital ratios under both the standardized
and advanced approaches in the capital rule and are
subject to whichever ratio is lower between the two
approaches.
5 EGRPRA requires that regulations prescribed by
the agencies be reviewed at least once every 10
years. The purpose of this review is to identify,
with input from the public, outdated or
unnecessary regulations and consider how to
reduce regulatory burden on insured depository
institutions while, at the same time, ensuring their
safety and soundness and the safety and soundness
of the financial system. Public Law 104–208, 110
Stat. 3009 (1996).
6 79 FR 32172 (June 4, 2014); 80 FR 7980
(February 13, 2015); 80 FR 32046 (June 5, 2015);
and 80 FR 79724 (December 23, 2015).
7 Comments received during the EGRPRA review
process and transcripts of outreach meetings can be
found at http://egrpra.ffiec.gov/.
8 82 FR 15900 (March 30, 2017).
9 Temporary differences arise when financial
events or transactions are recognized in one period
for financial reporting purposes and in another
period, or periods, for tax purposes.
10 Minority interest is the amount of capital that
can count toward regulatory requirements in cases
in which a banking organization’s consolidated
subsidiary has issued capital that is held by third
parties.
11 82 FR 55309 (Nov. 21, 2017). These changes to
the capital rule’s transition provisions did not apply
to advanced approaches banking organizations.
12 Public Law 115–174 (May 24, 2018).
13 83 FR 48990 (September 28, 2018).
14 Public law 115–174, section 201; 84 FR 3062
(February 8, 2019).
15 84 FR 3062 (February 8, 2019).
16 See 12 CFR 3.10(a) (OCC); 12 CFR 217.10(a)
(Board); 12 CFR 324.10(a) (FDIC).
17 83 FR 61408 (November 29, 2018); 83 FR 66024
(December 21, 2018). See also https://
www.federalreserve.gov/newsevents/pressreleases/
bcreg20190408a.htm.
The agencies had previously adopted
in 2013 rules designed to strengthen the
capital rule’s requirements and improve
risk sensitivity. These rules were
intended to address weaknesses that
became apparent during the financial
crisis of 2007–08. Since 2013, the
quality of banking organizations’ capital
has significantly improved and the
quantity of capital has increased.
The capital rule adopted in 2013
provides two methodologies for
determining risk-weighted assets: (i) A
standardized approach and (ii) a more
complex, models-based approach,
which includes both the internal
ratings-based approach for measuring
credit risk exposure and the advanced
measurement approach for measuring
operational risk exposure (advanced
approaches).3 The standardized
approach applies to all banking
organizations that are subject to the
agencies’ risk-based capital rule,
whereas the advanced approaches apply
only to certain large or internationally
active banking organizations (advanced
approaches banking organizations).4
In connection with the agencies’
review of all the banking regulations
under the Economic Growth and
Regulatory Paperwork Reduction Act of
1996 (EGRPRA),5 the agencies received
over 230 comment letters from
depository institutions and their
holding companies, trade associations,
consumer and community groups, and
other interested parties.6 The agencies
also received numerous oral and written
comments at public outreach meetings.7
Many of the commenters stated that
certain aspects of the capital rule are
unduly burdensome and complex. After
reviewing the comments, the agencies
issued a Joint Report to Congress:
Economic Growth and Regulatory
Paperwork Reduction Act (the 2017
EGRPRA report) in March 2017,8
highlighting the agencies’ intent to
meaningfully reduce regulatory burden,
especially on community banking
organizations, while maintaining safety
and soundness in the banking system
and retaining the quality and quantity of
regulatory capital.
In particular, the agencies indicated
in the 2017 EGRPRA report their intent
to issue a rule that would simplify, for
non-advanced approaches banking
organizations, (i) the current regulatory
capital treatment for concentrations of
mortgage servicing assets (MSAs),
deferred tax assets (DTAs) arising from
temporary differences that an institution
could not realize through net operating
loss carrybacks (temporary difference
DTAs), and investments in the capital of
unconsolidated financial institutions;
and (ii) the calculation for the amount
of minority interest includable in
regulatory capital.9 10 The 2017 EGRPRA
report also highlighted the agencies’
intent to replace the capital rule’s
treatment of high volatility commercial
real estate (HVCRE) exposures with a
simpler treatment for most acquisition,
development, or construction
exposures.
A. Related Rulemakings
The agencies have issued several
other rulemakings over the last two
years to simplify certain aspects of the
capital rule. For example, the capital
rule included transitional arrangements
for certain requirements. Under such
transitional arrangements in the capital
rule, any amount of MSAs, temporary
difference DTAs, and investments in the
capital of unconsolidated financial
institutions that a banking organization
did not deduct from common equity tier
1 capital was risk weighted at 100
percent until January 1, 2018. In 2017,
the agencies adopted a rule (transition
rule) to allow non-advanced approaches
banking organizations to continue to
apply the transition treatment in effect
in 2017 (including the 100 percent risk
weight for MSAs, temporary difference
DTAs, and significant investments in
the capital of unconsolidated financial
institutions) while the agencies
considered the simplifications proposal.
This final rule supersedes the transition
rule and eliminates the transition
provisions that are no longer
operative.11
On May 24, 2018, the Economic
Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA) 12
became law. As described in more detail
below, section 214 of EGRRCPA
amended the capital treatment for
HVCRE exposures. Accordingly, the
agencies proposed changes to the
regulatory capital treatment of HVCRE
exposures to implement section 214
through a separate rulemaking.13
Additionally, consistent with section
201 of EGRRCPA,14 the agencies issued
a notice of proposed rulemaking
providing an optional simple leverage-
based measure of capital adequacy for
certain community banking
organizations (community bank leverage
ratio (CBLR) proposal).15 Under the
CBLR proposal, certain qualifying
community banking organizations that
maintain a community bank leverage
ratio above 9 percent would be
considered to have met the well
capitalized ratio requirements for
purposes of section 38 of the Federal
Deposit Insurance Act, as applicable,
and the generally applicable capital
requirements under the capital rule.16
The agencies recently published two
notices of proposed rulemakings on
frameworks that would more closely
match the regulatory capital and
liquidity requirements for certain large
banking organizations with their risk
profiles (tailoring proposals).17 The
tailoring proposals, which are consistent
with changes mandated by section 401
of EGRRCPA, would revise the scope of
which banking organizations meet the
definition of advanced approaches
banking organizations, thereby
potentially affecting which banking
organizations would be able to apply the
final rule. Each of these related
rulemakings and their interactions are
described in further detail in various
sections of this Supplementary
Information.
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