In July, the OCC and the Federal Reserve Board approved final rules — and the FDIC approved an identical “interim final rule” — adopting Basel III bank capital requirements.
The rules establish a 4.5% minimum ratio of common equity tier 1 capital to risk-weighted assets and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets. They also increase the minimum ratio of tier 1 capital to risk-weighted assets from 4% to 6% and set a minimum leverage ratio of 4%.
The final rules contain several changes from the proposed rules designed to reduce the rules’ impact on smaller banks. For example, they retain the current risk-weighting approach for residential mortgages and, for banks with total assets of $250 billion or less, provide an opt-out from regulatory capital recognition of accumulated other comprehensive income.
The rules also “grandfather” the eligibility of trust-preferred securities to qualify as tier 1 capital for smaller bank holding companies (those with less than $15 billion in total consolidated assets). Banks with more than $250 billion in total assets must comply with the new rules beginning Jan. 1, 2014. Other banks have until Jan. 1, 2015.
OCC publishes community banking guide
The OCC in June published A Common Sense Approach to Community Banking. The booklet emphasizes best practices in three areas:
• Risk assessment and management,
• Strategic planning, and
• Capital planning.
The booklet provides community banks with welcome practical advice, as well as insights into what federal regulators are looking for. It can be downloaded here.
FTC publishes Red Flags “how to”
The Federal Trade Commission’s (FTC’s) Red Flags Rule requires financial institutions and certain other creditors to develop, implement and administer a written identity theft prevention program. The FTC recently published Fighting Identity Theft with the Red Flags Rule: A How-To Guide for Business. The guide outlines a four-step compliance process and answers frequently asked questions about the rule. You can find it here.
Lessons from resilient banks
A recent study by the St. Louis Federal Reserve Bank identifies the distinguishing features of community banks that maintained the highest supervisory ratings during the recent financial crisis (2006 to 2011). The authors identify balance sheet and income-statement ratios that separated thriving banks from the pack and supplement their analysis with detailed interview evidence. You can find the report — The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis — here.
Please contact Jim Conley for more information or with any questions at [email protected].
