United States: It's Not Much, But It's A Start: The Regulators Freeze Certain Capital Requirements

On August 22, 2017, the Office of the Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance Corporation (the "FDIC") and the Board of Governors of the Federal Reserve System (the "FRB") (the OCC, FDIC and FRB collectively, the "Agencies") issued a proposed rule that would delay the effectiveness of certain rules which were designed to implement the Basel III capital standards (the "Proposed Rule"). Specifically, under the Proposed Rule, the Agencies are proposing to freeze certain transition and phase-in periods of Basel III capital standards relating to mortgage servicing rights, certain deferred tax assets and investments in certain unconsolidated financial institutions. The Agencies have specifically stated in the Proposed Rule that they expect in the near term to issue a separate proposal to simplify the regulatory capital treatment of the foregoing items. As a result, the Proposed Rule will allow most banks to avoid the burden of changing the capital treatment of these items as of January 1, 2018 while the Agencies draft the separate proposal to simplify the capital treatment of these items.


In 2010, in the depths of the recession, Congress mandated enhanced bank capital requirements as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Specifically, the Collins Amendment to the Dodd-Frank Act amended the definition of capital and established minimum capital and leverage requirements for bank subsidiaries, bank holding companies and systemically important nonbank financial companies.

In July of 2013, the Agencies announced the final rules for implementation of the Basel III international regulatory framework, which was produced in 2010 by the Basel Committee on Banking Supervision at the Bank for International Settlements (the "Basel Capital Rules"). For the first time, the Basel Capital Rules sought to identify and bolster capital at the consolidated level, rather than at the bank level. The idea being that bolstering capital at the consolidated level would likely help the holding company absorb losses when a subsidiary financial institution finds itself suffering financial pressure.

The Basel Capital Rules required, among other things, the deduction of certain other items from the calculation of capital and a higher risk weighting of asset-types deemed to be of higher risk. Beginning in 2014 and culminating in 2018, the Basel Capital Rules required a transition and phase-in period for the deduction from capital of mortgage servicing assets ("MSAs"), certain deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks ("DTAs") and certain investments in the capital of unconsolidated financial institutions above certain thresholds. In addition, the Basel Capital Rules would transition and phase-in higher risk weighting for the above identified assets. The last phase of the Basel Capital Rules transition would become fully effective on January 1, 2018.

The Proposed Rule would indefinitely delay the transition and phase-in periods of these new capital requirements, while the Agencies prepare the separate proposal to simplify the capital treatment of these items and meaningfully reduce the regulatory burden on community banking organizations.

Does the Proposed Rule impact my financial institution?

The Proposed Rule will impact all "non-advanced approaches" financial institutions that hold the following specific types of assets on its books: (i) MSAs; (ii) DTAs; (iii) significant investments in the capital of unconsolidated financial institutions in the form of common stock; (iv) non-significant investments in the capital of unconsolidated financial institutions; and (v) significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock.

A "non-advanced approaches" financial institution is generally defined as an institution with less than $250 billion of total consolidated assets or those institutions with less than $10 billion in foreign asset exposure. The Agencies maintain discretion to require an institution with a highly complex portfolio to utilize the advanced approaches framework. However, for community banks, such discretionary designation is rare. It is safe to say that most, if not all, community banks are non-advanced approaches financial institutions.

What does the Proposed Rule change?

If finalized, the Proposed Rule wouldn't really change anything, rather it would freeze certain provisions of the Basel Capital Rules. This would have the result of keeping the current regulatory capital treatment for MSAs, DTAs and certain investments in financial institutions in place. The below table compares the impact of the Proposed Rule to the Basel Capital Rules.

What is the timeframe for finalization?

The Proposed Rule is subject to a 30-day comment period, which will begin once the Proposed Rule is published in the Federal Register. The final implementation date has not been specified, but is expected prior to December 31, 2017.

What does this mean for your institution?

In sum, should the Proposed Rule be finalized, the Proposed Rule would likely have a marginal impact on community banks' regulatory capital ratios, provided the community banks hold the assets covered by the Proposed Rule. However, the degree of regulatory relief for each financial institution will differ considerably based upon its portfolio.

Although regulatory relief is currently moving slowly in Congress, as noted above, the Agencies are working on a separate proposal to simplify capital treatment of the foregoing items. In addition, the community banking industry's regulatory relief chorus continues to grow in Washington. With the Proposed Rule's announcement, Thomas M. Hoenig, FDIC Vice Chairman, declared that he hopes the Proposed Rule "...is the first step in a more comprehensive approach to simplifying and easing the regulatory burden for community banks." A sentiment no doubt shared by the vast majority of the community banking industry.

While the Proposed Rule's level of regulatory relief will not make all community banks call for an immediate celebration, one thing is for sure – it is a start.

To view the full text of the Proposed Rule, click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.