Capital Adequacy Guidelines: Trust Preferred Securities and the Definition of Capital; Delay of Implementation Date, 12076-12078 [E9-6096]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 74, Number 54 (Monday, March 23, 2009)]
[Rules and Regulations]
[Pages 12076-12078]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6096]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1193]


Capital Adequacy Guidelines: Trust Preferred Securities and the 
Definition of Capital; Delay of Implementation Date

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule.

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SUMMARY: This final rule delays the March 31, 2009, implementation date 
for certain amendments to the Board's capital adequacy guidelines for 
bank holding companies on trust preferred securities and the definition 
of capital published by the Board in the Federal Register on March 10, 
2005. Due to the continuing stressed conditions in the financial 
markets and in order to promote stability in the financial markets and 
the banking industry as a whole, the Board has decided to delay until 
March 31, 2011, the implementation date of new requirements that: limit 
the aggregate amount of cumulative perpetual preferred stock, trust 
preferred securities, and minority interests in the equity accounts of 
most consolidated subsidiaries (collectively, restricted core capital 
elements) included in the tier 1 capital of all bank holding companies; 
require bank holding companies to deduct goodwill, less any associated 
deferred tax liability, from the sum of core capital elements in 
calculating the amount of restricted core capital elements that may be 
included in tier 1 capital; and impose further limits on the

[[Page 12077]]

amount of restricted core capital elements that internationally active 
bank holding companies may include in tier 1 capital.

DATES: This amendment is effective March 23, 2009.

FOR FURTHER INFORMATION CONTACT: Norah M. Barger, Deputy Director, 
(202) 452-2402, or John Connolly, Senior Project Manager, (202) 452-
3621, Division of Banking Supervision and Regulation; or April C. 
Snyder, Counsel, (202) 452-3099, Benjamin W. McDonough, Senior 
Attorney, (202) 452-2036, or Kathleen M. O'Day, Deputy General Counsel, 
(202) 452-3786, Legal Division; Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Ave., NW., Washington, DC 
20551. For the hearing impaired only, Telecommunication Device for the 
Deaf (TDD), (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 10, 2005, the Board published in the Federal Register (70 
FR 11827) a final rule (final rule) amending its risk-based capital 
standards for bank holding companies (BHCs) (1) to allow the continued 
inclusion of outstanding and prospective issuances of trust preferred 
securities in the tier 1 capital of BHCs, subject to stricter 
requirements,\1\ and (2) to revise the requirements generally applied 
to the aggregate amount of restricted core capital elements (including 
trust preferred securities) included in the tier 1 capital of BHCs.\2\ 
These new limits on trust preferred securities and other restricted 
core capital elements (new limits) were scheduled to become effective 
on March 31, 2009. As noted in the preamble to the final rule, the 
Board adopted the final rule to address supervisory concerns, 
competitive equity considerations, and changes in generally accepted 
accounting principles and to strengthen the definition of regulatory 
capital for BHCs.\3\
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    \1\ 70 FR 11827 (March 10, 2005).
    \2\ See 12 CFR part 225, Appendix A, sections II.A.1.b.i and 
II.A.2.d.iv.
    \3\ 70 FR 11827 (March 10, 2005).
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    Under limits on restricted core capital elements that are currently 
in effect, a BHC generally may include in tier 1 capital cumulative 
perpetual preferred stock and trust preferred securities up to 25 
percent of the sum of core capital elements (including cumulative 
perpetual preferred stock and trust preferred securities).\4\ The new 
limits would limit restricted core capital elements includable in the 
tier 1 capital of a BHC to 25 percent of the sum of core capital 
elements (including restricted core capital elements), net of goodwill 
less any associated deferred tax liability. In addition, 
internationally active BHCs would be subject to a further 
limitation.\5\ In particular, the amount of restricted core capital 
elements (other than qualifying mandatory convertible preferred 
securities) that an internationally active BHC could include in tier 1 
capital could not exceed 15 percent of the sum of core capital elements 
(including restricted core capital elements), net of goodwill less any 
associated deferred tax liability.\6\
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    \4\ In addition, on October 22, 2008, the Board issued an 
interim final rule that allows BHCs to include new senior perpetual 
preferred securities issued to the U.S. Department of the Treasury 
(Treasury) under the capital purchase program announced by the 
Secretary of the Treasury on October 14, 2008, in tier 1 capital 
without limit. 73 FR 62851 (October 22, 2008).
    \5\ An internationally active BHC is defined as a BHC that (1) 
as of its most recent year-end FR Y-9C reports total consolidated 
assets equal to $250 billion or more or (2) on a consolidated basis, 
reports total on-balance-sheet foreign exposure of $10 billion or 
more on its filings of the most recent year-end FFIEC 009 Country 
Exposure Report. See 12 CFR part 225, appendix A, section 
II.A.1.b.i.(2) at n. 6.
    \6\ See 70 FR 11830.
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II. Postponement of the Implementation Date

    On May 19, 2004, the Board issued a notice of proposed rulemaking 
(proposed rule) under which the new limits would have come into force 
on March 31, 2007.\7\ Several commenters to the proposed rule asked the 
Board to extend the transition period for compliance with the new 
limits.\8\ These commenters noted that an extended transition period 
would allow affected BHCs substantially more flexibility in managing 
their compliance with the new limits through a combination of redeeming 
outstanding trust preferred securities with expired no-call periods and 
generating capital internally through the retention of earnings.\9\ For 
these reasons, and consistent with comments received, in the final rule 
the Board established an implementation date for the new limits of 
March 31, 2009, to allow BHCs to transition to the new limits.
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    \7\ See 69 FR 28851 (May 19, 2004).
    \8\ 70 FR 11832.
    \9\ Id.
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    In light of conditions in the capital markets, the Board has 
considered whether an additional extension of the implementation date 
of the new limits is appropriate. The economic conditions for the past 
18 months, and currently, have created a situation in which requiring 
adherence to the new limits by the March 31, 2009, implementation date 
creates a substantial burden for many BHCs in a way that was not 
anticipated when the final rule was adopted in 2005. In the prevailing 
market conditions, it is especially important for BHCs to expend 
efforts to increase their overall capital levels, although it is 
challenging to do so now through retention of earnings, the most 
typical means. Therefore, to promote stability in the financial markets 
and the banking industry as a whole, the Board has decided to further 
delay the implementation date of the new limits until March 31, 2011. 
The Board believes that this extended transition period would allow 
affected BHCs sufficient flexibility to satisfy the Board's risk-based 
and leverage capital guidelines during the current stressed market 
conditions.\10\
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    \10\ With respect to the Board's first quarter 2009 regulatory 
reports, the Board will provide supplemental instructions to BHCs on 
how to report overages in their restricted core capital elements.
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    The Board notes that the new limits apply only to regulatory 
capital calculations and do not affect the ability of restricted core 
capital instruments to absorb losses. However, as a general matter and 
in light of the Board's continuing interest in assuring the appropriate 
regulatory capital treatment of trust preferred securities (and other 
restricted core capital elements), institutions that intend to issue 
new restricted core capital instruments should consult with appropriate 
Reserve Bank and Board staff prior to issuance.

Administrative Procedure Act

    Pursuant to sections 553(b) and (d) of the Administrative Procedure 
Act (APA) (5 U.S.C. 553(b) and (d)), the Board finds that there is good 
cause for delaying the implementation date of the final rule, and that 
it is impracticable, unnecessary, or contrary to the public interest to 
issue a notice of proposed rulemaking and provide an opportunity to 
comment before the implementation date. The Board has adopted the rule 
in light of, and to help address, the potential adverse effects of 
imposing new regulatory capital restrictions, the continuing stressed 
market conditions, and BHCs' efforts to increase their overall capital 
levels. Because the implementation date of the final rule (March 31, 
2009) is imminent, it is impracticable to seek further public comment 
before issuing this amendment to the final rule delaying the 
implementation date of the new limits. In addition, the delay will 
further the Board's efforts, as well as the efforts of

[[Page 12078]]

the other Federal banking agencies and Treasury, to respond to the 
current financial situation.

Regulatory Flexibility Act

    Under section 604 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 
604), a final regulatory flexibility analysis is required only for 
notice-and-comment rulemakings conducted under section 553 of the APA. 
Since the Board finds that there is ``good cause'' under the APA for 
not proceeding with notice-and-comment rulemaking for this amendment to 
the implementation date for the final rule, the RFA does not require 
that a final regulatory flexibility analysis be provided for this 
amendment.
    The Board provided regulatory flexibility analysis in the preamble 
to the final rule published on March 10, 2005 (70 FR 11827-11838). In 
that regulatory flexibility analysis, the Board considered the likely 
impact of the final rule on small entities and determined that the 
final rule will not have a significant impact on a substantial number 
of small entities.

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3506), the Board has reviewed this rule to assess 
any information collections. There are no collections of information as 
defined by the Paperwork Reduction Act in this rule.

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 
requires the Federal banking agencies to use plain language in all 
proposed and final rules published after January 1, 2000. The Board 
invited comment on how to make the final rule easier to understand.\11\ 
No commenter indicated that the proposed rule should be revised to make 
it easier to understand. In the preamble to the final rule the Board 
indicated that it believes the final rule is written plainly and 
clearly.\12\
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    \11\ 69 FR 28856 (May 19, 2004).
    \12\ 70 FR 11834 (March 10, 2005).
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List of Subjects in 12 CFR Part 225

    Administrative Practice and Procedure, Banks, Banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

0
For the reasons stated in the preamble, the Board of Governors of the 
Federal Reserve System amends part 225 of chapter II of title 12 of the 
Code of Federal Regulations as follows:

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
1. The authority citation for part 225 continues to read as follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 
3909; 15 U.S.C. 6801 and 6805.

Appendix A to Part 225 [Amended]

0
2. In Appendix A to part 225, paragraphs II.A.1.b.ii. and II.A.2.d.iv. 
are amended by removing ``2009'' and adding ``2011'' in its place 
wherever it appears.

    By order of the Board of Governors of the Federal Reserve 
System, March 16, 2009.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E9-6096 Filed 3-20-09; 8:45 am]
BILLING CODE 6210-02-P