Current through 2024-13, March 27, 2024
A. General rule.
Financial institutions must maintain at least the minimum leverage capital
requirement set forth in Section 4B. The capital standards in this regulation
are the minimum acceptable for financial institutions whose overall financial
condition is fundamentally sound, who are well-managed and who have no material
or significant financial weaknesses. Not with-standing the foregoing, the
superintendent may require a financial institution to maintain a higher capital
level based on the institution's particular risk profile. Where the
superintendent determines that the financial history or condition, managerial
resources and/or the future earnings prospects of a financial institution are
not adequate, or where a institution has sizable off-balance sheet or funding
risks, excessive interest rate risk exposure, or a significant volume of assets
classified substandard, doubtful or loss or otherwise criticized, the
superintendent may determine that the minimum amount of capital for that
institution is greater than the minimum standards stated in this section. These
same criteria will apply to any financial institution making an application to
the superintendent to merge or consolidate with another institution or acquire
the assets and assume the liabilities of another institution where such
application requires the superintendent to consider the adequacy of the
institution's capital structure.
B.
Minimum leverage capital requirement.
(1) The
minimum leverage capital requirement for a financial institution shall consist
of a ratio of Tier 1 capital to total assets of not less than 3% if the
superintendent determines that the institution is not anticipating or
experiencing significant growth and has well-diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity,
good earnings and in general is considered a strong financial institution,
rated composite 1 under the Uniform Financial Institutions Rating System (the
CAMEL rating system) established by the Federal Financial Institutions
Examination Council and adopted by the superintendent.
(2) For all but the most highly-rated
financial institutions meeting the conditions set forth in paragraph B(1) of
this section, the minimum leverage capital requirement for a financial
institution shall be 3% plus an additional cushion of at least 100 to 200 basis
points and, therefore, shall consist of a ratio of Tier 1 capital to total
assets of not less than 4%. In all cases, financial institutions should hold
capital commensurate with the level and nature of all risks.
C. Financial institutions with
less than the minimum leverage capital requirement.
(1) A financial institution operating with
less than the minimum leverage capital requirement does not have adequate
capital and, therefore, it has inadequate financial resources.
(2) A financial institution having less than
the minimum leverage capital requirement shall, within 60 days of the date as
of which it fails to comply with the capital requirement, submit to the
superintendent for review and approval a reasonable plan describing the means
and timing by which the institution shall achieve its minimum leverage capital
requirement.
D.
Exceptions. Notwithstanding the provisions of paragraphs A, B and C of this
section, the superintendent may approve an application pursuant to the Maine
Banking Code where capital adequacy must be considered if the superintendent
finds that such approval is in the best interests of the public convenience and
advantage or if the superintendent finds that the applicant has committed to
and is in compliance with a reasonable plan to meet its minimum leverage
capital requirement within a reasonable period of time.
E. Inadequate capital as an unsafe and
unsound practice or condition. Any financial institution which has less than
its minimum leverage capital requirement may be deemed to be engaged in an
unsafe and unsound practice pursuant to Title 9-B MRSA2311(A)(1). However, any
financial institution that has entered into, and is in compliance with, a
written agreement with the superintendent or has submitted to the
superintendent, and is in compliance with a plan approved by the superintendent
to increase its Tier 1 leverage capital ratio to such level as the
superintendent deems appropriate and to take such other action as may be
necessary for the institution to be operated so as not to be engaged in such an
unsafe and unsound practice, will not be deemed to be engaged in an unsafe and
unsound condition pursuant to Title 9-B MRSA2311(A)(1) on account of its
capital ratios. The superintendent may take any enforcement action against a
financial institution with capital above the minimum requirement if the
specific circumstances deem such action to be appropriate.
F. Miscellaneous.
(1) Reservation of authority. Notwithstanding
the definition of "Tier 1 capital" in Section
3(I) of this
regulation, the superintendent may, if he finds a newly developed or modified
capital instrument or a particular balance sheet entry or account to be the
functional equivalent of a component of Tier 1 capital, permit one or more
financial institutions to include all or a portion of such instrument, entry,
or account as Tier 1 capital, permanently, or on a temporary basis, for
purposes of this regulation. Similarly, the superintendent may, if he finds
that a particular Tier 1 capital component or balance sheet entry or account
has characteristics or terms that diminish its contribution to a financial
institution's ability to absorb losses, require the deduction of all or a
portion of such component, entry, or account from Tier 1 capital.
(2) Treatment of purchased mortgage servicing
rights. For purposes of determining regulatory capital under this regulation,
purchased mortgage servicing rights will be deducted from assets and from
equity capital to the extent that the rights do not meet the following
conditions, limitations and restrictions:
(a)
An independent market valuation of the rights shall be performed at least
annually and an estimated fair market value shall be calculated by the
financial institution at least quarterly.
(b) The rights shall be carried at a book
value that does not exceed the discounted amount of estimated future net
servicing income of the rights. Management of the financial institution shall
review the carrying value at least quarterly and adjust the book value as
necessary.
(c) For purposes of
calculating regulatory capital under this regulation (but not for financial
statement purposes), the rights will be reduced to an amount equal to the
lesser of:
(I) 90% of the fair market value
of the rights, determined in accordance with paragraph (F)(2)(a) of this
section; or
(ii) 90% of the original purchase
price paid for the rights; or
(iii)
100% of the remaining unamortized book value of the rights, determined in
accordance with paragraph (F)(2)(b) of this section.
(3) Restrictions
relating to capital components. To qualify as Tier 1 capital under this
regulation, a capital instrument must not contain, or be subject to, any
conditions, covenants, terms, restrictions, or provisions that are inconsistent
with safe and sound banking practices. A condition, covenant, term,
restriction, or provision is inconsistent with safe and sound banking practices
if it:
(a) Unduly interferes with the ability
of the issuer to conduct normal banking operations;
(b) Results in significantly higher dividends
or interest payments in the event of deterioration in the financial condition
of the issuer;
(c) Impairs the
ability of the issuer to comply with statutory or regulatory requirements
regarding the disposition of assets or incurrance of additional debt;
or
(d) Limits the ability of the
superintendent to take any necessary action to resolve a problem financial
institution or failing financial institution situation. Other conditions and
covenants that are not expressly listed in paragraphs (F)(3)(a) through
(F)(3)(d) of this section also may be inconsistent with safe and sound banking
practices.
G.
Federal regulations. It is recognized that the federal bank regulatory agencies
have promulgated regulations establishing minimum capital requirements,
including risk-based capital ratios. It is further recognized that there may
exist differences in scope and coverage between this regulation and those
promulgated by the federal banking agencies. It is not the intent of this
regulation to include in capital any component not included by the appropriate
federal banking agency. To the contrary, besides any other restriction or
limitation stated herein, each financial institution must fully comply with the
regulations of its applicable federal bank regulatory agency.
