[Federal Register Volume 74, Number 54 (Monday, March 23, 2009)]
[Rules and Regulations]
[Pages 12076-12078]
From the Federal Register Online via the Government Publishing 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