iOn July 15, the Federal Deposit Insurance Corporation (FDIC) proposed (1) to revise the ratios and ratio thresholds for capital evaluations used in its risk-based deposit insurance assessment system (the FDIC stated this was done “to conform to the prompt corrective action capital ratios and ratio thresholds adopted by the FDIC, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency”); (2) to revise the assessment base calculation for custodial banks to conform to the asset risk weights adopted by the FDIC, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency; and (3) to require all highly complex institutions to measure counterparty exposure for deposit insurance assessment purposes using the Basel III standardized approach credit equivalent amount for derivatives and the Basel III standardized approach exposure amount for other securities financing transactions, such as repo-style transactions, margin loans and similar transactions, as adopted by the federal banking agencies. These changes are intended to accommodate recent changes to the federal banking agencies’ capital rules that are referenced in portions of the assessments regulation.For most small banks (generally those with $10 billion or less in assets), the capital evaluation system currently in effect may be summarized as follows:
|
Capital Evaluations |
Total Risk-Based Ratio |
Tier 1 Risk-Based Ratio |
Tier 1 Leverage Ratio |
|
Well Capitalized |
≥ 10% |
≥ 6% |
≥ 5% |
|
Adequately Capitalized |
≥ 8% |
≥ 4% |
≥ 4% |
|
Undercapitalized |
Does not qualify as either Well Capitalized or Adequately Capitalized |
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Effective January 1, 2015, the following capital evaluation standards will be utilized if the proposal is adopted, as expected:
|
Capital Evaluations |
Total Risk-Based Capital Ratio |
Tier 1 Risk-Based Capital Ratio |
Common Equity Tier 1 Capital Ratio |
Leverage Ratio |
|
Well Capitalized |
≥ 10% |
≥ 8% |
≥ 6.5% |
≥ 5% |
|
Adequately Capitalized |
≥ 8% |
≥ 6% |
≥ 4.5% |
≥ 4% |
|
Undercapitalized |
Does not qualify as either Well Capitalized or Adequately Capitalized |
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|
In the current and proposed scenarios, an institution is Adequately Capitalized if it is not Well Capitalized, but satisfies each of the listed capital ratio standards for Adequately Capitalized. |
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The FDIC also stated:
[t]o the extent that the definitions of components of the ratios—such as tier 1 capital, total capital, and risk weighted assets—change in the future for [prompt corrective action] purposes, the assessment system will automatically incorporate these changes as implemented under the Basel III capital rules. Thus, for example, if the Federal banking agencies adopt a final rule redefining the denominator of the supplementary leverage ratio, as they have proposed, 79 FR 24596 (May 1, 2014), the new definition will automatically become applicable to the assessment system.
Comments are due 60 days after publication in the Federal Register.
