The U.S. banking agencies have released a final rule amending the U.S. Basel III capital rules to simplify the capital treatment of capital deductions and recognition of minority interests for non-advanced approaches banking organizations, as well as implementing certain technical amendments applicable to both advanced approaches and non-advanced approaches banking organizations.
The final rule will:
- simplify for non-advanced approaches banking organizations the framework of regulatory capital deductions and heightened risk weights for mortgage servicing assets, deferred tax assets arising from temporary differences that an institution could not realize through net operating loss carrybacks, and investments in the capital of unconsolidated financial institutions, resulting in potentially fewer deductions for these items (collectively, the deduction framework simplifications);
- simplify for non-advanced approaches banking organizations the recognition and calculation of minority interests that are includable in regulatory capital (the minority interest simplification), resulting in potentially greater recognition of minority interests; and
- make certain technical amendments to the capital rules for both non-advanced approaches and advanced approaches banking organizations, including, for banking organizations regulated by the Federal Reserve, the removal of the prior approval requirement for redemptions or repurchases of Common Equity Tier 1 capital unless approval is required by other provisions of the capital rules or other applicable laws or regulations.
The technical amendments will be effective on October 1, 2019, and the deduction framework simplifications and minority interest simplification will be effective on April 1, 2020. The final rule also supersedes the transition rule the agencies adopted in 2017 to allow non-advanced approaches banking organizations to continue to apply the transition treatment in effect in 2017 while the agencies considered the capital simplification proposals.
Our client memorandum discusses the final rule in more detail.