2015 Updates to Regulatory Capital Rules—How Your Institution Is Affected

The Federal Reserve, Office of Comptroller of Currency, and Federal Deposit Insurance Corporation (collectively, the Federal Agencies) recently issued a Final Rule which includes changes to the ratios and ratio thresholds for capital evaluations used in the risk-based deposit assessment system. Insured depository institutions (IDIs) are currently evaluated, in part, based upon these capital evaluations. The purpose of the changes, specifically, is to conform to the prompt corrective action (PCA) capital ratio and ratio thresholds set forth in the Basel III capital rules adopted by the Federal Agencies. Basel III is intended to improve both the quality and quantity of a banking organization’s capital. The new ratio and ratio thresholds apply to all IDIs.

The Final Rule revises the definitions of “well capitalized” and “adequately capitalized” for deposit insurance assessment purposes and incorporates the common equity tier 1 capital ratio and its thresholds. It also incorporates the supplementary leverage ratio and its thresholds for applicable institutions. In addition, it makes certain amendments in terminology to better conform to PCA terms.

Effective January 1, 2015:

  1. An institution is well capitalized if it satisfies each of the following capital ratio standards: Total risk-based capital ratio (previously “total risk-based ratio”), 10.0% or greater; tier 1 risk-based capital ratio (previously “tier 1 risk-based ratio”), 8.0% or greater (as opposed to 6.0% or greater); leverage ratio (previously “tier 1 leverage ratio”), 5.0% or greater; and common equity tier 1 capital ratio, 6.5% or greater.
  2. An institution is adequately capitalized if it is not well capitalized but satisfies each of the following capital ratio standards: Total risk-based capital ratio, 8.0% or greater; tier 1 risk-based capital ratio, 6.0% or greater (as opposed to 4.0% or greater); leverage ratio, 4.0% or greater; and common equity tier 1 capital ratio, 4.5% or greater.
  3. The definition of an undercapitalized institution remains unchanged: An institution that does not qualify as either well capitalized or adequately capitalized.

Effective January 1, 2018:

  1. An advanced approaches bank,[i] including an IDI subsidiary of a covered bank holding company (BHC), is adequately capitalized if it has at least a 3.0% supplementary leverage ratio.
  2. An IDI subsidiary of a covered BHC is well capitalized if it has at least a 6.0% supplementary leverage ratio.

The Final Rule also revises the assessment base calculation for custodial banks to conform to the standardized approach for risk-weighted assets adopted in the Basel III capital rules. This rule applies to all custodial banks effective January 1, 2015.

Additionally, the Final Rule requires all highly complex institutions to measure counterparty exposure for deposit insurance assessment purposes using the Basel III standardized approach. This rule does not apply to institutions under $1 billion in total assets and is effective January 1, 2015.

If you have any questions about these updates or would like additional information about our audit services, contact the experts listed below at PYA, (800) 270-9629.



[i] As used herein, an advanced approaches bank means an IDI that is an advanced approaches national bank or Federal savings association under 12 CFR 3.100(b)(1), an advanced approaches Board-regulated institution under 12 CFR 217.100(b)(1), or an advanced approaches FDIC-supervised institution under 12 CFR 324.100(b)(1). In general, an IDI is an advanced approaches bank if it has total consolidated assets of $250 billion or more, has total consolidated on-balance sheet foreign exposures of $10 billion or more, or elects to use or is a subsidiary of an IDI, bank holding company, or savings and loan holding company that uses the advanced approaches to calculate risk-weighted assets.


Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

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