Proposals to Eliminate Interagency Capital Differences and Include Unrealized Gains on Equity Securities in Tier 2 Capital
The federal bank regulatory agencies are proposing certain
revisions to their respective leverage and risk-based capital
rules. The planned changes are described in the two attached
Comments on the proposed rules are due by December 26, 1997.
Under the first proposal, the agencies would eliminate an
interagency difference in the definition of the minimum Tier 1
leverage capital standard. The proposal would also resolve
differences among the agencies in the risk-based capital
construction loans on presold 1-to-4 family residential
real estate loans secured by junior liens on 1-to-4 family
residential properties, and
investments in mutual funds.
Under the second proposal, the regulatory capital treatment for
net unrealized gains on equity securities under the agencies'
capital standards would be revised to permit limited amounts of
these unrealized gains to be recognized for risk-based capital
purposes. Net unrealized gains on equity securities are
currently excluded from the calculation of an institution's
regulatory capital. However, under this proposed amendment, 45
percent of the net unrealized pre-tax holding gains on
available-for-sale equity securities with readily determinable
fair values would be included as a component of Tier 2 capital.
This proposal is consistent with the Basle Accord, which serves
as the international regulatory capital framework on which the
agencies' risk-based capital standards are based.
The two proposals are being issued jointly by the FDIC, the
Office of the Comptroller of the Currency, the Office of Thrift
Supervision and the Federal Reserve Board. For further
information, please call Stephen G. Pfeifer, Examination
Specialist in the Division of Supervision, at (202) 898-8904.
Distribution: FDIC-Supervised Banks (Commercial and Savings)
NOTE: Paper copies of FDIC financial institution letters may be
obtained through the FDIC's Public Information Center, 801 17th
Street, N.W., Room 100, Washington, D.C. 20434 (800-276-6003 or
(703) 562-2200). FDIC FILs and Press Releases are available on the
FDIC web site: