Ad Hoc LRA Update

REGULATORY DEVELOPMENTS

Basel III Endgame – Regulators Release Proposed Regulatory Capital Rules

As has been well reported, federal banking regulators have long been considering a re-proposal of the previously released regulatory capital rules known as Basel III Endgame. On March 19 the FDIC, Federal Reserve Board, and the OCC jointly announced the release of three separate regulatory capital rule proposals concerning the following:

1. Basel III Regulatory Capital Framework (Regulatory Capital Rule: Category I and II Banking Organizations, Banking Organizations with Significant Trading Activity, and Optional Adoption for Other Banking Organizations);
2. Standardized Approach for Risk-weighted Assets (Regulatory Capital Rules: Regulatory Capital and Standardized Approach for Risk-weighted Assets); and
3. GSIB Surcharge (Regulatory Capital Rule: Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies; Systemic Risk Report (FR Y-15)).

As described in a memo released by the FRB, the Basel III proposal “would revise the risk-based capital requirements that apply to the largest, most internationally active firms” by instituting a single set of risk-based capital calculations and by better aligning the minimum requirements with risk. Additionally, the Standardized Approach proposal “would revise the U.S. standardized approach […] to better align capital requirements with the risk of traditional lending activities.”

Regulators are inviting comments on each proposal. Comments must be submitted by June 18. MB Schoen will review the proposals in depth to determine the impact on the risk-weighting process for BOLI assets.