Compliance with capital rule would be simplified under proposal, agencies assert

Simplifying compliance with certain aspects of the capital rule – particularly for non-advanced approaches banking organizations – is the focus of a notice of proposed rulemaking to be issued by the federal banking organizations Friday (Oct. 27).

The 232-page proposal is scheduled for publication in the Federal Register Friday (Oct. 27) for a 60-day comment period.

According to their notice, the Federal Deposit Insurance Corp. (FDIC), Federal Reserve and Office of the Comptroller of the Currency (OCC) are following up on a commitment the three banking agencies made to Congress last spring to “meaningfully reduce regulatory burden, especially on community banking organizations.” The commitment was made in the agencies’ report to Congress in March mandated by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).

Specifically, the agencies are proposing that non-advanced approaches banking organizations (generally, those with less than $250 billion in assets) apply a simpler regulatory capital treatment for mortgage servicing assets (MSAs); certain deferred tax assets (DTAs) arising from temporary differences; investments in the capital of unconsolidated financial institutions; and capital issued by a consolidated subsidiary of a banking organization and held by third parties (minority interest).

More generally, the notice states, the proposal also includes revisions to the treatment of certain acquisition, development, or construction exposures that are designed to address comments regarding the current definition of high volatility commercial real estate exposure (HVCRE) under the capital rule’s standardized approach.

“Under the standardized approach, the proposed revisions to the treatment of acquisition, development, or construction exposures would not apply to existing exposures that are outstanding or committed prior to any final rule’s effective date,” the proposal states.

The proposal, the agencies said, outlines three areas for reducing regulatory burden by:

  • Replacing the existing HVCRE exposure category as applied in the standardized approach with a newly defined exposure category called high volatility acquisition, development, or construction (HVADC) exposure.
  • Simplifying the current regulatory capital treatment of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions for non-advanced approaches banking organizations.
  • Adopting “a significantly simpler methodology for non-advanced approaches banking organizations to calculate minority interest limitations.”

“The agencies anticipate that the simplifications described above would lead to a reduction of regulatory reporting burden for non-advanced approaches banking organizations,” the agencies state in their notice. “Following the publication of this proposed rule, the agencies would propose for public comment corresponding changes to regulatory reporting forms and instructions.”

The regulators also noted that the proposal would make certain technical changes to the capital rule, including some changes to the advanced approaches rule, such as clarifying revisions and updating cross-references.

Notice of proposed rulemaking: Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory

Paperwork Reduction Act of 1996

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