Some banks may apply capital rule simplifications on Jan. 1, letter reminds

Non-advanced approaches banks may apply capital rule simplifications on Jan. 1, rather than wait until April 1, the Federal Deposit Insurance Corp. (FDIC) reminded Monday in a financial institution letter (FIL).

Under a joint, final rule issued by the federal banking agencies in July (the Regulatory Capital: Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996), the non-advanced approaches banks could adopt the Jan. 1 date for the simplified capital rule if they elected to do so. (An “advanced approach” allows a bank to calculate regulatory capital charges using internal models, based on internal risk variables and profiles, and not on exposure proxies such as gross income.) The banks could also wait until the quarter beginning April 1, 2020, to adopt the simplifications.

However, the non-advanced approaches institutions must adopt the capital simplifications on April 1, the FDIC letter noted.

“Non-advanced approaches banking organizations can implement the simplified capital treatment in the simplifications rule by completing their Call Report for the first quarter or second quarter of 2020, as applicable under this final rule,” the FIL stated. “The transition provisions to the regulatory capital rules issued by the agencies in November 2017 will cease to apply to non-advanced approaches banking organizations in the quarter in which the banking organization adopts the simplifications rule.”

The letter also noted that the simplifications rule is also applicable to non-advanced approaches banking organizations that qualify and elect to use the community bank leverage ratio (CBLR) framework.

Revised Effective Date for Simplifications to the Capital Rule

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