An interim final rule implemented in March and finalized in August to ensure against abrupt, automatic regulatory restrictions on banks’ capital distributions is finally making it into the Federal Register.
Slated to publish in the Register Thursday, the final rule was adopted by the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC). It finalizes without change two interim final rules (one of which was adopted only by the Fed Board) issued in March to make more gradual, “as intended,” the automatic restrictions on capital distributions, such as share repurchases, dividend payments, and bonus payments.
An FDIC Financial Institution Letter in March noted that the interim final rule revised the definition of eligible retained income in such a way as to reduce the likelihood of a banking organization suddenly being made subject to abrupt, restrictive limitations in capital distributions when capital falls below expected levels. It noted the possibility of such a scenario due to the economic disruption caused by COVID-19.
The final rule has a Jan. 1, 2021, effective date.