To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
The Federal Reserve Board requests public comment on a proposed rule that would retain trust preferred securities in the tier 1 capital of bank holding companies (BHCs), but with stricter quantitative limits and clearer qualitative standards.
Under the proposal, after a three-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25 percent of tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in tier 2 capital, subject to restrictions. Internationally active BHCs would generally be expected to limit trust preferred securities and certain other capital elements to 15 percent of tier 1 capital elements, net of goodwill.
The proposed revisions address supervisory concerns, competitive equity considerations, and recent changes in accounting for trust preferred securities under generally accepted accounting principles (GAAP). The proposal also would strengthen the definition of regulatory capital by incorporating longstanding policies that are not explicitly set forth in the Board's current capital guidelines. However, the proposal would not affect how BHCs account for trust preferred securities on their regulatory reports filed with the Federal Reserve. Consistent with longstanding Federal Reserve direction, BHCs follow GAAP in accounting for these instruments for regulatory reporting purposes.
Comments are requested by July 11, 2004.
Bank Supervision Officer