Press Release - Regulatory Capital Rules (Final)

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Release Date: July 2, 2013
For immediate release
The Federal Reserve Board on Tuesday approved a final rule to help ensure banks maintain strong
capital positions that will enable them to continue lending to creditworthy households and
businesses even after unforeseen losses and during severe economic downturns.
The final rule minimizes burden on smaller, less complex financial institutions.; It establishes an
integrated regulatory capital framework that addresses shortcomings in capital requirements,
particularly for larger, internationally active banking organizations, that became apparent during the
recent financial crisis. The rule will implement in the United States the Basel III regulatory capital
reforms from the Basel Committee on Banking Supervision and certain changes required by the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
"This framework requires banking organizations to hold more and higher quality capital, which acts
as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive
risks," Chairman Ben Bernanke said. "With these revisions to our capital rules, banking
organizations will be better able to withstand periods of financial stress, thus contributing to the
overall health of the U.S. economy."
Under the final rule, minimum requirements will increase for both the quantity and quality of capital
held by banking organizations. Consistent with the international Basel framework, the rule includes
a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a
common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets that will
apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital
to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage ratio of 4
percent for all banking organizations. In addition, for the largest, most internationally active banking
organizations, the final rule includes a new minimum supplementary leverage ratio that takes into
account off-balance sheet exposures.
On the quality of capital side, the final rule emphasizes common equity tier 1 capital, the most
loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital
instruments. The final rule also improves the methodology for calculating risk-weighted assets to
enhance risk sensitivity. anks and regulators use risk weighting to assign different levels of risk to
different classes of assets--riskier assets require higher capital cushions and less risky assets require
smaller capital cushions.
"Adoption of the capital rules today is a milestone in our post-crisis efforts to make the financial
system safer," Governor Daniel Tarullo said. "Along with the stress testing and capital review
measures we have already implemented, and the additional rules for large institutions that are on the

7/2/2013 10:58 AM

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way, these new rules are an essential component of a set of mutually reinforcing capital
requirements."
The banking agencies carefully reviewed the comments received on the proposal and made a
number of changes in the final rule, in particular to address concerns about regulatory burden on
community banks. For example, the final rule is significantly different from the proposal in terms
of risk weighting for residential mortgages and the regulatory capital treatment of certain unrealized
gains and losses and trust preferred securities for community banking organizations.
In total, for community banks, the changes from current regulations target a few areas that are
higher risk, but are otherwise minimal. Indeed, nine out of 10 financial institutions with less than
$10 billion in assets would meet the common equity tier 1 minimum plus buffer of 7 percent in the
final rule, according to data from March 2013.
As with all financial institutions subject to the final rule, community banks will have a significant
transition period to meet the new requirements. The phase-in period for smaller, less complex
banking organizations will not begin until January 2015 while the phase-in period for larger
institutions begins in January 2014. In another change from the proposal, savings and loan holding
companies with significant commercial or insurance underwriting activities will not be subject to the
final rule at this time. The Federal Reserve will take additional time to evaluate the appropriate
regulatory capital framework for these entities.
The Federal Reserve coordinated the final rule with the Federal Deposit Insurance Corporation
(FDIC) and the Office of the Comptroller of the Currency (OCC), which continue to review this
matter. The FDIC has provided notice that it will consider the matter as an interim final rule on July
9, 2013. The OCC expects to review and consider the matter as a final rule by July 9, 2013.
Federal Register notice (PDF)
Community Bank Guide (PDF)
Statement by Chairman Ben S. Bernanke
Statement by Governor Daniel K. Tarullo
Statement by Governor Elizabeth A. Duke
Board Votes
For media inquiries, call 202-452-2955

7/2/2013 10:58 AM