Capital

Items of Current Interest

OCC Bulletin #2007 - 27 FAS 159 and Risk-Based Capital Market Risk 7.27.07

Proposed Joint Inter-agency Regulations

Proposed Supervisory Guidance for Internal Ratings-Based Systems for Credit Risk, Adv Measurement Approaches for Operational Risk, and the Supervisory Review Process (Pillar 2) Related to Basel II Implementation; Notice 2.28.07
Risk Based Capital Stds: Market Risk 9.25.06
Risk Based Capital Stds: Adv Capital Adequacy Framework 9.25.06

Internal Ratings-Based Systems for Retail Credit Risk for Regulatory Capital 2.10.05

Proposed inter-agency supervisory guidance and request for comments

Internal Ratings-Based Systems for Corporate Credit and Operational Risk Advanced Measurement Approaches for Regulatory Capital 8.04.03

Draft inter-agency supervisory guidance and request for comments

Supervisory Inter-agency Guidance on Operational Risk Adjusted Measurement Approaches for Reg Capital 7.02.03

Summary

At its most simple level, capital is what is left of an entity after its assets have been liquidated and its liabilities paid

One of the major differences between the SEC's regulation of registered companies and the banking agencies' regulation of depository institutions lies in the area of capital

the SEC's focus is on accurate disclosure and it does not impose minimum capital requirements on registered companies
bank regulators, on the other hand, do impose minimum levels on an institution's regulatory capital
it should be noted that regulatory capital, as used by bank regulators, is not the same as capital according to Generally Accepted Accounting Principles GAAP

The Federal Reserve's guidelines for state member banks are contained in appendixes A, B, and E of Reg H The guidelines for bank holding companies are contained in appendices A, B, D, and E of Reg Y

Bank capital requirements are risk based, meaning that the riskier an asset on the bank's books, the lower the percentage of that asset's value which will be counted towards the bank's minimum capital requirements

Definitions

Primary Capital

Common stock
Perpetual preferred stock preferred stock that does not have a stated maturity date and that may not be redeemed at the option of the holder
Surplus excluding surplus relating to limited-life preferred stock
Undivided profits
Contingency and other capital reserves
Mandatory convertible instruments

Secondary Capital

Limited-life preferred stock including related surplus
Bank subordinated notes and debentures and unsecured long-term debt of the parent company and its nonbank subsidiaries
Mandatory convertible securities
To be counted as primary capital, mandatory convertible securities must meet the criteria set forth below. These criteria cover the two basic types of mandatory convertible securities:
Equity Contract Notes securities that obligate the holder to take common or perpetual preferred stock of the issuer in lieu of cash for repayment of principal, and

Equity Commitment Notes securities that are redeemable only with the proceeds from the sale of common or perpetual preferred stock
Both equity commitment notes and equity contract notes qualify as primary capital for bank holding companies, but only equity contract notes qualify as primary capital for banks

Computation of Capital Ratios - See regulations for the particular agency involved

Interpretive Materials

See Capital and Dividends booklet of the Comptroller's Licensing Manual for instructions and procedures for a national bank that wants to change its capital structure

Cadwalader Memo

International Capital Regulations - Basel II Capital Accord

Regulations and Interpretations by Agency

FRB

12 CFR Part 208 Membership of State Banking Institutions in the Federal Reserve System Reg H

Subpart D Prompt Corrective Action

OCC

12 CFR Part 3 Minimum Capital Ratios; Issuance of
Directives

Subpart A Authority and Definitions

3.1 Authority
3.2 Definitions
3.3 Transitional rules
3.4 Reservation of authority

Subpart B Minimum Capital Ratios

3.5 Applicability
3.6 Minimum capital ratios
3.7 Plan to achieve minimum capital ratios
3.8 Reservation of authority

Subpart C Establishment of Minimum Capital Ratios
for an Individual Bank

3.9 Purpose and scope
3.10 Applicability
3.11 Determination of appr individual minimum cap ratios
3.12 Procedures
3.13 Relation to other actions

Subpart D Enforcement

3.14 Remedies

Subpart E Issuance of a Directive

3.15 Purpose and scope
3.16 Notice of intent to issue a directive
3.17 Response to notice
3.18 Decision
3.19 Issuance of a directive
3.20 Change in circumstances
3.21 Relation to other administrative actions

Interpretations

3.100 Capital and surplus
Appendix A Risk-Based Capital Guidelines
Appendix B Risk-Based Capital Guidelines; Market Risk
Adjustment

12 CFR Part 5 Rules, Policies, and Procedures for
Corporate Activities

Subpart D Other Changes in Activities and Operations

Section 5.46 Changes in Permanent Capital
Section 5.47 Subordinated Debt as Capital

12 CFR Part 7 Bank Activities and Operations

Subpart B Corporate Practices

Section 7.2023 Reverse Stock Splits

Interpretive Materials Regarding National Bank Capital

Particular Types of Capital Changes

Capital Reduction with Voluntary Liquidation
Reduction of Par Value
Reverse Stock Split
Compliance with State law - 12 CFR Part 7.2000(b)
Share Exchange
Changes in Asset Composition

FDIC

12 CFR Part 325 Capital Maintenance

Subpart A Minimum Capital Requirements

325.1 Scope
325.2 Definitions
325.3 Minimum leverage capital requirement
325.4 Inadequate capital
325.5 Miscellaneous
325.6 Issuance of directives

Subpart B Prompt Corrective Action

325.101 Authority, purpose, scope
325.102 Notice of capital category
325.103 Capital measures and capital category definitions
325.104 Capital restoration plans
325.105 Mandatory and discretionary under section 38
Appendix A Statement of Policy on Risk-Based Capital
Appendix B Statement of Policy on Capital Adequacy
Appendix C Risk-Based Capital for State Non-Mbr Banks

OTS

12 CFR Part 567 Capital

567.1 Definitions
567.2 Minimum regulatory capital requirement
567.3 Individual minimum capital requirements
567.4 Capital directives
567.5 Components of capital
567.6 Risk-based capital credit risk-weight catagories
567.8 Leverage ratio
567.9 Tangible capital requirement
567.10 Consequences of failure to meet capital req
567.11 Reservation of authority
567.12 Assets and credit-enhancing interest-only strips

Supervisory Guidance on Operational Risk Advanced Measurements Approaches for Reg Capital 40 pg 7.11.03

NCUA

Part 704 Corporate Credit Unions

12 CFR 704.2 - Definitions
12 CFR 704.3 - Corporate credit union capital
12 CFR 704.19 - Wholesale corporate credit unions

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