District Circular Letters
March 8, 1999
REGULATIONS H and Y:
RISK-BASED CAPITAL STANDARDS
To State Member Banks,
Bank Holding Companies,
and Others Concerned
in the Twelfth Federal Reserve District
Final Rules Regarding Risk-Based Capital Standards (Dockets
R-0947 and R-0948)
The Federal Reserve Board has issued two final rules amending the risk-based
and leverage capital standards for state member banks (Regulation H) and
the risk-based capital standard for bank holding companies (Regulation Y).
The rules are effective April 1, 1999.
The rules address the risk-based capital treatment of construction loans
on presold residential properties, junior liens on 1- to 4-family residential
properties, and investments in mutual funds.
For state member banks and bank holding companies, there is no
change in the risk-based capital treatment of construction loans on presold
residential properties or junior liens on 1- to 4-family residential properties.
With regard to the risk-based capital treatment of investments in mutual
funds, state member banks and bank holding companies may continue to assign
an investment in a mutual fund to the risk category appropriate to the highest
risk-weighted asset allowable under the stated investment limits in the
fund's prospectus, or at their option, assign the investment on a pro rata
basis to different risk categories according to the limits of the fund's
prospectus. The total risk weight of the fund under either risk-weighting
method may not be less than 20 percent.
With regard to the leverage capital standard for state member banks, institutions
with a composite rating of "1" under the Uniform Financial Institutions
Rating System will continue to have a minimum ratio of Tier 1 Capital to
total assets (leverage ratio) of 3.0 percent.
Other institutions will now be required to maintain a minimum leverage ratio
of 4.0 percent, rather than the previous minimum of 3.0 percent plus an
additional cushion of 100 to 200 basis points. The Board notes that an institution
may be required to maintain higher-than-minimum capital levels if warranted,
and emphasizes that an institution should maintain a capital level commensurate
with its risk profile.
The Board issued an amendment addressing the bank holding company leverage
capital guidelines in June 1998 (see our letter of June 11, 1998).
These final rules were adopted on a joint basis with the Office of the Comptroller
of the Currency, the Federal Deposit Insurance Corporation, and the Office
of Thrift Supervision.
Copies
Copies of the Board's notices (Docket
R-0947 and Docket
R-0948) are available from our Corporate Services Department.
To request copies to be sent via mail, please call (415) 974-2748.
To request copies to be sent via fax, please call (415) 974-3333,
and specify document numbers 4171 and 4172,
respectively.
Additional Information
For additional information regarding these matters, please contact our Banking
Supervision and Regulation Department, at (415) 974-3007.
FEDERAL RESERVE BANK OF SAN FRANCISCO
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