ABA continues to encourage Sub S bankers to write to the banking agencies urging them to remedy a capital buffer provision in the Basel III rules that would disadvantage banks organized as S Corporations.
Basel III’s capital conservation buffer prevents banks from making distributions to shareholders when capital falls below a threshold. But because federal tax liability passes through a Sub S bank to individual shareholders, Sub S shareholders might face tax liability even when they have not received a distribution.
This would effectively force S-Corp banks to accumulate capital at a rate about 50 percent higher than C-Corp banks with comparable income. ABA has prepared a sample letter for bankers to use that urges regulators to allow Sub S banks to make distributions equal to the taxes due on the bank’s undistributed income.
Read the sample letter.