Following a grassroots advocacy campaign by ABA and its members, the FDIC yesterday provided guidance to S-corporation banks on how it will handle requests for exceptions to limits on dividends. The exceptions will help to address, and in some cases remedy, a disadvantage for S-corp banks in Basel III’s capital buffer provision. Under the capital buffer, S-corp shareholders might face a tax liability even if they had not received a dividend -- thus making it more difficult to attract capital.
Banks with CAMELS ratings of 1 or 2 that request a dividend of no more than 40%—what the agency considers sufficient to cover any tax liability—and will remain adequately capitalized after the dividend will generally have their requests approved, the FDIC said.
Read the guidance.