A bipartisan group of 43 House members called on the prudential bank regulators to take additional steps to resolve a provision in the Basel III capital standards that disadvantages the 2,000 community banks organized as Subchapter S corporations. “Given the continued stress seen throughout community banking, we hope you will agree that more must be done on this issue,” the representatives wrote.
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 had not received a distribution. C corporation banks subject to the capital buffer pay any taxes due directly out of the bank’s income.
The FDIC said earlier this year that it will generally approve dividend requests of up to 40% by Sub S banks with CAMELS ratings of 1 or 2 but that fall below the Basel III buffer.
Read the letter.