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Monday, December 15, 2014

Fed Proposes Capital Criteria for Non-Stock BHCs

The Federal Reserve proposed a rule offering examples of how the Basel III requirements for common equity tier 1 capital would be satisfied by bank holding companies not organized as stock corporations, such as limited liability companies and partnerships.

LLC membership interests and partnership interests would generally qualify as common equity tier 1 capital as long as they meet other criteria, the Fed said. For example, senior classes of interests issued by an LLC would not qualify as they are not the most subordinate claim.

The Fed acknowledged that estate and family-owned trust savings and loan holding companies do not issue capital instruments. The Fed’s proposal would thus exempt estate and family-owned trusts from the regulatory capital requirements pending further rulemaking.

Likewise, the Fed said that employee stock ownership plans that are BHCs and SHLCs would be evaluated based on the regulatory capital of their sponsor banks, again pending an additional proposal. Comments are due Feb. 28, 2015.

Read the proposed rule.

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