On September 15, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (collectively, Banking Agencies) issued a proposed rule that would permit banks, holding companies and savings associations to reduce the amount of goodwill that a banking organization must deduct from tier 1 capital by the amount of any deferred tax liability associated with that goodwill (Proposed Rule). A banking organization that reduces the amount of goodwill deducted from tier 1 capital by the amount of the associated deferred tax liability would not, however, be permitted to net this deferred tax liability against deferred tax assets when determining regulatory capital limitations on deferred tax assets.
According to the commentary in the Proposed Rule, this change “would effectively reduce the amount of goodwill that a banking organization must deduct from Tier 1 capital and would reflect a banking organization’s maximum exposure to loss in the event that such goodwill is impaired or derecognized for financial reporting purposes.”
The Proposed Rule notes that its issuance resulted from several requests made to the Banking Agencies to permit the amount of goodwill arising from a taxable business combination that must be deducted from tier 1 capital to be reduced by any associated deferred tax liability. Upon review of the proposal, many in the banking industry believe the Proposed Rule’s adoption could help revive banking mergers and acquisitions.
Comments on the Proposed Rule are due 30 days from the date of publication in the Federal Register.