On November 19, 2013, the Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency released an estimation tool to assist community banks in understanding the effect that the revised capital adequacy guidelines will have on their capital ratios. Adopted in July and October of 2013, the revised capital adequacy guidelines implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Although the tool provides only a simplified estimate that may not precisely reflect a bank’s actual capital ratios under the new standards, it should prove useful to a community bank interested in fully understanding the potential impact that the new standards will have on its capital ratios. The agencies warn that the tool requires certain manual inputs that could have a meaningful effect on the results and that banks should reference the revised capital adequacy guidelines when using the tool. For example, certain data entries simply require a bank to input information already calculated for their Call Report; other entries, such as “securitization gain on sale,” direct banks to reference section 22 of the revised capital adequacy guidelines that provides the appropriate calculation method. In addition to the estimation tool, we recommend reviewing our July 2013 alert discussing in greater detail the potential impact of the revised capital adequacy guidelines on community banks.
The capital estimation tool can be found here.