Yesterday, the OTS, Federal Reserve, OCC and FDIC approved a final rule on deductions of goodwill from Tier 1 capital. Banks, bank holding companies, and savings associations are required to deduct certain assets from Tier 1 capital, but may net any associated deferred tax liability against some of those assets before the deduction. However, such netting is not currently permitted for intangible assets, including goodwill, resulting from a taxable business combination. The final rule would allow banking organizations to reduce the amount of goodwill it must deduct from Tier 1 capital by the amount of any associated deferred tax liability. Banking organizations that utilize this option are prohibited from netting the deferred tax liability against deferred tax assets when calculating deferred tax assets regulatory capital limits.
The rule was prompted by banking organizations seeking some relief from the capital consequences of impairments in goodwill and was adopted substantially as proposed. The new rule goes into effect 30 days after publication in the Federal Register, however banking organizations may apply this rule for the regulatory reporting period ending on December 31, 2008.