The federal bank regulatory agencies have made a regulatory capital estimation tool available on their respective websites that allows community banking organizations and others to evaluate the recently published proposals to change the regulatory capital rules. The capital estimation tool announced on September 24 may be used to analyze the potential effects on capital ratios of the agencies’ Basel III Notice of Proposed Rulemaking and Standardized Approach Notice of Proposed Rulemaking issued on June 7. The Basel III proposal focuses primarily on strengthening the level of regulatory capital requirements and improving the quality of capital. This Basel III proposal would establish more conservative standards for including an instrument in regulatory capital. The Standardized Approach proposal includes a number of enhancements to the risk sensitivity of the agencies’ capital standards. The Standardized Approach proposal also would introduce disclosure requirements that would apply to top-tier banking organizations with $50 billion or more in total assets, including disclosures related to regulatory capital instruments. The public comment period for the proposed rules ends on October 22, 2012.

Nutter Notes: The Basel III proposal would impose a new common equity Tier 1 minimum capital requirement, a higher minimum Tier 1 capital requirement, and, for banking organizations subject to the advanced approaches capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator measure. The proposal would also apply limits on a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity Tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The Standardized Approach proposal would change the agencies’ general risk-based capital requirements for determining risk-weighted assets to enhance risk sensitivity. The proposal would change the methodologies for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk. The proposal also would impose alternatives to credit ratings for calculating risk-weighted assets for certain assets, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). The changes in the Standardized Approach are proposed to take effect on January 1, 2015.