On July 21, 2014, the Federal Deposit Insurance Corporation (“FDIC”) clarified how it will evaluate requests by S-Corporation Banks to make dividend payments that would otherwise be prohibited under the Basel III capital conservation buffer. Under the Basel III capital rules, finalized on April 8, 2014, a bank would be prohibited or limited in the amounts of dividends it can pay when its risk-based capital ratios fall below certain thresholds. These rules, imposing a capital conservation buffer, would be scheduled to be phased in during the years 2016-2018, and be fully effective in 2019. The capital conservation buffer requirements allow a bank to request approval from its primary federal regulator to make a dividend payment that would not otherwise be permitted by the rules. The regulator may approve such request if warranted based on safety-and-soundness considerations. Under the new guidance issued by the FDIC and absent significant safety-and-soundness concerns about the requesting bank, the FDIC announced that it generally would expect to approve exception requests by well-rated S-corporation banks that are limited to the payment of dividends to
cover shareholders’ taxes on their portion of an S-corporation’s earnings. 

The full text of the FDIC guidance is available at: http://www.fdic.gov/news/news/financial/2014/fil14040.html.