In June, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) jointly proposed three new rules that would impose significant new capital requirements on U.S. banking institutions (the “Proposed Rules”). At the time, the Agencies indicated that the Proposed Rules would be finalized in time to take effect on Jan. 1, 2013. However, due to the volume of comments received during the comment period (many expressing significant concerns), the Proposed Rules have not been finalized and, today, the Agencies announced that they are no longer planning for a January 1 effective date. It is likely that this delay means that the Agencies are considering making material changes to the Proposed Rules.

As currently written, the three Proposed Rules would represent the most significant revisions to the Agencies’ capital rules since 1989, when the Agencies implemented risk-based capital requirements based on the 1988 accord of the Basel Committee on Banking Supervision (“BCBS”), known as “Basel I.”

The first of the Proposed Rules would implement section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which requires the Agencies to establish minimum risk-based and leverage capital requirements. In particular, this rule would revise the Agencies’ current capital rules in accordance with the framework published by the BCBS in December 2010 and revised in June 2011, known as “Basel III.” The new risk-based and leverage capital requirements would apply to all insured banks and savings associations, top-tier bank holding companies domiciled in the United States with more than $500 million in assets and savings and loan holding companies that are domiciled in the United States. The proposed rule includes implementation of 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. The proposed rule also includes limits on a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified “buffer” of common equity tier 1 capital in addition to the minimum risk-based capital requirements. The proposed rule also would revise the agencies’ prompt corrective action framework, which constraints the activities of insured depository institutions based on their level of regulatory capital, by incorporating the new regulatory capital minimums and updating the definition of tangible common equity.

The second of the Proposed Rules would revise the risk-based capital rules in accordance with section 939A and section 171 of the Dodd-Frank Act, which impose an advanced approach of risk-based capital rules consistent with Basel III and other changes to the Basel Committee’s capital standards. Generally, the advanced approaches rules would apply to such institutions with $250 billion or more in consolidated assets or $10 billion or more in foreign exposure.

The third of the Proposed Rules would revise and harmonize rules for calculating risk-weighted assets to enhance risk sensitivity by incorporating aspects of the standardized framework of the BCBS’s 2004 accord (known as “Basel II“) and alternatives to credit ratings, consistent with section 939A of the Dodd-Frank Act. The revisions include methods for determining risk-weighted assets for residential mortgages, securitization exposures and counterparty credit risk. The proposed rule also includes disclosure requirements that would apply to U.S. banking organizations with $50 billion or more in total assets.