Today the Federal Reserve Board approved a final regulatory capital rule to implement the Basel III agreement as well as provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. (See http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.) The Board received voluminous comments on the proposed version of the capital rule, and the final rule reflects consideration of and responsiveness to some of those comments. Similar rulemaking from the OCC and the FDIC is expected shortly.

A few notable aspects of the final rule include the following: it retains the current risk weights for residential mortgage loans, allows non-advanced approaches banking organizations (i.e., banks other than the few largest) to make a one-time election to opt out of the requirement to recognize unrealized gains and losses in regulatory capital, and grandfathers trust-preferred securities issued prior to May 19, 2010 for banking organizations that had less than US$15 billion in assets as of December 31, 2009, or that were in mutual form as of May 19, 2010. The rule also exempts savings and loan holding companies with significant insurance underwriting or commercial activities, at least on a temporary basis, while the Board continues to evaluate regulatory capital requirements for these entities.

The phase-in period for advanced approaches banking organizations begins in January 2014, while the phase-in period for non-advanced approaches banking organizations begins in January 2015.