Agencies Adopt Final Rules Concerning the Regulatory Capital Treatment of
Nonfinancial Equity Investments
The Federal Reserve Board, Federal Deposit Insurance Corporation and
Office of the Comptroller of the Currency today announced the adoption
of final rules governing the regulatory capital treatment of equity investments
in nonfinancial companies held by banks, bank holding companies and financial
holding companies. The agencies' final rules are substantially similar
to the revised proposed rules jointly issued for public comment last year.
The final rules will become effective on April 1, 2002.
The new capital requirements apply symmetrically to equity investments
made by banks and their holding companies in nonfinancial companies under
the legal authorities specified in the final rules. Among others, these
include the merchant banking authority granted by the Gramm-Leach-Bliley
Act and the authority to invest in small business investment companies
(SBICs) granted by the Small Business Investment Act.
Covered equity investments will be subject to a series of marginal Tier
1 capital charges, with the size of the charge increasing as the organization's
level of concentration in equity investments increases. The highest marginal
charge specified in the final rules requires a 25 percent deduction from
Tier 1 capital for covered investments that aggregate more than 25 percent
of an organization's Tier 1 capital. Equity investments through SBICs
will be exempt from the new charges to the extent such investments, in
the aggregate, do not exceed 15 percent of the banking organization's
Tier 1 capital.
The new charges would not apply to individual investments made by banking
organizations prior to March 13, 2000. Grandfathered investments made
by state banks under section 24(f) of the Federal Deposit Insurance Act
also are exempted from coverage.
The agencies also reiterated their intent to apply heightened supervision
to banking organizations as their level of concentration in equity investments
increases.
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