Changes to Basel III Capital Rules
Author: Jason Rader
On January 1, 2015, revisions to capital regulations affecting U.S. depository institutions took effect. Many of the key provisions of these new rules, often referred to as Basel III, phase in over time.
One key provision that will affect an institution’s regulatory capital allows the institution to make a one-time irrevocable election to determine how most items reported in accumulated other comprehensive income (AOCI) will be handled for regulatory capital purposes. AOCI includes such items as unrealized gains and losses on available-for-sale securities.
For institutions electing to opt out of the new requirement to include most items of AOCI in regulatory capital, most AOCI items—including unrealized gains and losses on available-for-sale securities—will, for regulatory capital purposes, be treated in the same manner as before the new rule took effect. This election to opt out will be made with the filing of the March 31, 2015, applicable Call Report for banks and bank holding companies that file consolidated regulatory reports.
Members of management should meet with their board of directors to discuss the implications of adopting or opting out of this new provision and document that decision in the respective board minutes.
The Federal Deposit Insurance Corporation has issued a Financial Institution Letter on the topic. If you or other members of your management or board would like to discuss this issue further, contact your BKD advisor.