Regulators Mull Impact of Accounting Rules on Bank Capital Requirements

The major federal banking regulatory agencies are asking for comments on a proposed rule for banks’ minimal capital requirements, stemming from two accounting standards that would change how banks will account next year for many items they currently keep off their balance sheets.

The Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Office of Thrift Supervision have proposed a regulatory capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167.

Beginning in 2010, these accounting standards will make substantial changes to how banking organizations account for items such as securitized assets that they now exclude from their balance sheets. The agencies are issuing the proposal to better align the banks’ regulatory capital requirements with the actual risks of certain exposures. Banking organizations affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements.

The agencies’ proposal seeks comment and supporting data on whether a phase-in of the increase in regulatory capital requirements is needed. It also seeks comment and supporting data on the features and characteristics of transactions that, although consolidated under the new accounting standards, might merit an alternative capital treatment, as well as on the potential impact of the new accounting standards on lending, provisioning, and other activities. The comments are due in approximately 30 days.