Circular
Risk-Based Capital Standards
Capital Treatment of Unrealized Holding Gains on Certain Equity Securities
September 3, 1998
Circular No. 11091

To All State Member Banks and Bank Holding Companies in the Second Federal Reserve District:

The following is from a statement by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, are amending their respective risk-based capital standards for banks, bank holding companies and thrifts regarding the capital treatment of unrealized holding gains on certain equity securities.

These gains are reported as a component of equity capital under U.S. generally accepted accounting principles (GAAP), but have not been included in regulatory capital under the banking agencies' capital standards.

The final rule is effective October 1, 1998. However, institutions may elect to comply immediately.

The final rule permits institutions to include in supplementary (Tier 2) capital up to 45 percent of the pre-tax net unrealized holding gains on certain available-for-sale (AFS) quity securities. The final rule is intended to make the capital treatment of these unrealized gains consistent with the international standards of the Basle Accord.

The Federal Reserve Board, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, are amending their respective risk-based capital standards for banks, bank holding companies and thrifts regarding the capital treatment of unrealized holding gains on certain equity securities.

These gains are reported as a component of equity capital under U.S. generally accepted accounting principles (GAAP), but have not been included in regulatory capital under the banking agencies' capital standards.

The final rule is effective October 1, 1998. However, institutions may elect to comply immediately.

The final rule permits institutions to include in supplementary (Tier 2) capital up to 45 percent of the pre-tax net unrealized holding gains on certain available-for-sale (AFS) quity securities. The final rule is intended to make the capital treatment of these unrealized gains consistent with the international standards of the Basle Accord.

A copy of the final rule, as published in the Federal Register of September 1 is available as a file (pdf - 62kb). Questions on this matter may be directed, at this Bank, to Stefan Walter.