Circular
Risk-Based Capital Standards
March 25, 1999
Circular No. 11144

Amendments to Regulations H and Y for
Consistency with other Regulatory Agencies

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

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision have adopted final rules to make their risk-based and leverage capital standards uniform with respect to construction loans on presold residential properties, junior liens on 1- to 4-family residential properties, investments in mutual funds, and the Tier 1 leverage ratio. The Federal Reserve Board also amended its risk-based capital standard for bank holding companies. The changes are effective April 1, 1999.

With respect to state member banks and bank holding companies:

There is no change in the risk-based capital treatment of construction loans on presold residential properties or junior liens on 1- to 4-family residential properties.

They may continue to assign an investment in a mutual fund to the risk category appropriate to the highest risk-weighted asset allowable under the stated investment limits in the fund's prospectus, or at their option, assign the investment on a pro rata basis to different risk categories according to the limits of the fund's prospectus. The total risk weight of the fund under either risk-weighting method may not be less than 20 percent.

With regard to the leverage capital standard for state member banks, institutions with a composite rating of "1" under the Uniform Financial Institutions Rating System will continue to have a minimum ratio of Tier 1 Capital to total assets (leverage ratio) of 3.0 percent. (Other institutions will now be required to maintain a minimum leverage ratio of 4.0 percent, rather than the previous minimum of 3.0 percent plus an additional cushion of 100 to 200 basis points.)

The Board of Governors notes that an institution may be required to maintain higher-than-minimum capital levels if warranted, and emphasizes that an institution should maintain a capital level commensurate with its risk profile.

The Federal Register of March 2, 1999, is available as a file (pdf - 72kb), containing the joint rules of the federal agencies and the amendment to the bank holding company regulation (Regulation Y). Questions may be directed, at this Bank, to Stefan Walter, Assistant Vice President, Advisory and Technical Services.