December 17, 2014

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Deadline for AOCI Election

The new capital rules implementing Basel III will begin phasing in on January 1, 2015.  As we discussed in Basel III in Bite-Sized Pieces – our 5-part series on Basel III – a crucial component of Basel III is the implementation of a Common Equity Tier 1 capital ratio. 

Generally speaking, Common Equity Tier 1 consists of: 

1. Outstanding common stock and related surplus (net of treasury stock);
2. Retained earnings;
3. Certain qualifying capital instruments issued by consolidated subsidiaries; and
4. Accumulated other comprehensive income (“AOCI”). 

Point of Interest

To exclude AOCI from your Common Equity Tier 1 capital, you must opt-out on your first Call Report, FR Y-9C or FR Y-9SP filed after January 1, 2015.

Although AOCI is currently excluded from the calculation of Tier 1 capital, it will be included in the calculation of Common Equity Tier 1 by default.As a concession to smaller community banks, bank holding companies with less than $250 billion in assets are allowed a one-time irrevocable option to continue to filter AOCI from their regulatory capital.  If your organization wishes to exclude AOCI from its calculation of Common Equity Tier 1, the AOCI opt-out must be made on your organization’s first Call Report, FR Y-9C or FR Y-9SP, as applicable, that filed after January 1, 2015.

As always, please feel free to contact us directly with any questions that you may have concerning the new capital rules or any other issues.