Agencies adopt final rules concerning the regulatory capital treatment of nonfinancial equity investments. (Announcements).
The new capital requirements apply symmetrically to equity investments made by banks and their holding companies in nonfinancial companies under the legal authorities specified in the final rules. Among others, these include the merchant banking authority granted by the Gramm-Leach-Bliley Act and the authority to invest in small business investment companies (SBICs) granted by the Small Business Investment Act.
Covered equity investments will be subject to a series of marginal tier 1 capital charges, with the size of the charge increasing as the organization's level of concentration in equity investments increases. The highest marginal charge specified in the final rules requires a 25 percent deduction from tier 1 capital for covered investments that aggregate more than 25 per cent of an organization's tier 1 capital. Equity investments through SBICs will be exempt from the new charges to the extent such investments, in the aggregate, do not exceed 15 percent of the banking organization's tier 1 capital.
The new charges would not apply to individual investments made by banking organizations before March 13, 2000. Grandfathered investments made by state banks under section 24(f) of the Federal Deposit Insurance Act also are exempted from coverage.
The agencies also reiterated their intent to apply heightened supervision to banking organizations as their level of concentration in equity investments increases.
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|Title Annotation:||final rules to become effective on April 1, 2002|
|Publication:||Federal Reserve Bulletin|
|Article Type:||Brief Article|
|Date:||Feb 1, 2002|
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