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OCC Bulletin 2021-1
January 6, 2021
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Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies; Department and Division Heads; All Examining Personnel; and Other Interested Parties
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve Board), and the Federal Deposit Insurance Corporation (collectively, the agencies) issued a final rule on January 6, 2021, that applies to Category I and II banking organizations (advanced approaches banks), which include banking organizations and their subsidiary banks that have at least $700 billion in total consolidated assets, or $100 billion or more in total consolidated assets and $75 billion or more in cross-jurisdictional activities. In order to limit systemic risks and interconnectedness within the financial system, the final rule requires deduction from advanced approaches banks' regulatory capital for investments in certain unsecured debt instruments issued by bank holding companies subject to the Federal Reserve Board's total loss-absorbing capacity (TLAC) and long-term debt (LTD) requirements. The final rule is effective on April 1, 2021.
This final rule does not apply to community banks. It applies only to large, internationally active banks (i.e., advanced approaches banks).
In 2017, the Federal Reserve Board published a final rule to require the largest and most systemically important domestic and foreign-owned bank holding companies operating in the United States to maintain a minimum amount of TLAC. The Federal Reserve Board's rule is generally consistent with international standards published by the Basel Committee on Banking Supervision.
Under the Federal Reserve Board's regulations, a covered entity's TLAC consists of its common equity tier 1 capital (excluding minority interest), additional tier 1 capital (excluding minority interest), and eligible LTD. Covered bank holding companies (BHC) and intermediate holding companies (IHC) must meet a portion of their TLAC requirements with a minimum amount of eligible LTD.
The OCC's current capital regulations do not impose any special requirements for holdings of covered debt instruments. Under the generally applicable risk-based capital rule, an investment in an LTD instrument issued by a BHC or IHC generally would be treated as an investment in a corporate bond, which is subject to a risk weight of 100 percent. This final rule generally increases the capital requirements for an advanced approaches banking organization that invests in a covered debt instrument issued pursuant to the Federal Reserve Board's TLAC requirements and, therefore, reduces incentives for an advanced approaches banking organization to invest in such instruments and limits systemic risks and interconnectedness within the financial system.
Please contact Andrew Tschirhart, Risk Expert, Capital Policy Division, at (202) 649-6370; or Jean Xiao, Attorney, Chief Counsel's Office, at (202) 649-5490.
Jonathan V. Gould
Senior Deputy Comptroller and Chief Counsel