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Financial Institution Letter

Regulatory Capital Rule: Eligible Retained Income

March 19, 2020  |  FIL-21-2020


The FDIC, the Federal Reserve Board and the Office of the Comptroller of the Currency (the agencies) jointly issued an interim final rule that revises the definition of eligible retained income for all depository institutions, bank holding companies, and savings and loan holding companies subject to the agencies' capital rule, which becomes effective upon publication in the Federal Register.

Statement of Applicability to Institutions with Total Assets under $1 Billion: This Financial Institution Letter (FIL) is applicable to all banks.


  • The interim final rule revises the definition of eligible retained income to the greater of (1) a banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of a banking organization's net income over the preceding four quarters.
  • The revised definition of eligible retained income is intended to strengthen the incentives for banking organizations to use their capital buffers as intended in adverse conditions and serve as a financial intermediary and source of credit to the economy.
  • This revision would reduce the likelihood that a banking organization is suddenly subject to abrupt and restrictive distribution limitations in a scenario of lower than expected capital levels. Such a scenario may occur due to the economic disruption caused by COVID-19.
  • The revised definition would assist in the ability of S-corporation banks to provide dividends to shareholders in order to meet their pass-through tax liabilities. S-corporation banks should refer to FIL-40-2014 for additional guidance.

Suggested Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Related Topics:

Risk-Based Capital Rules, 12 CFR Part 324


Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).