TO:
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CHIEF EXECUTIVE OFFICER
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SUBJECT:
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Final Rule Revising the Regulatory Capital
Treatment of Unrealized Gains on Available-for-Sale Equity Securities
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The FDIC Board of Directors has approved the attached
final rule revising the treatment of unrealized gains on equity securities under the
FDIC's risk-based capital standards. The rule is being issued jointly with the rules of
the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Office
of Thrift Supervision.
The revised rule will take effect on October 1, 1998. However, institutions may
choose to apply the rule beginning September 1, 1998, the date of the final
rule's publication in the Federal Register.
Specifically, the final rule permits institutions to include up to 45
percent of net unrealized pre-tax holding gains on available-for-sale
equity securities as a component of Tier 2 capital. For the gains to be
eligible for inclusion in Tier 2 capital, the final rule requires the
equity securities to have readily determinable fair values and to be
valued in accordance with generally accepted accounting principles.
The rule does not change the regulatory capital treatment of
unrealized gains (losses) on available-for-sale debt securities.
In addition, net unrealized losses on available-for-sale equity
securities will continue to be deducted from Tier 1 capital.
The final rule is consistent with the proposal that the
four federal banking agencies issued for comment in
October 1997. It is also consistent with the Basle
Accord, which serves as the international regulatory
capital framework on which the agencies' risk-based
capital standards are based.
For more information, please contact Examination
Specialists Stephen G. Pfeifer (202-898-8904) or
Carol L. Liquori (202-898-7289) in the FDIC's
Division of Supervision.
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Nicholas J.
Ketcha Jr.
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Director
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Attachment:
Federal Register September 1,
1998, pages 46518 - 46524
Distribution:
FDIC-Supervised Banks
(Commercial and Savings)
NOTE:
Paper copies of
FDIC financial
institution
letters may be
obtained through
the FDIC's
Public
Information
Center, 801 17th
Street, NW, Room
100, Washington,
DC
20434
(800-276-6003 or
(703) 562-2200).
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