The OTS issued an updated Examination Handbook Section on Capital Adequacy (“New Section 120”), providing extensive revisions from the previous version.  Changes include, among other things, (1) an expanded discussion on assessing compliance with minimum regulatory capital requirements, and (2) updates on the Basel International Accord.  New Section 120 also significantly expands the discussion on assessing overall capital adequacy to include: (a) a review of an institution’s own capital adequacy assessment process; (b) factors that affect capital, including material risks; (c) an assessment of the quality of capital; and (d) an assessment of capital adequacy relative to an institution’s unique risk profile. [Read more →]

The Basel Committee on Banking Supervision (the “Basel Committee”) announced that the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, agreed on new, higher capital standards for banking organizations at its meeting on September 12, 2010.  The President of the European Central Bank and Chairman of the Group of Governors and Heads of Supervision, Jean-Claude Trichet, noted that “the agreements reached today are a fundamental strengthening of global capital standards,” and that “their contribution to long term financial stability and growth will be substantial.”

The new standards will include a minimum common equity requirement of 4.5% (compared to the current requirement of 2%).  The phase-in period for this requirement will begin on January 1, 2013, with full implementation effective January 1, 2015.  The Tier 1 capital requirement, which includes common equity and other qualifying financial instruments, will increase from 4% to 6% over the same period.  The total capital requirement will remain at the existing level of 8%, and therefore will not need to be phased in. [Read more →]

Nout Wellink, the Chairman of the Basel Committee on Banking Supervision (the “Basel Committee”) delivered a speech regarding the initiatives of the Basel Committee in response to the financial crisis. His speech focused on four areas: regulatory capital, liquidity, risk management and supervision, and transparency. He also stated that he welcomed the actions of the G-20 and other bodies, such as the Financial Stability Board to regulate bank-like activities engaged in by non-banks to ensure a comprehensive regulatory response to the current crisis. [Read more →]