Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital

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The Board of Governors of the Federal Reserve System (Board) proposes to allow the continued inclusion of outstanding and prospective issuances of trust preferred securities in the tier 1 capital of bank holding companies, subject to stricter quantitative limits and qualitative standards. The Board also proposes to revise the quantitative limits applied to the aggregate amount of cumulative perpetual preferred stock, trust preferred securities, and minority interests in the equity accounts of certain consolidated subsidiaries (collectively, restricted core capital elements) included in the tier 1 capital of bank holding companies. The quantitative limits would become effective after a three-year transition period. In addition, the Board is proposing to revise the qualitative standards for capital instruments included in regulatory capital consistent with longstanding Board policies. These revisions are being proposed to address supervisory concerns, competitive equity considerations, and changes in generally accepted accounting principles. The proposal would have the effect of strengthening the definition of regulatory capital for bank holding companies.