Alert June 14, 2011

FRB Issues Proposed Rule that Would Require the Largest Bank Holding Companies to Submit Annual Capital Plans for FRB Review

The FRB issued a proposed rule (the “Proposed Rule”) that would require bank holding companies with total consolidated assets of $50 billion or greater (“Covered BHCs”) to submit annual capital plans (“Capital Plans”) to the FRB for review.  There are currently approximately 35 U.S. bank holding companies that would be Covered BHCs and, accordingly, subject to the Proposed Rule.  Under the Proposed Rule a Covered BHC’s board of directors would be required each year to review and approve the institution’s Capital Plan prior to submission to the FRB.  In addition, the FRB would review a Covered BHC’s plan to pay dividends on its stock and make other capital distributions and the FRB could prohibit a Covered BHC from paying a dividend or repurchasing stock.  Moreover, the Proposed Rule would require that a Covered BHC assess its expected uses and sources of funds over the next two years and demonstrate that it has sufficient capital to continue to lend to households and businesses even under adverse economic conditions.  Furthermore, the Proposed Rule would require a Covered BHC, to maintain, until January 1, 2016, even under economically stressful conditions, tier 1 capital of at least 5%.  The FRB stated that it expects to begin review of Capital Plans in 2012.  Comments on the Proposed Rule are due by August 5, 2011.