WASHINGTON BUREAU — Federal banking regulators plan to require large, international banking organizations to meet U.S. risk-based capital standards if those are higher than the Basel II RBC standards, or the Basel II RBC standards if those are higher than the U.S. standards.
The regulators will provide “limited flexibility” for insurance activities “that, in general, are not held by insured depository institutions, but may be held by depository institution holding companies or nonbank financial companies supervised by the Federal Reserve Board,” officials say in a final rule that is set to appear on in the Federal Register.
The “risk-based capital floor” rule would apply to the largest internationally active banking organizations.
The Basel Committee on Banking Supervision developed the Basel II RBC standards in an effort to strengthen RBC requirements for European banks.
It appears that the U.S. agencies’ new RBC requirements could apply to MetLife Inc., New York (NYSE:MET), a company that is organized as a bank holding company. The requirements also could affect bank holding companies that have insurance company subsidiaries.
The final rule was developed by the Federal Reserve Board, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency.
The agencies developed the rule to comply with Section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the agencies to join together to develop minimum RBC standards for “covered institutions” — the “depository institutions, depository institution holding companies, and nonbank financial companies supervised by the Federal Reserve.”
The agencies received a total of 16 comments on the version of the rule that they proposed.
“Groups representing large banking organizations generally argued against the proposed permanent floor,” agency officials say in the preamble to the proposed rule. “These commenters asserted that it would place large U.S. banking organizations at a disadvantage relative to their international competitors, increase their costs, and undermine the risk sensitivity of the advanced approaches capital rules.”
A group for community banks and a group that describes itself as an advocate of financial reform supported the proposal, officials say.
“Commenters representing insurance companies generally supported the proposed revisions to the general risk-based capital rules for selected nonbank assets, arguing that insurance companies have different risk profiles and their liabilities and assets are of different durations compared to banks,” officials say. “These commenters said it would not be appropriate to mechanically apply bank capital regulations to insurance companies.”