October 29, 2008
Authored by: Michael Shumaker
Recognizing that the cumulative nature of the preferred stock to be issued under the TARP Capital program by bank holding companies could limit the preferred stock’s inclusion in Tier 1 regulatory capital, the Federal Reserve issued an interim final rule to amend its capital regulations, effective October 17, 2008. Under the revised rule, the Senior Perpetual Preferred Stock purchased under TARP “may be included without limit in the Tier 1 capital of bank holding companies.”
The rule’s broadening of the definition of Tier 1 regulatory capital is limited to the preferred stock purchased by the Treasury under the TARP Capital program and does not otherwise modify the regulatory capital rules for bank holding companies. No regulatory modifications were required for banks without holding companies, as the Treasury intends to purchase noncumulative perpetual preferred from stand-alone banks, which would be treated as Tier 1 capital under existing standards.