Federal Financial Agencies Seek Comment on Proposed Capital Rule

The Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) recently issued a proposed regulation to increase capital requirements for banks and bank holding companies which make equity investments in nonfinancial companies (66 Fed. Reg. 10212, February 14, 2001). This proposed rulemaking was undertaken as part of the implementing provisions of the Gramm-Leach-Bliley Act that allowed financial holding companies to engage in merchant banking activities. The agencies issued a proposed rule in March 2000 (65 Fed. Reg. 16480), but due to extensive public comment, the agencies revised the proposal to its present form.

The proposed rule is premised upon the following assumptions:

(1)	There is a higher level of risk associated with equity investments of banks and bank holding companies in nonfinancial companies.
(2)	Financial risks to an organization engaged in equity investment activities increase as the level of such investments account for a larger portion of the organization's earnings, capital, and activities.
(3)	Risk of loss associated with a particular equity investment is likely to be the same regardless of the legal authority used in making the investment or whether an investment is held in a bank or a bank holding company.

To mitigate these risks, the federal banking agencies plan to revise their respective capital regulations and guidances to apply a series of marginal capital charges on covered equity investments. Such capital requirements would increase with the level of a banking organization's overall exposure to equity investments relative to Tier 1 capital. Higher capital requirements are designed to decrease risk through encouragement of prudence in investment decisionmaking. Such requirements would apply equally to bank holding companies and banks.

The agencies are seeking comments on all aspects of the proposed capital rule, but specifically request the public's views on:

• Scope of Coverage
• Capital Charges
• Alternatives Suggested by Commenters

CRE believes that capital requirements are an extremely significant issue. While generally providing a soundness check for a given investment, they also affect the overall availability of financial capital for productive activity. Therefore, capital requirements must be set at the optimum level which properly balances these important functions. Thus, CRE strongly encourages interested parties to submit comments on the proposed rule by the deadline of April 16, 2001.

• Click to view the entire Federal Register notice.

How to Submit Comments on the Proposed Capital Rule to the Banking Agencies

Comments on the proposed capital rule may be submitted by April 16, 2001 to:

Office of the Comptroller of the Currency

• Mail to:
  Docket No. 01-03 (Proposed Capital Rule)
  Communications Division, Third Floor
  Office of the Comptroller of the Currency
  250 E Street, S.W.
  Washington D.C. 20219



• Fax
  (202) 874-5274



• E-Mail
  regs.comments@occ.treas.gov

• Mail to:
  Ms. Jennifer J. Johnson (Docket No. R-1097)
  Secretary, Board of Governors of the Federal Reserve System
  20^th Street & Constitution Avenue
  Washington, D.C. 20551



• Hand Delivery to:
  Room B-2222 of the Eccles Building above
  (8:45 a.m. to 5:15 p.m. weekdays); or
  
  Security control room at the Eccles Building, 20th Street courtyard
  (anytime prior to deadline)



• E-Mail
  reg.comments@federalreserve.gov

• Mail to:
  Mr. Robert E. Feldman
  Executive Secretary
  Federal Deposit Insurance Corporation
  550 17^th Street, N.W.
  Washington, D.C. 20429
  
  ATTN: Comments/OES



• Hand Delivery to:
  Guard station at rear of 550 17th Street building (located on F Street)
  (7:00 a.m. to 5:p.m. weekdays)
• Fax>
  (202) 898-3838



• E-Mail
  comments@fdic.gov