Simpler and Less Volatile Capital Calculations — Will Impact Capital Planning, M&A and Investment Strategy. Thomas W. Killian, Principal – Sandler ONeill

“After receiving more than 2,500 comment letters from U.S. banks and other interested parties, raising over  400 different concerns, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Fed), and the Federal Deposit Insurance Corporation (FDIC), delayed the implementation date of the Basel III capital rules for all U.S. banking organizations not subject to the advanced approaches capital rules2 from January 1, 2013 to January 1, 2015. Reacting to the objections raised in the comment letters, the Basel III capital rules have now been simplified and the volatility of capital calculations reduced for most banks by (i) reverting back to current capital rules for the risk weighting of single family residential mortgages, (ii) providing for the opt-out of Accumulated Other Comprehensive Income (AOCI) adjustments for available-for-sale debt securities (AFS) for all banks not subject to advanced approaches capital rules, and (iii) providing clarity in certain definitions of capital rules. Based on our review of the 997-page final Basel III capital rules released by the OCC and Fed on July 2nd and the FDIC’s 959-page interim final capital rules released on July 9th, along with related regulation from the Dodd-Frank Act (DFA), we expect to see broad areas of change in capital planning, M&A strategy and investment strategy by U.S. banking organizations as they prepare for the implementation of these rules in 18 months.”