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6000 - Bank Holding Company Act
Appendix D to Part 225—Capital Adequacy Guidelines for Bank
Holding Companies: Tier 1 Leverage Measure
I. Overview
a. The Board of Governors of the Federal Reserve System has adopted
a minimum ratio of tier 1 capital to total assets to assist in the
assessment of the capital adequacy of bank holding companies
(banking organizations). 1
The principal objectives of this measure is to place a constraint on
the maximum degree to which a banking organization can leverage its
equity capital base. It is intended to be used as a supplement to the
risk based capital measure.
b. The tier 1 leverage guidelines apply on a consolidated basis to
any bank holding company with consolidated assets of $500 million or
more. The tier 1 leverage guidelines also apply on a consolidated basis
to any bank holding company with consolidated assets of less than $500
million if the holding company (i) is engaged in significant nonbanking
activities either directly or through a nonbank subsidiary; (ii)
conducts significant off-balance sheet activities (including
securitization and asset management or administration) either directly
or through a nonbank subsidiary; or (iii) has a material amount of debt
or equity securities outstanding (other than trust preferred
securities) that are registered with the Securities and Exchange
Commission. The Federal Reserve may apply the tier 1 leverage
guidelines at its discretion to any bank holding company, regardless of
asset size, if such action is warranted for supervisory
purposes. 2
c. The tier 1 leverage guidelines are to be used in the inspection
and supervisory process as well as in the analysis of applications
acted upon by the Federal Reserve. The Board will review the guidelines
from time to time and will consider the need for possible adjustments
in light of any significant changes in the economy, financial markets,
and banking practices.
II. The Tier 1 Leverage Ratio
a. The Board has established a minimum ratio of Tier 1 capital to
total assets of 3.0 percent for strong bank holding companies (rated
composite "1" under the BOPEC rating system of bank holding
companies), and for bank holding companies that have implemented the
Board's risk-based capital measure for market risk as set forth in
appendices A and E of this part. For all other bank holding companies,
the minimum ratio of Tier 1 capital to total assets is 4.0 percent.
Banking organizations with supervisory, financial, operational, or
managerial weaknesses, as well as organizations that are anticipating
or experiencing significant growth, are expected to maintain capital
ratios well above the minimum levels. Moreover, higher capital ratios
may be required for any bank holding company if warranted by its
particular circumstances or risk profile. In all cases, bank holding
companies should hold capital commensurate with the level and nature of
the risks, including the volume and severity of problem loans, to which
they are exposed.
{{10-31-08 p.6120.28}}
b. A banking organization's tier 1 leverage ratio is calculated by
dividing its tier 1 capital (the numerator of the ratio) by its average
total consolidated assets (the denominator of the ratio). The ratio
will also be calculated using period-end assets whenever necessary, on
a case-by-case basis. For the purpose of this leverage ratio, the
definition of tier 1 capital as set forth in the risk-based capital
guidelines contained in appendix A of this part will be used. As a
general matter, average total consolidated assets are defined as the
quarterly average total assets (defined net of the allowance for loan
and lease losses) reported on the organization's Consolidated
Financial Statements (FR Y--9C Report), less goodwill; amounts of
mortgage servicing assets; nonmortgage servicing assets, and purchased
credit card relationships that, in the aggregate, are in excess of 100
percent of Tier 1 capital; amounts of nonmortgage servicing assets and
purchased credit card relationships that, in the aggregate, are in
excess of 25 percent of Tier 1 capital; amounts of credit-enhancing
interest-only strips that are in excess of 25 percent of Tier 1
capital; all other identifiable intangible assets; any investments in
subsidiaries or associated companies that the Federal Reserve
determines should be deducted from Tier 1 capital; deferred tax assets
that are dependent upon future taxable income, net of their valuation
allowance, in excess of the limitation set forth in section II.B.4 of
appendix A of this part; and the amount of the total adjusted carrying
value of nonfinancial equity investments that is subject to a deduction
from Tier 1 capital. 3
c. Whenever appropriate, including when an organization is
undertaking expansion, seeking to engage in new activities or otherwise
facing unusual or abnormal risks, the Board will continue to consider
the level of an individual organization's tangible tier 1 leverage
ratio (after deducting all intangibles) in making an overall assessment
of capital adequacy. This is consistent with the Federal Reserve's
risk-based capital guidelines and long-standing Federal Reserve policy
and practice with regard to leverage guidelines. Organizations
experiencing growth, whether internally or by acquisition, are expected
to maintain strong capital position substantially above minimum
supervisory levels, without significant reliance on intangible assets.
d. Notwithstanding anything in this appendix to the contrary, a
bank holding company may deduct from its average total consolidated
assets the amount of any asset-backed commercial paper (i) purchased by
the bank holding company between September 19, 2008, and January 30,
2009 (unless extended by the Board), from an SEC-registered open-end
investment company that holds itself out as a money market mutual fund
under SEC Rule 2a--7 (17 CFR 270.2a--7) and (ii) pledged by the bank
holding company to a Federal Reserve Bank to secure financing from the
ABCP lending facility established by the Board on September 19, 2008.
[Codified to 12 C.F.R. Part 225, Appendix D]
[Appendix D added at 55 Fed. Reg. 32832, August 10, 1990,
effective September 10, 1990; amended at 57 Fed. Reg. 2013, January 17,
1992; 58 Fed. Reg. 7981, February 11, 1993, effective March 15, 1993;
59 Fed. Reg. 65926, December 22, 1994, effective April 1, 1995; 60 Fed.
Reg. 39231, August 1, 1995; 63 Fed. Reg. 30370, June 4, 1998, effective
June 30, 1998; 63 Fed. Reg. 42676, August 10, 1998, effective October
1, 1998; 66 Fed. Reg. 59651, November 29, 2001, effective January 1,
2002; 67 Fed. Reg. 3803, January 25, 2002, effective April 1, 2002; 70
Fed. Reg. 11838, March 10, 2005, effective April 11, 2005; 71 Fed. Reg.
9903, February 28, 2006, effective March 30, 2006; 73 Fed. Reg. 55708,
September 26, 2008, effective September 19,
2008]
1 Supervisory ratios that related capital to total assets for
state member banks are outlined in appendices B of this part. Go Back to Text
2[Reserved]. Go Back to Text
3Deductions from Tier 1 capital and other adjustments are
discussed more fully in section II.B. of appendix A of this part. Go Back to Text
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