Pub. 8 2020 Issue 3

www.uba.org 6 COMPLIANCE CORNER CHANGES TO ELIGIBLE RETAINED INCOME By John Berteau, Associate General Counsel I n response to the potential economic effects of the coronavi- rus, the OCC, FRB and FDIC (“the agencies”) published an interim final rule March 20 2020, proposing to revise the definition of eligible retained income. On March 26 2020, the FRB published an interim final rule which revised the definition of eligible retained income for institutions subject to the FRB’s total loss-absorbing (TLAC) rule. The agencies recently published a final rule which made final both of these interim final rules without changes. The goal of this final rule is to help strengthen the ability of banks and TLAC institutions to continue lending and conducting other financial intermediation activities during stress periods by making distribution limita- tions more gradual, as intended by the agencies. Under the capital rule, banks must maintain a buffer of regula- tory capital above their required minimum risk-based capital and leverage ratio requirements to avoid restrictions on cap- ital distributions. The agencies established the capital buffer requirements to encourage better capital conservation and to enhance the resilience of the banking system during stress peri- ods. Capital buffer requirements, as initially implemented, were intended to gradually limit the ability of banks to distribute capital if their capital ratios fell below certain levels. Banks under the capital rule were generally subject to a fixed capital conservation buffer requirement, composed sole- ly of common equity tier 1 capital, of greater than 2.5% of