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Release Date: March 2, 1999

For immediate release

The Federal Reserve Board today issued two final rules amending the risk-based and leverage capital standards for state member banks (Regulation H) and the risk-based capital standard for bank holding companies (Regulation Y).

The rules are effective April 1, 1999.

The rules address the risk-based capital treatment of construction loans on presold residential properties, junior liens on 1- to 4-family residential properties, and investment in mutual funds.

For state member banks and bank holding companies, there is no change in the risk-based capital treatment of construction loans on presold residential properties or junior liens on 1- to 4-family residential properties.

With regard to the risk-based capital treatment of investments in mutual funds, state member banks or bank holding companies may continue to assign an investment in a mutual fund to the risk category appropriate to the highest risk-weighted asset allowable under the stated investment limits in the fund's prospectus, or at their option, assign the investment on a pro rata basis to different risk categories according to the limits of the fund's prospectus.

The total risk weight of the fund under either risk-weighting method may not be less than 20 percent.

With regard to the leverage capital standard for state member banks, institutions with a composite rating of "1" under the Uniform Financial Institutions Rating System will continue to have a minimum ratio of Tier 1 Capital to total assets (leverage ratio) of 3.0 percent.

Other institutions will now be required to maintain a minimum leverage ratio of 4.0 percent, rather than the previous minimum of 3.0 percent plus an additional cushion of 100 to 200 basis points.

The Board notes that an institution may be required to maintain higher-than-minimum capital levels if warranted, and emphasizes that an institution should maintain a capital level commensurate with its risk profile.

The Board issued an amendment addressing the bank holding company leverage capital guidelines in June 1998.

These final rules were adopted on a joint basis with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision.

The final rules are attached.

Regulation H summary only | Regulation H summary and final rule (46 KB PDF)

Regulation Y summary only | Regulation Y summary and final rule (26 KB PDF)

1999 Banking and consumer regulatory policy

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Last update: March 3, 1999, 10:00 AM