Federal Reserve Release, Press Release; image with eagle logo links to home page
Release Date: October 21, 1996

For immediate release

The Federal Reserve Board today approved the use of certain cumulative preferred stock instruments in Tier 1 capital for bank holding companies.

These instruments, which are marketed under a variety of proprietary names such as MIPS and TOPRS, are issued out of a special purpose subsidiary that is wholly owned by the parent company. The proceeds are lent to the parent in the form of a very long-term, deeply subordinated note.

Bank holding companies seeking to issue such securities should consult with their District Federal Reserve Bank. Such arrangements, which give rise to minority interest upon consolidation of the subsidiary with the parent holding company, normally will be accorded Tier 1 capital status. Minority interest in consolidated subsidiaries generally qualifies as Tier 1 capital under the Board�s current capital adequacy guidelines for bank holding companies.

To be eligible as Tier 1 capital, such instruments must provide for a minimum five-year consecutive deferral period on distributions to preferred shareholders. In addition, the intercompany loan must be subordinated to all subordinated debt and have the longest feasible maturity.

The amount of these instruments, together with other cumulative preferred stock a bank holding company may include in Tier 1 capital, is limited to 25 percent of Tier 1. Like other preferred stock includable in capital, these instruments require Federal Reserve approval before they may be redeemed.

1996 Banking and consumer regulatory policy

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