Fed finalises Treasury tier 1 capital rule

The US Federal Reserve Board on Friday said it has finalised a rule that allows bank holding companies to count as Tier 1 capital any senior perpetual preferred stock issued to the US Treasury Department under the financial rescue program. The Fed said it did not make significant changes to an interim rule it adopted when the Treasury launched bank capital injections in October 2008 under the $700 billion Troubled Asset Relief Program.
To date, the Treasury has made capital investments totalling more than $200 billion in hundreds of US bank holding companies to bolster their capital cushions against recession. These include public and privately held bank holding companies as well as those organised in mutual form and as S-corporations. The Fed also said it adopted an interim final rule that allows subordinated debt issued by mutual and S-corporation banks to the Treasury as Tier 1 capital. This rule also allows these firms to exclude the TARP debt from treatment as "debt" for purposes of calculating the debt-to-equity standard under the Fed's small bank holding company policy statement.