The OCC, the Federal Reserve Bank, and the FDIC (collectively, the Banking Regulators) announced an interim final rule on March 9 that revises their capital rules to facilitate implementation of the US Treasury Department’s Emergency Capital Investment Program.

As we discussed in our Lawflash on expected key financial regulatory issues for the Biden administration’s early days, the Banking Regulators are acting to encourage diversity, inclusion, and racial equity initiatives. The Treasury Department’s program supports these efforts by making capital investments in certain low- and moderate-income community financial institutions. Specifically, it does so by purchasing senior preferred stock or subordinated debt from qualifying minority depository institutions and community development financial institutions.

The interim final rule facilitates the program by revising the Banking Regulators’ capital rules to provide that the senior preferred stock will qualify as additional tier 1 capital and subordinated debt will qualify as tier 2 capital. In addition, the OCC is adding language to its licensing rule, which sets forth certain requirements applicable to subordinated debt issued by a national bank. The language clarifies that provisions and covenants added to a subordinated debt document pursuant to requirements imposed by the Treasury Department for purposes of the program will not be considered to unduly restrict or otherwise act to unduly limit the authority of a national bank or interfere with the OCC's supervision of the national bank (which is otherwise prohibited).

The interim final rule is effective immediately upon publication in the Federal Register. The Banking Regulators are also seeking comments on all aspects of the interim final rule.

We will continue to monitor the effect of the pandemic on the banking industry and provide updates as developments occur.