Many smaller banks in the United States recently received a bit
of surprising news. The banking agencies published their notices of
proposed rulemaking relating to the bank capital requirements. The
Basel III NPR made clear that only the smallest banks in the United
States would be exempt from compliance with the heightened
regulatory capital requirements of Basel III. Over time, smaller
banks will need to raise capital in order to meet the new
requirements that will be phased in over the next few years.
Historically, smaller banks have found it difficult and expensive
to raise capital. Many smaller banks were not able to raise capital
on their own, and turned to issuances of trust preferred
securities, which then got pooled with trust preferred securities
issued by other small banks, and sold (on a packaged basis) to
investors. Trust preferred securities will no longer be eligible
for favorable regulatory capital treatment. Smaller banks must
offer common stock, or
