Trust Preferred/Tier 1 Capital and FRB Final Rule

Originally published March 2, 2005

The Federal Reserve Board (FRB) recently released¹ its final rule² continuing to allow the inclusion of qualifying trust preferred securities in tier 1 capital subject to certain qualitative requirements and quantitative limits that had been proposed in the FRB’s earlier notice of proposed rulemaking.³ The FRB’s proposed rule was the subject of 38 mostly supportive comments.⁴ Notably, only the comment letter from the Federal Deposit Insurance Corporation (FDIC) objected to the inclusion of trust preferred as tier 1 capital due to the accounting treatment as a liability under generally accepted accounting principles, and the FRB expressly declined to accept the FDIC’s arguments on this point.