Federal regulators are giving banks a one-year transition period to deal with the risk-based capital implications of moving certain mortgage securitizations onto their balance sheets due to recent accounting rules changes that go into effect Jan. 1.
The Federal Deposit Insurance Corp. (FDIC) and the other regulators realize that affected banks and thrifts are going to see their assets balloon as they consolidate private-label MBS and commercial securities onto their books.
A final rule adopted by the FDIC board of directors allows banks to exclude the consolidated assets from risk-based capital calculations during the first two quarters of 2010.
Over the third and fourth quarters, banks only have to count 50% of the consolidated assets for RBC purposes. Banks can adopt these transition options voluntarily starting Jan. 1.
FDIC-insured institutions will also see an increase in their allowance for loan losses due to the implementation of Financial Accounting Standard 166 and FAS 167.
Regulators are relaxing restrictions on including loan loss allowances in Tier 2 capital for two quarters.
FDIC Chairman Sheila Bair said banks are already under capital pressure and the transition period is appropriate.
"It is temporary and by 2011 banks will need to be fully compliant," Bair said at an FDIC board meeting. She also noted the transition relief does not apply to leverage capital ratios.
"We have always followed [Generally Accepted Accounting Principles] accounting for the leverage ratio so there will be no transition there," she said.