Basel III

The FDIC, yesterday afternoon, issued guidance outlining the circumstances under which the Agency would approve an S corporation bank’s request for relief from the dividend restrictions imposed under the Basel III capital conservation buffer. Exceptions will generally be granted to 1- and 2- rated banks which are adequately capitalized and are not subject to a written supervisory directive. While the guidance only applies to capital conservation buffer considerations, it does recognize that there may be other circumstances such as a bank returning to a healthy condition that might present circumstances where a dividend exception could be granted. The Agency noted that it does not expect the concern to be an issue for some time as a result of the three year phase-in through 2019. We are pleased that the FDIC recognizes the unique circumstances under which S corporation banks operate and hope this guidance will result in greater recognition and willingness by the Agencies to consider case by case dividend approvals to pay taxes in a broader set of circumstances, beyond the capital conservation buffer issue. Importantly, the Agency recognizes that the ability to pay dividends is a crucial element of an S corporation bank’s capital access strategy. A more detailed description of the issuance follows.