Final US goodwill rule issued
Daily news headlines
Final rule issued to permit the deduction of goodwill from Tier I capital
WASHINGTON, DC - The US federal banking and thrift regulatory agencies have approved a final rule to permit a banking organisation to reduce the amount of goodwill it must deduct from Tier I capital by any associated deferred tax liability.These accounting changes aim to ease banks' capital accounting in light of the financial crisis. Quietly released and scarcely noticed by the media, an interagency notice of proposed rulemaking (NPR) was published on September 15 by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision (OTS) and the Federal Reserve that provided for the more favourable accounting treatment of so-called goodwill, an intangible asset that reflects the difference between a bank's market value and its selling price.
Under the rule, the regulatory capital deduction for goodwill would be equal to the maximum capital reduction that could occur as a result of a complete write-off of the goodwill, which is equal to the amount of goodwill reported on the balance sheet under US generally accepted accounting principles, less any associated deferred tax liability. Essentially, the regulators are permitting buyers of banks and thrifts to count some of the goodwill towards meeting their regulatory capital requirements.
The current market turmoil has caused banks to drastically reign in their lending; this new rule is an attempt to reduce the erosion of their capital cushion. Although the move will be welcomed by many, some industry sources have described it as a desperate and dangerous solution.
The goodwill sale was last used during the savings and loan crisis of the 1980s and 1990s, when the Federal Home Loan Board (now the OTS) permitted thrifts to count goodwill towards regulatory capital, which helped many institutions in the short run. However, once it was taken away, the overall cost of the bail-out skyrocketed, as it had masked insolvency and allowed thrifts to become even more leveraged relative to assets. Some say there is a danger the current situation will follow the same path.
The final rule will be effective 30 days after publication in the Federal Register. However, banking organisations may adopt its provisions for purposes of regulatory capital reporting for the period ending December 31, 2008.
Click here for the draft Federal Register notice.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Banks will not be frowned upon for discount window borrowing – Fed official
Risk Live: more banks have completed paperwork to access Fed lending facility than a year ago
Capital One puts OCC’s tough stance on mergers to the test
Proposed Discover deal should be approved but will go under the microscope, ex-regulators say
As FCMs dwindle, regulators fear systemic risk
Panellists highlight dangers of clearing membership becoming more concentrated
EU banks fear green asset ratios paint an unfair picture
Industry lobbyist clashes with lawmaker over usefulness of new sustainability disclosure
EU watchdogs to launch prop trader capital review in April
Prop traders say bank-style IFR rules are driving them out, but doubt EBA will suggest changes
Investors say new SEC disclosures may sit on shelf
Advisory committee questions value of rule 605 changes, even for retail investors
CFTC hears ‘call to action’ from swaps end-users on Basel III
Commissioner Pham mulls engaging with prudential regulators over capital hit on clearing
Iosco gears up for ‘intensive work’ on AI regulation
Watchdogs risk ‘falling behind the curve’, secretary-general warns; FSB also working on guidance
Most read
- As FCMs dwindle, regulators fear systemic risk
- Top 10 operational risks for 2024
- Top 10 op risks: AI fears drive cyber risk to record high