Fed proposes tighter regulation on trust-preferred securities

The US Federal Reserve has proposed a rule to retain trust-preferred securities (TPS) in the tier-one capital of bank holding companies (BHC), but with stricter quantitative limits and clearer qualitative standards.

The proposal would limit the aggregate amount of TPS and certain other capital elements to 25% of tier-one capital elements, net of goodwill, after a three-year transition period. Excess TPS could be included in tier-two capital, subject to restrictions.

Internationally active BHCs would generally be expected to limit TPS to 15% of tier-one capital elements, net of goodwill, the Fed said.

The Federal Reserve said the proposal would strengthen the definition of regulatory capital by incorporating longstanding policies that are not explicitly set forth in its current capital guidelines. The proposal would not affect how BHCs account for TPS on their regulatory reports filed with the regulator, it added.

The Federal Reserve has requested public comment on the proposal by July 11.