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Banking & Finance
AN EIGHTH DISTRICT PERSPECTIVE
SUMMER 1984

New Bank Capital Adequacy Standards
Proposed
Tahle 1

Bank and bank holding company examinations are
intended, in part, to determine whether the capital
adequacy standards of the bank regulatory agencies are
being met. Federal bank regulators recently have pro­
posed changes in the capital adequacy standards they use
for bank supervision and regulation purposes. These
changes include the adoption of similar definitions of
bank capital and capital adequacy standards. In general,
the proposals would increase the minimum capital ade­
quacy standards for larger banks and reduce them for
smaller banks.

Reasons for the Proposed Changes
Bank capital—the difference between a bank’s assets
and its liabilities—performs several important roles. It
provides a financial “cushion” that enables banks to
continue to operate even though they are temporarily
sustaining losses. It is presumed to maintain public con­
fidence in the soundness of individual banks and the
banking system as a whole. Finally, it provides some
degree of protection to those depositors whose bank
accounts are not insured.

Bank Capital Trends and Numbers of
Failed and Problem Banks: Selected Years

Year

Equity Capital to Total Assets
(Insured Commercial Banks)
All
Large
Small

1960
1965
1970
1976
1980
1981
1982
1983
1984

8.1 %
7.5
6.6
6.1
5.8
5.8
5.8
6.0
n.a.

n.a.
n.a.
n.a.
5.3%
4.8
4.9
5.0
5.1
n.a.

n.a.
n.a.
n.a.
7.7%
8.0
8.1
8.1
8.2
n.a.

Failed
Banks

Number of
Problem
Banks

1
5
7
16
10
10
42
48
52

n.a.
n.a.
252
379
217
223
369
642
752

Note: Large banks are those with $300 million or more in total
assets; small banks are those with less than $300 million.
Figures for 1984 are the most recent available from the FDIC.
Figures for problem banks are end-of-year figures.

Current and Proposed Standards

Tables 2 and 3 show the definitions of bank capital and
the capital adequacy standards currently published by
the three federal bank regulatory agencies—the Federal
There are two primary reasons for the proposed
Deposit Insurance Corporation (FDIC), the Federal
changes in capital adequacy standards. First, as shown in
Reserve System (FED), and the Office of the Comptroller
table 1, a variety of problems have resulted in increasing
of the Currency (OCC)—and the new definitions and stan­
numbers of bank failures and problem banks in recent
dards proposed by the FDIC and the FED.
years. Although bank equity capital ratios have risen
The FDIC’s definitions are based primarily on bank
somewhat recently, they have declined substantially
examination data.The other agencies’ measures are based
since 1960.
primarily on Call Report data.
Second, the International Lending Supervision Act of
The chief differences between the FED’s and the FDIC’s
1983 specifies, in part, that each “appropriate Federal
proposals are that the FED proposes to continue to use its
Banking agency shall cause banking
capital adequacy standards as guidelines
institutions to achieve and maintain
rather than regulations and to retain its
adequate cap ital by esta b lish in g
use of “zones” for total capital ratios. The
minimum levels of capital.” The proposed
proposals also differ in the restrictions
capital adequacy changes are intended to
THE
placed on limited-life preferred stock and
FEDERAL
address both congressional concern about
subordinated notes and debentures.
RESERVE
the adequacy of bank capital and the
RANK of
general downward trend in bank capital
ST. I jOI IS
that has taken place, especially at the
—Courtenay C. Stone and
larger
banks.
Michael E. Trebing



Table 2
Current and Proposed Components of Bank Capital as Published By Federal Bank Regulatory Agencies
FDIC

Primary Capital Measure
equity capital
Plus:
mandatory convertible instruments
reserves for loan and lease losses
minority interest in consolidated
subsidiaries
Minus: equity commitment notes
intangible assets
assets classified loss
1/2 of assets classified doubtful

FED
Current
Proposed
Banks BHCs
Banks BHCs

OCC
Current

Current

Proposed

X
X
X

X
X2
X

X
X2
X

X
X2
X

X
X2
X

X
X2
X

X
X2
X

X
X

X
X
X
X

X

X

X
X
X

X

X

X
X
X

X4
X4

X4
X4

X4
X4
X

X4
X4

X4
X4

X
X

Secondary Capital Measure
limited life preferred stock3
Plus:
subordinated notes and debentures3
intangible assets
mandatory convertible instruments
not eligible for primary capital
unsecured long-term debt of holding
company and its nonbank affiliations

X5

Proposed1

X5
X

X

1 Not yet released.
2 Only up to 20 percent of primary capital excluding mandatory convertible instruments.
3 Having an original weighted average maturity of at least seven years.
3 As they approach maturity, redemption, or payment, the outstanding balance will be amortized; the percent that counts as capital drops
from 100 percent (matures in five years or longer) to 0 percent (matures in less than one year). The amount counted as secondary capital
may not exceed 50 percent of the amount of primary capital.
5 The amount that exceeds 20 percent of primary capital excluding mandatory convertible instruments; equity commitment notes
excluded from primary capital.

Table 3
Current and Proposed Bank Minimum Capital Adequacy Standards

CURRENT

Primary
Capital
Ratio

5%

FED AND OCC2
CURRENT
Multinational
and Regional
Banks

FDIC1
PROPOSED

5.5%

Community
Banks

All Banks
and BHCs

5%

6%

5.5%

above 6.5%

above 7%

above 7 %

5.5% to 6.5%

6 % to 7%

6 % to 7%

below 5.5%

below 6%

below 6%

Zones
i

Total
Capital
Ratio

FED3
PROPOSED

Not
used

6%

I

1. adequately
capitalized

1 2>

'

marginally
capitalized

3. under­
capitalized

1 Current primary capital ratio: primary capital to total assets minus assets classified loss and one-half of assets classified doubtful.
Proposed primary capital ratio: primary capital to total assets plus reserves for loan and lease losses minus assets classified loss and
intangible assets. Proposed total capital ratio: primary and secondary capital to total assets plus reserves for loan and lease losses
minus assets classified loss.
2 Current primary and total capital ratios: primary capital to total assets and total capital to total assets. Multinational institutions are
designated by appropriate banking regulatory agency. Regional institutions are those with total assets of $1 billion or more; community
institutions are those whose total assets are less than $1 billion.
3 Proposed primary capital ratio: primary capital to total assets plus reserves for loan and lease losses minus intangible assets. Proposed
total capital ratio: total capital to total assets plus reserves for loan and lease losses.




SUMMER 1984

FEDERAL RESERVE BANK OF ST. LOUIS

EIGHTH DISTRICT BANKING DATA
(dollar amounts in millions)
Small Weekly Reporting Banks1

REGION I
(eastern M isso u ri and southern Illin o is )

Selected Assets
U.S. Treasury and Government Agency
Securities
Other Securities
Federal Funds Sold
Total Loans and Leases-Gross
Secured by Real Estate
Commercial and Industrial
To individuals

May 1984

June 1984

July 1984

Percent Change
Year-to-Date

$ 633
217
92

$ 632
214
99

$ 655
180
97

11.2%
- 19.3
-4 0 .9

1,393
614
429
229

1,418
628
424
234

1,442
638
434
242

8.6
9.2
8.0
9.0

2,284

2,309

2,322

2.2

Selected Liabilities
Total Deposits

REGION II
(Arkansas, n o rth e rn M is s is s ip p i, w estern Tennessee)

Selected Assets

May 1984

June 1984

July 1984

Percent Change
Year-to-Date

U.S. Treasury and Government Agency
Securities
Other Securities
Federal Funds Sold

$373
223
41

$376
220
46

$378
189
43

11.2%
-1 6 .7
-2 8 .3

Total Loans and Leases-Gross
Secured by Real Estate
Commercial and Industrial
To individuals

1,377
418
569
235

1,401
434
581
242

1,349
459
554
248

3.4
17.4
2.8
12.2

1,978

1,993

1,905

-0 .5

Selected Liabilities
Total Deposits

REGION III
(w estern K e n tu cky and southern Indiana)

Selected Assets

May 1984

June 1984

July 1984

Percent Change
Year-to-Date

U.S. Treasury and Government Agency
Securities
Other Securities
Federal Funds Sold

$492
231
133

$499
226
129

$501
224
128

6.1%
-4 .7
-3 8 .2

Total Loans and Leases-Gross
Secured by Real Estate
Commercial and Industrial
To individuals

1,076
401
321
258

1,088
402
321
262

1,100
408
341
264

8.6
3.6
7.9
11.4

1,839

1,841

1,852

0.2

Selected Liabilities
Total Deposits

1 A sample of commercial banks with total assets less than $300 million.




3

EIGHTH DISTRICT BANKING DATA
(dollar amounts in millions)
Large Weekly Reporting Banks2
Selected Assets
Total Loans
Secured by Real Estate
To Financial Institutions
Agricultural
Commercial and Industrial
To Individuals
All Others
Total Investments
U.S. Treasury and Government Agency
Securities maturing in:
1 year or less
1 through 5 years
over 5 years
Securities of State and
Political Subdivisions

Mav 1984

June 1984

July 1984

Percent Change
Year-to-Date

$11,589
2,368
1,016
104
4,543
2,240
1,318
3,025

$11,600
2,436
1,022
106
4,488
2,246
1,302
3,073

$11,419
2,351
1,124
106
4,388
2,193
1,257
2,967

4.4%
4.7
24.5
9.3
6.2
-1 .3
-5 .8
-2 .3

590
811
331

667
742
376

748
620
424

29.2
-3 3 .3
47.2

1,293

1,288

1,175

5.2

$14,237
1,477
971
8,705
1,709
3,288

$14,498
1,674
971
8,880
1,713
3,463

$14,297
1,675
920
8,735
1,742
3,497

Selected Liabilities
Total Deposits
Demand Deposits Adjusted3
Other Transaction Balances4
Total Non-transaction balances
MMDAs
Time Deposits of $100,000 or more

0.0%
12.3
-7 .8
4.9
14.2
13.2

Selected Eighth District Interest Rates5

Super NOW Accounts
Money Market Accounts
Time certificates and time
deposits less than $100,000:
92 through 182 days
over 1 year but less than 2 1/2 years
2 1/2 years and over

May 1984

June 1984

July 1984

7.58%
8.65

7.54%
8.69

7.65%
8.90

10.35
10.54
10.69

10.37
10.68
10.82

10.50
10.79
10.88

Year Ago
July 1983
7.52%
8.49

n.a.
n.a.
n.a.

2 Large banks are those with total assets greater than $750 million.
3 All demand deposits except those of the U.S. government and commercial banks less cash items in the process of collection.
4 Includes NOW, Super NOW, ATS and accounts permitting telephone or preauthorized transfers.
5 Average interest rates paid on new deposits by a sample of large and small commercial banks.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102