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Federal R eserve Bank OF DALLAS ROBERT D. M c T E E R , J R . DALLAS, TEXAS 7 5 2 6 5 -5 90 6 PRESIDENT AND CH IE F E X EC U TIV E O F F IC E R November 21, 1996 Notice 96-118 TO: The Chief Executive Officer of each bank holding company and others concerned in the Eleventh Federal Reserve District SUBJECT Approval of the Use of Certain Cumulative Preferred Stock Instruments in Tier 1 Capital DETAILS The Board of Governors of the Federal Reserve System approved the use of certain cumulative preferred stock instruments in Tier 1 capital for bank holding companies. These instruments, which are marketed under a variety of proprietary names such as MIPS and TORRS, are issued out of a special purpose subsidiary that is wholly owned by the parent company. The proceeds are lent to the parent in the form of a very long-term, deeply subordinated note. Bank holding companies seeking to issue such securities should consult with their District Federal Reserve Bank. Such arrangements normally will be accorded Tier 1 capital status. Minority interest in consolidated subsidiaries generally qualifies as Tier 1 capital under the Board’s current capital adequacy guidelines for bank holding companies. To be eligible as Tier 1 capital, such instruments must provide for a mini mum five-year consecutive deferral period on distributions to preferred shareholders. In addition, the intercompany loan must be subordinated to all subordinated debt and have the longest feasible maturity. The amount of these instruments, together with other cumulative preferred stock a bank holding company may include in Tier 1 capital, is limited to 25 percent of Tier 1. Like other preferred stock includable in capital, these instruments require Federal Reserve approval before they may be redeemed. For additional copies, bankers and others are encouraged to use one o f the following toll-free numbers in contacting the Federal Reserve Bank o f Dallas: D allas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; H ouston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San A ntonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) MORE INFORMATION For more information, please contact Dorsey Davis at (214) 922-6051. For additional copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours,