July 8, 2013 / 2:54 PM / 6 years ago

Fitch: Basel III AOCI Rule Win for Mid-Tier and Community Banks

(The following statement was released by the rating agency) NEW YORK, July 08 (Fitch) Basel III final rules were published on July 2, 2013 and were generally less onerous than expected regarding unrealized gains and losses for banks with total assets below $250 billion or with less than $10 billion in foreign exposure, according to Fitch Ratings. The inclusion of accumulated other comprehensive income (AOCI) in capital equity tier 1 (CET1) is only mandatory under the final rules for banks subject to the advanced approach, which is applicable to banks with total assets of $250 billion or if it is has total consolidated on-balance sheet foreign exposure of at least $10 billion. This threshold is more lenient than what Fitch anticipated, and as such, provides relief to most of the large regional and mid-tier banks that fall below the $250 billion threshold. In the long run, we believe the biggest benefactors to this change include most of the larger regional banks including BB&T Corporation, SunTrust Banks, Fifth Third, and Regions Financial that will likely opt-out of including AOCI in their CET1 calculation. However, we note that once the opt-out decision is made, banks will need to do a one-time true-up, which would take in account existing unrealized gains and losses. Therefore, if long-term rates continue their upward march and existing unrealized gains revert to unrealized losses, those that opt-out would experience a one-time capital charge under the final rule. Although it is unclear exactly which banks will be subject to the advanced approach, of the estimated 12 to 14 banks potentially now subject to AOCI inclusion in capital ratios under Basel III, on average, unrealized gains represented just over 2% of equity. While currently manageable, Fitch expects these banks to hold appropriate internal capital buffers as it prepares for future capital implications under Basel III and potentially greater rate volatility. At the same time, Fitch recognizes the trade-off between movements in unrealized gains and losses and liquidity needs. Contact: Julie Solar Senior Director Financial Institutions +1 312 368-5472 Bain Rumohr, CFA Associate Director Financial Institutions +1 312 368-3153 Kellie Geressy-Nilsen Senior Director Fitch Wire +1 212 908-9123 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available on www.fitchratings.com The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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