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From Banking and Finance Law Daily, July 13, 2015

Meeks bill would fix Collins Amendment treatment of hybrid instruments

By John M. Pachkowski, J.D.

A bill introduced by Rep. Gregory Meeks (D-NY) would amend a provision of the Dodd-Frank Act that deals with the ability of smaller bank holding companies to use various types of hybrid instruments to meet their Tier 1 capital requirements. The bill was co-sponsored by: Reps. Peter King (R-NY), Carolyn Maloney (D-NY), and Blaine Luetkemeyer (R-Mo).

Collins Amendment. Under Section 171 of the Dodd-Frank, commonly referred to as the Collins Amendment, bank holding companies are generally prohibited from counting hybrid capital instruments, such as trust preferred securities (TruPS), towards their Tier 1 capital requirements as May 10, 2010. There are a number of phase-in period that allow certain depository institution holding companies to either count the instruments towards Tier 1 capital or phase them out over a three-year period.

Depository institution holding companies with less than $15 billion in total assets as of Dec. 31, 2009, can continue to count hybrid capital instruments issued before May 19, 2010, as Tier 1 capital under section 171(b)(4)(C) of the Dodd Frank Act. However, depository institution holding companies with more than $15 billion in total assets as of Dec. 31, 2009, are required to phase out Tier 1 hybrid capital by over the three-year period which ends on Jan. 1, 2016.

Asset threshold. Specifically, the bill, H.R. 2987, the Community Bank Capital Clarification Act, would clarify Dodd Frank section 171(b)(4)(C) by treating a smaller depository institution holding companies, those with less than $15 billion in consolidated assets of Dec. 31, 2009, to continue to hold that status for so long as the holding company has total consolidated assets of less than $15 billion.

Prior fix attempts. Meeks’ legislation is the latest attempt to clarify the asset threshold question. Former-Rep. Michael Grimm (R-NY) introduced H.R. 3128 during the 112th Congress to address the same issue. Both Meeks and Maloney were co-sponsored of that bill.

According to a committee report—H. Rept. 112–566—Grimm’s bill was to “provide regulatory relief from the requirements of Section 171” since that provision “may prove to be costly and onerous for institutions.” The report added, “H.R. 3128 was drafted to ensure that Section 171 does not inadvertently ensnare financial institutions that have traditionally held less than $15 billion in total assets. H.R. 3128 amends Section 171 to provide a second date—March 31, 2010—from which bank holding companies may elect to have their consolidated assets determined for purposes of permitting them to continue counting hybrid capital instruments as Tier 1 capital.”

It should be noted that the regulatory relief bill introduced by Senate Banking Committee Chairman Richard Shelby (R-Ala) on June 2, 2015, would emulate H.R. 3128. Section 123 of Shelby’s bill would add March 31, 2010 as a date for calculation of total consolidated assets for purposes of exempting certain debt or equity instruments of smaller financial institutions from capital deductions requirements.

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