Bank Capital Requirements: Federal Reserve Eliminates Standalone Prior Approval Requirement for Common Stock RepurchasesSullivan & Cromwell LLP - July 9, 2019
Earlier today, the Federal Reserve eliminated the standalone requirement for prior approval of common stock repurchases in connection with a joint Fed-OCC-FDIC rulemaking designed to simplify certain aspects of the capital rules for non-advanced approaches banking organizations. We will address other aspects of the final rule, including the simplifications for non-advanced approaches banking organizations, in a forthcoming client memorandum.
Section 20(b)(1)(iii) of the Federal Reserve’s capital rules previously provided that common equity tier 1 capital instruments—that is, common stock—can only be redeemed via discretionary repurchases with the prior approval of the Federal Reserve. The Federal Reserve had interpreted and applied this provision as requiring banking organizations subject to its capital rules—bank holding companies, savings and loan holding companies, U.S. intermediate holding companies of foreign banking organizations and state member banks—to obtain the prior approval of the Federal Reserve before repurchasing any common stock, including in connection with ordinary course buyback programs. The elimination of the standalone requirement for common stock repurchases is a notable change from the 2017 simplifications proposal, which, instead, would have introduced an additional separate standalone requirement that any banking organization subject to the Federal Reserve’s capital rules obtain the Federal Reserve’s prior approval before repurchasing or redeeming a CET1, additional tier 1, or tier 2 capital instrument.