Comments Due on Broader Tier 1

WASHINGTON - The Federal Reserve Board is asking for comments on a broader definition of core capital that the Bush administration says would help end the credit crunch.

The proposal, which was unveiled by the Treasury on Oct. 8 with a series of credit-loosening initiatives, would permit bank holding companies to count noncumulative perpetual preferred stock as Tier 1 capital.

In addition, cumulative preferred stock could comprise up to 25% of Tier 1 capital.

Significant Difference

Current rules do not allow preferred stock of any kind to comprise more than 25% of Tier 1 capital.

"Noncumulative" preferred allows issuers to miss dividend payments without the obligation to make it up to shareholders at a later date. "Cumulative" preferred obligates the issuer to cover missed payments.

Comments are due Nov. 22.

Among the 25 largest holding companies, only Chemical Banking Corp., New York, and Mellon Bank Corp., Pittsburgh, were over the ceiling for perpetual preferred stock on June 30, according to SNL Securities.

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