Federal banking and thrift regulators on Tuesday adopted uniform capital rules for leverage ratios, several types of loans, and mutual fund investments.
Much of the document clarifies existing policy. Banks with a "1" Camels rating, the best, must have at least a 3% ratio of Tier 1 capital to total assets. Camels is an acronym for capital, assets, management, earnings, liquidity, and sensitivity to risk. Those with Camels ratings lower than "1" must have a minimum 4% ratio.
Existing rules require 8% capital reserves for most assets, though home mortgages are discounted 50%, loan to government-sponsored entities such as Fannie Mae are discounted 80%, and government debt is discounted 100%.
The new rule clarifies that a bank must hold the full 8% reserve for home construction loans until the builder signs an agreement to sell the property to a consumer. At that point, the bank's capital requirement is cut to 4%.
Banks that extend first and second mortgages on the same property may hold 4% capital reserves, unless the borrower has a high-loan-to-value ratio. That brings an 8% reserve requirement.
Regulators gave banks two options to calculate reserves on their mutual fund investments. One bases the capital charge on the riskiest asset the fund could purchase, and the other pro-rates the capital charge among various types of assets the fund could purchase. In no case could the bank hold less than 1.6% capital reserve.
The rule is effective April 1.