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ICBA Applauds Fed on Trust Preferred Proposal

Washington, D.C. (May 7, 2004) - Independent Community Bankers of America (ICBA) today applauded the Federal Reserve Board for its proposal to retain trust preferred securities in the tier 1 capital of bank holding companies, albeit with stricter quantitative limits and clearer qualitative standards.

As the Federal Reserve noted in its proposal, poolings of trust preferred securities have permitted many small bank holding companies for the first time to access the capital markets for tier 1 capital, which larger bank holding companies have long enjoyed. ICBA had urged the Federal Reserve to preserve tier 1 capital treatment for trust preferred securities following a recent controversial change in their accounting treatment.

"We commend the Federal Reserve Board for proposing to retain trust preferred securities as tier 1 capital," said ICBA President and CEO Camden R. Fine. "The issuance of trust preferred securities is often the only reasonable way a community bank can access capital markets. The Fed's proposal shows it appreciates the importance of these securities to community banks as a way to access capital."

Under the proposal, after a three-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25 percent of tier 1 capital elements, net of goodwill.

ICBA will provide the Federal Reserve with any specific comments or concerns on the changes in the limits and standards after analyzing the rule more closely and conferring with its members.