Agencies finalize capital rule updates

Federal banking regulators issued a final rule revising the definition of eligible retained income for institutions subject to the agencies' regulatory capital rule.

The rule, which finalizes an interim final rule issued in March and takes effect in January 2021, is intended to strengthen the incentives for banking organizations to use their capital buffers as intended in adverse conditions.

The rule revises the definition to the greater of (1) a banking organization's net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of a banking organization's net income over the preceding four quarters.