Federal Banking Agencies Implement Collins Amendment by Establishing Risk-Based Capital Floor
Client Memorandum

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Pursuant to the Collins Amendment of the Dodd-Frank Act, the Federal Reserve Board, FDIC and OCC have adopted a final rule to replace the transitional floors in the Federal banking agencies’ Basel II internal-ratings based and advanced measurement approaches for risk-based capital with a permanent capital floor equal to the risk-based capital requirements under the banking agencies’ Basel I capital adequacy guidelines. As a result, a banking organization operating under the advanced approaches must calculate its risk-based capital ratios under both the general rules and the advanced approaches. The banking organization must then use the lower of the two Tier 1 risk-based capital ratios and the lower of the two Total risk-based capital ratios to determine whether it meets its minimum risk-based capital requirements. The final rule is unchanged from the rule proposed by the agencies in December 2010.