United States

Banks face March 31 Basel III opt-out deadline


Banks defined as non-advanced approaches financial institutions (e.g., banks with less than $250 billion in total assets and less than $10 billion in on-balance sheet foreign exposure) can elect to opt out of the Basel III requirement to include Accumulated Other Comprehensive Income (AOCI) in their Common Tier 1 Capital ratio.

By making the opt-out election, when calculating their Common Tier 1 Capital, banks can continue to treat most AOCI items (most notably, unrealized gains and losses on available-for-sale debt and equity securities) in the same manner as they did prior to Basel III. The majority of community banks will elect to make this opt-out election when filing the first quarter 2015 Call Report, as this irrevocable, one-time election must be made on your March 31, 2015, call report.

The good news is that the opt-out process is simple. All banks must do is indicate that they are making the opt-out election on their Call Report. While that is all that that is required, however, we advise bank leadership to discuss and document this decision with their boards in the interest of sound and transparent governance.

For more information on Basel III, see our white paper, Overview of Basel III impact on and implementation tips for community banks and our article, How will the final tax rule under Basel III affect financial institutions.