March 15, 2005

Federal Reserve Issues Final Rule Regarding Capital Treatment of Trust Preferred Securities and Related Matters

Arnold & Porter Advisory

On March 1, 2005, the Federal Reserve Board adopted a final rule (the "Final Rule") that continues to permit trust preferred securities to be treated as Tier 1 capital, subject, however, to stricter quantitative limits than under current Federal Reserve policy. The original proposed rule was published in May 2004 and this action removes the uncertainty that has developed about the treatment of trust preferred securities and other restricted core capital elements identified in the proposal. For some institutions, trust preferred securities may represent a cost-effective way of raising capital, particularly in the current interest-rate environment. As a result of this action, these institutions may issue new trust preferred securities with confidence that they will be afforded the desired capital treatment.


Howard L. Hyde
Howard L. Hyde
Washington, DC
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