Regulatory Capital Rules: Risk-Based Capital Requirements for Depository Institution Holding Companies Significantly Engaged in Insurance Activities

As announced in October 2023 (EventID 23337), the Board of Governors of the Federal Reserve System (FED) has now published in the Federal Register its final rule with respect to the capital requirements for Depository Institution Holding Companies (DIHCs) significantly engaged in insurance activities. These institutions were so far exempt from capital requirements which is why new rules were sought to enhance the resilience of such holding companies.
To prevent redundancy, we refrain from repeating all final provisions at this point. A detailed description may be found in the above noted Event. However, in brief, the final rule stipulates capital requirements for DIHCs where
– the top-tier DIHC is an insurance underwriting company or
– the top-tier DIHC, together with its subsidiaries, holds 25% or more of its total consolidated assets in insurance underwriting subsidiaries (other than assets associated with insurance underwriting for credit risk related to bank lending).
The final rule thereby requires DIHC to apply a building block approach (BBA) to group together companies under a DIHC that are subject to the same capital framework and requirements and aggregate the various building blocks‘ capital and capital requirements as expressed in the BBA ratio (aggregated available capital to the aggregated required capital) to come up with an overall DIHC capital position. This position or ratio will have to be at least 1.5. Furthermore, firms will have to annually report on their BBA via new Form FR Q-1 by March 31 of each year.