12 CFR § 628.22 - Regulatory capital adjustments and deductions.
(a) Regulatory capital deductions from CET1 capital. A System institution must deduct from the sum of its CET1 capital elements the items set forth in this paragraph (a):
(1) Goodwill, net of associated deferred tax liabilities (DTLs) in accordance with paragraph (e) of this section;
(3) Deferred tax assets (DTAs) that arise from net operating loss and tax credit carryforwards net of any related valuation allowances and net of DTLs in accordance with paragraph (e) of this section;
(5) Any defined benefit pension fund net asset, net of any associated DTL in accordance with paragraph (e) of this section, except that, with FCA prior approval, this deduction is not required for any defined benefit pension fund net asset to the extent the institution has unrestricted and unfettered access to the assets in that fund;
(8) If, without the required prior FCA approval, the System institution redeems or revolves purchased or allocated equities included in its CET1 capital that have been outstanding for less than 7 years, the FCA may take appropriate supervisory or enforcement actions against the institution, which may include requiring the institution to deduct a portion of its purchased and allocated equities from CET1 capital.
(b) Regulatory adjustments to CET1 capital.
(1) Any accrual of a patronage or dividend payable or receivable recognized in the financial statements prior to a related board declaration or resolution must be reversed to or from unallocated retained earnings for purposes of calculating CET1 capital.
(c) Deductions from regulatory capital. 6 (1) [Reserved]
6 The System institution must calculate amounts deducted under paragraphs (c) through (f) of this section and § 628.23 after it calculates the amount of ALL includable in tier 2 capital under § 628.20(d)(3).
(2) Corresponding deduction approach. For purposes of subpart C of this part, the corresponding deduction approach is the methodology used for the deductions from regulatory capital related to purchased equity investments in another System institution (as described in paragraph (c)(5) of this section). Under the corresponding deduction approach, a System institution must make deductions from the component of capital for which the underlying instrument would qualify if it were issued by the System institution itself. If the System institution does not have a sufficient amount of a specific component of capital to effect the required deduction, the shortfall must be deducted according to paragraph (f) of this section.
(5) Purchased equity investments in another System institution. System institutions must deduct all purchased equity investments in another System institution, service corporation, or the Funding Corporation by applying the corresponding deduction approach. The deductions described in this section are net of associated DTLs in accordance with paragraph (e) of this section. With prior written approval of FCA, for the period stipulated by FCA, a System institution is not required to deduct an investment in the capital of another institution in distress if such investment is made to provide financial support to the System institution as determined by FCA.
(e) Netting of DTLs against assets subject to deduction.
(1) The netting of DTLs against assets that are subject to deduction under this section is required, if the following conditions are met:
(i) The DTL is associated with the asset; and
(ii) The DTL would be extinguished if the associated asset becomes impaired or is derecognized under GAAP.
(2) A DTL may only be netted against a single asset.
(5) A System institution must net DTLs against assets subject to deduction under this section in a consistent manner from reporting period to reporting period.
(f) Insufficient amounts of a specific regulatory capital component to effect deductions. Under the corresponding deduction approach, if a System institution does not have a sufficient amount of a specific component of capital to effect the required deduction after completing the deductions required under paragraph (c) of this section, the System institution must deduct the shortfall from the next higher (that is, more subordinated) component of regulatory capital.
(g) Treatment of assets that are deducted. A System institution must exclude from total risk-weighted assets any item deducted from regulatory capital under paragraphs (a) and (c) of this section.
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