Duffy Introduces The Trust Preferred Securities Act

Press Release

Wisconsin Congressman Sean Duffy, chairman of the House Financial Services Subcommittee on Housing & Insurance, today introduced the Trust Preferred Securities Act (TruPS), which exempts small community banks from the international capital requirements designed for large globally active financial institutions under the Basel III capital rules. This bill will restore billions of dollars in lending capacity to consumers and small businesses in areas served by these community banks.

Background:

- BASEL III capital rules went into effect in January of 2015 to treat the largest international banks uniformly with respect to their capital.

- BASEL III rules also apply to community based financial institutions although the community bank model in the united states is unique among other countries and poses no systemic risk to the financial system.

- Community banks are concerned that the new capital requirements enforce a deduction of a common asset class known as Trust Preferred Securities, typically held by community banks.

- Basel III requires banks and bank holding companies to deduct the carrying amount of their Trust Preferred Securities (TruPS) portfolio from Tier I capital if those securities represent more than ten percent of total capital.

- The TruPS Act would require the appropriate federal banking agencies to treat certain non-significant investments in the capital of unconsolidated financial institutions as qualifying instruments and provide relief to financial institutions from Basel II rules.

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