§4614 Capital classifications

Summary

The Director must place each enterprise into one of four capital groups: adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. An enterprise is adequately capitalized when its total capital meets or beats the risk-based capital level (set under section 4611) and its core capital meets or beats the minimum level (set under section 4612). It is undercapitalized if its total capital is below the risk-based level but its core capital still meets the minimum, or if the Director otherwise labels it undercapitalized. It is significantly undercapitalized if total capital is below the risk-based level, core capital is below the minimum but at or above the critical level (set under section 4613), or if the Director otherwise so classifies. It is critically undercapitalized if total capital is below the risk-based level and core capital is below the critical level, or if the Director otherwise so classifies. The Director must make similar rules for the Federal Home Loan Banks, with adjustments for how they operate, and must check classifications at least every quarter. The Director can move a firm down a level faster if capital is being lost quickly, collateral or mortgage property values drop a lot, the firm is found unsafe or unsound (after notice and a hearing in some cases), or the Director finds unsafe practices. A firm must not make capital payouts if doing so would leave it undercapitalized. The Director may allow buybacks or redemptions only if new shares or obligations at least match the amount and the action makes the firm stronger. For the period starting October 28, 1992 and ending when section 4615 takes effect, an enterprise was treated as adequately capitalized if its core capital met the minimum under section 4612.