§4614 Capital Classifications

Summary

The Director must place each regulated entity into one of four capital groups based on how much total capital and core capital it has compared to the risk-based, minimum, and critical capital levels set in other rules. Adequately capitalized means it meets both the risk-based capital level and the minimum core capital level. Undercapitalized means it fails the risk-based test but still meets the minimum core capital level, or it is otherwise put in that group by the rules. Significantly undercapitalized means it fails both the risk-based and minimum core tests but still meets the critical core level, or it is otherwise put in that group. Critically undercapitalized means it fails the risk-based test and also falls below the critical core capital level, or it is otherwise put in that group. The Director must make similar rules for the Federal Home Loan Banks and then classify those banks the same way, with adjustments for how banks operate. The Director can move an entity down a category if capital or collateral drops fast, if the entity is found unsafe or unsound after notice and hearing, or if it is doing an unsafe practice under section 4631(b). The Director must decide classifications at least every quarter. An entity may not make capital distributions if that would make it undercapitalized, except that the Director can allow certain share buybacks or redemptions if they are matched by new issuance and improve the entity’s finances. From October 28, 1992 until section 4615 takes effect, an enterprise is adequately capitalized if its core capital meets the minimum level under section 4612.