SECTION 217.608—Available Capital Resources under the Building Block Approach

(i) The instrument is issued and paid-in;

(ii) The instrument is subordinated to depositors and general creditors of the building block parent;

(iii) The instrument is not secured, not covered by a guarantee of the building block parent or of an affiliate of the building block parent, and not subject to any other arrangement that legally or economically enhances the seniority of the instrument in relation to more senior claims;

(iv) The instrument has a minimum original maturity of at least five years.¹ At the beginning of each of the last five years of the life of the instrument, the amount that is eligible to be included in building block available capital is reduced by 20 percent of the original amount of the instrument (net of redemptions), and is excluded from building block available capital when the remaining maturity is less than one year. In addition, the instrument must not have any terms or features that require, or create significant incentives for, the building block parent to redeem the instrument prior to maturity; and

(v) The instrument, by its terms, may be called by the building block parent only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called sooner upon the occurrence of an event that would preclude the instrument from being included in the building block parent’s company available capital or building block available capital, a tax event, or if the issuing entity is required to register as an investment company pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.). In addition:

(vi) Redemption of the instrument prior to maturity or repurchase requires the prior approval of the Board.

(vii) The instrument meets the criteria in section 217.20(d)(1)(vi) through (ix) and (xi), except that each instance of “Board-regulated institution” is replaced with “building block parent” and, in section 217.20(d)(1)(ix), “tier 2 capital instruments” is replaced with “qualifying capital instruments.”

(i) The instrument is subordinated to depositors, general creditors, and subordinated debt holders of the building block parent in a receivership, insolvency, liquidation, or similar proceeding;

(ii) The instrument is not secured, not covered by a guarantee of the building block parent or of an affiliate of the building block parent, and not subject to any other arrangement that legally or economically enhances the seniority of the instrument;

(iii) The instrument has no maturity date and does not contain a dividend step-up or any other term or feature that creates an incentive to redeem; and

(iv) If callable by its terms, the instrument may be called only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called earlier than five years upon the occurrence of a regulatory event that precludes the instrument from being included in the building block parent’s company available capital or building block available capital, a tax event, or if the issuing entity is required to register as an investment company pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.). In addition:

(v) Redemption or repurchase of the instrument requires prior approval of the Board.

(vi) The paid-in amount would be classified as equity under GAAP.

(vii) The instrument meets the criteria in section 217.20(c)(1)(vii) through (ix) and (xi) through (xiv), except that each instance of “Board-regulated institution” is replaced with “building block parent.”

(i) The holders of the instrument bear losses, as they occur, equally, proportionately, and simultaneously with the holders of all other qualifying capital instruments (other than additional tier 1 capital instruments or tier 2 capital instruments) before any losses are borne by holders of claims on the building block parent any with greater priority in a receivership, insolvency, liquidation, or similar proceeding.

(ii) The paid-in amount would be classified as equity under GAAP.

(iii) The instrument meets the criteria in section 217.20(b)(1)(i) through (vii) and (x) through (xiii).

(i) The company available capital of the building block parent:

(ii) For each downstream building block parent, the adjusted downstream building block available capital (BBAC_ADJ), which is calculated according to the following formula:

BBAC_ADJ = (BBAC_DS − UpInv +ACSM) • AS

Where:

BBAC_DS is equal to the building block available capital of the downstream building block parent;

UpInv is equal to the amount of any upstream investment held by that downstream building block parent in the building block parent;

ACSM is equal to the appropriate available capital scaling modifier under section 217.606; and

AS is equal to the building block parent’s allocation share of the downstream building block parent.

(i) The building block parent’s company available capital; and

(ii) The building block parent’s company available capital recalculated under the assumption that neither the building block parent, nor any company that is a member of that building block parent’s building block, had prepared its financial statements with the application of any permitted accounting practice, prescribed accounting practice, or other practice, including legal, regulatory, or accounting procedures or standards, that departs from a solvency framework as promulgated for application in a jurisdiction.

(i) The building block parent’s company available capital; and

(ii) The building block parent’s company available capital recalculated based on using a 40 percent factor applied to all term life insurance accounted for using an approach based on the Valuation of Life Insurance Policies Model Regulation and a 90 percent factor applied to all secondary-guaranteed universal life insurance products accounted for using Actuarial Guideline XXXVIII—The Application of the Valuation of Life Insurance Policies Model Regulation.

(i) In general. A supervised insurance organization must deduct from the building block parent’s company available capital any investment by the building block parent in its own capital instrument(s), or any investment by any member of the building block parent’s building block in capital instruments of the building block parent, including any net long position determined in accordance with paragraph (c)(5)(ii) of this section, to the extent that such investment(s) would otherwise be accretive to the building block parent’s building block available capital.

(ii) Net long position. For purposes of calculating an investment in a building block parent’s own capital instrument under this section, the net long position is determined in accordance with section 217.22(h), provided that a separate account asset or associated guarantee is not regarded as an indirect exposure unless the net long position of the fund underlying the separate account asset (determined in accordance with section 217.22(h) without regard to this paragraph (c)(5)(ii)) equals or exceeds 5 percent of the value of the fund.

(i) A top-tier depository institution holding company must deduct from its building block available capital any accreted capital from an investment in the capital of an unconsolidated financial institution that is not an inventory company, that exceeds twenty-five percent of the amount of its building block available capital, prior to application of this adjustment, excluding tier 2 capital instruments. For purposes of this paragraph (d)(1), the amount of an investment in the capital of an unconsolidated financial institution is calculated in accordance with section 217.22(h), except that a separate account asset or associated guarantee is not an indirect exposure.

(ii) The deductions described in this paragraph (d)(1) are net of associated deferred tax liabilities in accordance with section 217.22(e).

(i) A top-tier depository institution holding company must deduct any accretions from tier 2 capital instruments that, in the aggregate, exceed the greater of:

(ii) A top-tier depository institution holding company must increase accretions from tier 2 capital instruments by any amount deducted from accretions from additional tier 1 capital instruments by operation of paragraph (d)(3) of this section.

(i) 100 percent of the amount of its building block capital requirement; and

(ii) The amount of instruments subject to paragraph (f) of this section that are outstanding as of the submission date.

(i) November 1, 2019; and

(ii) The earliest date on which any depository institution holding company in the group became a depository institution holding company;

(i) Was a capital element for the issuer prior to May 19, 2010, in accordance with the indicated capital framework that was effective as of that date and the underlying instrument meets the criteria to be a qualifying capital instrument (as defined in paragraph (a) of this section); or

(ii) Is equivalent, in terms of capital quality and ability to absorb losses with respect to all material terms, to a company capital element that the Board determined may be included in regulatory capital pursuant to paragraph (g)(2) of this section, or may be included in the regulatory capital of a Board-regulated institution pursuant to section 217.20(e)(3).