FDIC Issues Guidance to S-Corporation Banks Regarding Basel III Capital Conservation Buffer — 2014-07-21

The Federal Deposit Insurance Corporation (FDIC) is clarifying how it will evaluate requests by S-Corporation Banks to make dividend payments that would otherwise be prohibited under the Basel III capital conservation buffer. On April 8, 2014, the FDIC finalized new Basel III capital rules. These rules include a capital conservation buffer which prohibit or limit the amount of dividends a bank can pay when its risk-based capital ratios fall below certain thresholds. The capital conservation buffer will be phased in during the years 2016-2018 and will be fully effective in 2019. Federal income taxes of S-corporation banks are paid by its investors. If an S- corporation bank has income but is limited or prohibited from paying dividends as a result of the new rules, its shareholders may have to pay taxes on their pass-through share of the S-corporation's income from their own resources.