The final regulatory capital rules permit most financial institutions to continue the current practice of excluding Accumulated Other Comprehensive Income (AOCI) from their regulatory capital calculations. However, to continue excluding AOCI, an institution must voluntarily opt out by March 31, 2015. The federal banking agencies anticipate that “virtually all community institutions will elect” to opt out. Interagency Teleconference Transcript, pp. 9–10 (June 27, 2014).

Why it matters. If an institution elects to opt out, any unrealized gains or losses reported in an institution’s AOCI are excluded from its regulatory capital calculation, and the bank can continue to treat AOCI as before. The election is permanent and irrevocable. If the bank does not opt out, AOCI will be incorporated into common equity tier 1 capital, including any unrealized gains and losses on all available-for-sale securities. See the OCC’s New Capital Rule Quick Reference Guide for Community Banks. If an institution fails to opt out, it will not have another opportunity to opt-out.

How to opt out. This election is a one-time opportunity that must be made by March 31, 2015. The opt-out will be available in the year’s first Call Report, in Part I of Schedule RC-R.

More on the regulatory capital rules. We recommend the interagency Community Bank Guide. Additionally, see your primary federal regulator’s webpage on the regulatory capital requirements: FDIC, FRB, and OCC. The FRB also has published a helpful article, “Community Banks and the Revised Regulatory Capital Framework.”