On July 21, 2014, the FDIC issued a Financial Institutions Letter (FIL) on the impact of the capital conservation buffer restrictions under Basel III on S Corporation banks. The guidance essentially states that, even though Basel III restricts an S Corporation bank’s ability to pay tax distributions if it does not maintain the full capital conservation buffer, the FDIC will generally approve requests to pay tax distributions if no significant safety and soundness are present. The succinct guidance probably raises more questions than answers. Among those questions are the following.
- Would a bank that does not meet the capital conservation buffer requirements ever really be 1 or 2 rated and experiencing no adverse trends?
- Does the FDIC believe Obamacare and the related net investment income tax will be repealed? What about state income taxes? The factor limiting the dividend request to 40% may ignore what is actually