The Federal Reserve Board has adopted a final rule that allows the continued limited inclusion of trust preferred securities in the Tier 1 capital of bank holding companies but subjects them to stricter quantitative limits."The Board's final rule limits restricted core capital elements to 25 percent of all core capital elements, net of goodwill less any associated deferred tax liability," the Fed reported. Different rules apply to companies the Fed considers to be "internationally active BHCs, defined as those with consolidated assets greater than $250 billion or on-balance-sheet foreign exposure greater than $10 billion." The rule also eliminates the requirement for the securities to include a call option and clarifies standards for the junior subordinated debt underlying trust preferred securities eligible for Tier 1 treatment. The final rule provides a five-year transition period, ending March 31, 2009, for the application of the quantitative limits. A number of real estate finance market participants have issued trust preferred securities, notably real estate investment trusts, according to Citigroup. The Fed can be found on the Web at http://www.federalreserve.gov.

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