Recently the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System released their own versions of Statements of Policy on Capital Adequacy. The Federal agencies' policies differ in that the FDIC excludes subordinated debt and limited life preferred stock from its definition of capital while the Federal Reserve includes both items in their definition of secondary capital. In addition, the Federal Reserve generally applies their guidelines on a consolidated basis when reviewing capital adequacy of a bank holding company affiliate while the FDIC policy applies regardless of the size of the bank or holding company affiliation.

The purpose of this addendum is to notify state-chartered banks that the Bureau will continue to analyze capital adequacy as outlined in Bank Bulletin No. 25. For the purpose of capital adequacy analysis, capital includes common stock, preferred stock, surplus, undivided profits, contingency reserves, other capital reserves, mandatory convertible instruments, reserves for loan losses and qualifying subordinated notes and debentures.

We intend to apply our capital policy on a consistent basis to all state-chartered banks addressing each of the criteria outlined in Bank Bulletin No. 25.

Signed:	Martha R. Seger, Ph.D., Commissioner
	Gifford Knudsen, Director, Bank & Trust Division
Dated:	March 3, 1982