(a) Capital conservation buffer—(1) Composition of the capital conservation buffer. The capital conservation buffer is composed solely of building block available capital excluding tier 2 capital instruments and additional tier 1 capital instruments.

(2) Definitions. For purposes of this section, the following definitions apply:

(i) Distribution means:

(A) A reduction of tier 1 capital through the repurchase of a tier 1 capital instrument or by other means, except when a Board-regulated institution, within the same quarter when the repurchase is announced, fully replaces a tier 1 capital instrument it has repurchased by issuing another capital instrument that meets the eligibility criteria for:

(1) A common equity tier 1 capital instrument if the instrument being repurchased was part of the Board-regulated institution's common equity tier 1 capital; or

(2) A common equity tier 1 or additional tier 1 capital instrument if the instrument being repurchased was part of the Board-regulated institution's tier 1 capital;

(B) A reduction of tier 2 capital through the repurchase, or redemption prior to maturity, of a tier 2 capital instrument or by other means, except when a Board-regulated institution, within the same quarter when the repurchase or redemption is announced, fully replaces a tier 2 capital instrument it has repurchased by issuing another capital instrument that meets the eligibility criteria for a tier 1 or tier 2 capital instrument;

(C) A dividend declaration or payment on any tier 1 capital instrument;

(D) A dividend declaration or interest payment on any tier 2 capital instrument if the Board-regulated institution has full discretion to permanently or temporarily suspend such payments without triggering an event of default;

(E) A discretionary dividend payment on participating insurance policies; or

(F) Any similar transaction that the Board determines to be in substance a distribution of capital.

(ii) Eligible retained income means, for a depository institution holding company in a supervised insurance organization, the annual change in the company's building block available capital, calculated as of the last day of the current and immediately preceding calendar years based on the supervised insurance organization's most recent form FR Q-1, net of any distributions and accretion to building block available capital from capital instruments issued in the current or immediately preceding calendar year, excluding issuances corresponding with retirement of capital instruments under paragraph (a)(2)(i)(A) of this section.

(iii) Maximum payout amount means, for the current calendar year, is equal to the Board-regulated institution's eligible retained income, multiplied by its maximum payout ratio.

(iv) Maximum payout ratio means the percentage of eligible retained income that a Board-regulated institution can pay out in the form of distributions and discretionary bonus payments during the current calendar year. The maximum payout ratio is determined by the Board-regulated institution's capital conservation buffer, calculated as of the last day of the previous calendar year, as set forth in table 1 to this section.

(3) Calculation of capital conservation buffer. The capital conservation buffer for a depository institution holding company in a supervised insurance organization is the greater of its BBA ratio, calculated as of the last day of the previous calendar year based on the supervised insurance organization's most recent form FR Q-1, minus the minimum capital requirement under § 217.603(c), and zero.

(4) Limits on distributions and discretionary bonus payments. (i) A top-tier depository institution holding company in a supervised insurance organization shall not make distributions or discretionary bonus payments or create an obligation to make such distributions or payments during the current calendar year that, in the aggregate, exceed its maximum payout amount.

(ii) A top-tier depository institution holding company in a supervised insurance organization and that has a capital conservation buffer that is greater than 150 percent is not subject to a maximum payout amount under this section.

(iii) Except as provided in paragraph (a)(4)(iv) of this section, a top-tier depository institution holding company in a supervised insurance organization may not make distributions or discretionary bonus payments during the current calendar year if the Board-regulated institution's:

(A) Eligible retained income is negative; and

(B) Capital conservation buffer was less than 150 percent as of the end of the previous calendar year.

(iv) Notwithstanding the limitations in paragraphs (a)(4)(i) through (iii) of this section, the Board may permit a top-tier depository institution holding company in a supervised insurance organization to make a distribution or discretionary bonus payment upon a request of the depository institution holding company, if the Board determines that the distribution or discretionary bonus payment would not be contrary to the purposes of this section, or to the safety and soundness of the depository institution holding company. In making such a determination, the Board will consider the nature and extent of the request and the particular circumstances giving rise to the request.

(b) [Reserved]