62310 Federal Register / Vol. 62, No. 225 / Friday, November 21, 1997 / Notices
Internet audio broadcast page at <http:/
/www.fcc.gov/realaudio/>. The meeting
can also be heard via telephone, for a
fee, from National Narrowcast Network,
telephone (202) 966–2211 or fax (202)
966–1770; and from Conference Call
USA (available only outside the
Washington, DC metropolitan area),
telephone 1–800–962–0044. Audio and
video tapes of this meeting can be
purchased from Infocus, 341 Victory
Drive, Herndon, VA 20170, telephone
(703) 834–0100; fax number (703) 834–
0111.
Dated November 18, 1997.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97–30850 Filed 11-19-97; 3:36 pm]
BILLING CODE 6712–01–F
FEDERAL DEPOSIT INSURANCE
CORPORATION
Differences in Capital and Accounting
Standards Among the Federal Banking
and Thrift Agencies; Report to
Congressional Committees
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Report to the Committee on
Banking and Financial Services of the
U.S. House of Representatives and to the
Committee on Banking, Housing, and
Urban Affairs of the United States
Senate Regarding Differences in Capital
and Accounting Standards Among the
Federal Banking and Thrift Agencies.
SUMMARY: This report has been prepared
by the FDIC pursuant to Section 37(c) of
the Federal Deposit Insurance Act (12
U.S.C 1831n(c)). Section 37(c) requires
each federal banking agency to report to
the Committee on Banking and
Financial Services of the House of
Representatives and to the Committee
on Banking, Housing, and Urban Affairs
of the Senate any differences between
any accounting or capital standard used
by such agency and any accounting or
capital standard used by any other such
agency. The report must also contain an
explanation of the reasons for any
discrepancy in such accounting and
capital standards and must be published
in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Robert F. Storch, Chief, Accounting
Section, Division of Supervision,
Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, D.C.
20429, telephone (202) 898-8906.
SUPPLEMENTARY INFORMATION: The text of
the report follows: Report to the
Committee on Banking and Financial
Services of the U.S. House of
Representatives and to the Committee
on Banking, Housing, and Urban Affairs
of the United States Senate Regarding
Differences in Capital and Accounting
Standards Among the Federal Banking
and Thrift Agencies.
A. Introduction
This report has been prepared by the
Federal Deposit Insurance Corporation
(FDIC) pursuant to Section 37(c) of the
Federal Deposit Insurance Act, which
requires the agency to submit a report to
specified Congressional Committee
describing any differences in regulatory
capital and accounting standards among
the federal banking and thrift agencies,
including an explanation of the reasons
for these differences. Section 37(c) also
requires the FDIC to publish this report
in the Federal Register. This report
covers differences existing during 1995
and 1996 and developments affecting
these differences.
The FDIC, the Board of Governors of
the Federal Reserve System (FRB), and
the Office of the Comptroller of the
Currency (OCC) (hereafter, the banking
agencies) have substantially similar
leverage and risk-based capital
standards. While the Office of Thrift
Supervision (OTS) employs a regulatory
capital framework that also includes
leverage and risk-based capital
requirements, it differs in several
respects from that of the banking
agencies. Nevertheless, the agencies
view the leverage and risk-based capital
requirements as minimum standards
and most institutions are expected to
operate with capital levels well above
the minimums, particularly those
institutions that are expanding or
experiencing unusual or high levels of
risk.
The banking agencies, under the
auspices of the Federal Financial
Institutions Examination Council
(FFIEC), have developed uniform
Reports of Condition and Income (Call
Reports) for all commercial banks and
FDIC-supervised savings banks. The
reporting standards followed by the
banking agencies through December 31,
1996, have been substantially consistent
with generally accepted accounting
principles (GAAP). In the limited
number of cases where the bank Call
Report standards differed from (GAAP),
the regulatory reporting requirements
were intended to be more conservative
than GAAP. The OTS requires each
savings association to file the Thrift
Financial Report (TFR), the reporting
standards for which are consistent with
GAAP. Thus, the reporting standards
applicable to the bank Call Report have
differed in some respect from the
reporting standards applicable to the
TFR.
On November 3, 1995, the FFIEC
announced that it had approved the
adoption of GAAP as the reporting basis
for the balance sheet, income statement,
and related schedules in the Call Report,
effective with the March 31, 1997,
report date. On December 31, 1996, the
FFIEC notified banks about the Call
Report revisions for 1997, including the
previously announced move to GAAP.
Adopting GAAP as the reporting basis
for recognition and measurement
purposes in the basic schedules of the
Call Report was designed to eliminate
existing differences between bank
regulatory reporting standards and
GAAP, thereby producing greater
consistency in the information collected
in bank Call Reports and general
purpose financial statements and
reducing regulatory burden. In addition,
the move to GAAP for Call Report
purposes in 1997 should for the most
part eliminate the differences in
accounting standards among the
agencies.
Section 303 of the Riegle Community
Development and Regulatory
Improvement Act (RCDRIA) of 1994 (12
U.S.C. 4803) requires the banking
agencies and the OTS to conduct a
systematic review of the regulations and
written policies in order to improve
efficiency, reduce unnecessary costs,
and eliminate inconsistencies. It also
directs the four agencies to work jointly
to make uniform all regulations and
guidelines implementing common
statutory or supervisory policies. The
results of these efforts must be
‘‘consistent with the principles of safety
and soundness, statutory law and
policy, and the public interest.’’ The
four agencies’ efforts to eliminate
existing differences among their
regulatory capital standards as part of
the Section 303 review are discussed in
the following section.
B. Differences in Capital Standards
Among the Federal Banking and Thrift
Agencies
B.1. Minimum Leverage Capital
The banking agencies have
established leverage capital standards
based upon the definition of tier 1 (or
core) capital contained in their risk-
based capital standards. These
standards require the most highly-rated
banks (i.e., those with a composite
rating of ‘‘1’’ under the Uniform
Financial Institutions Rating System) to
maintain a minimum leverage capital
ratio of at least 3 percent if they are not
anticipating or experiencing any
significant growth and meet certain
Internet audio broadcast page at <http:/
/www.fcc.gov/realaudio/>. The meeting
can also be heard via telephone, for a
fee, from National Narrowcast Network,
telephone (202) 966–2211 or fax (202)
966–1770; and from Conference Call
USA (available only outside the
Washington, DC metropolitan area),
telephone 1–800–962–0044. Audio and
video tapes of this meeting can be
purchased from Infocus, 341 Victory
Drive, Herndon, VA 20170, telephone
(703) 834–0100; fax number (703) 834–
0111.
Dated November 18, 1997.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97–30850 Filed 11-19-97; 3:36 pm]
BILLING CODE 6712–01–F
FEDERAL DEPOSIT INSURANCE
CORPORATION
Differences in Capital and Accounting
Standards Among the Federal Banking
and Thrift Agencies; Report to
Congressional Committees
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Report to the Committee on
Banking and Financial Services of the
U.S. House of Representatives and to the
Committee on Banking, Housing, and
Urban Affairs of the United States
Senate Regarding Differences in Capital
and Accounting Standards Among the
Federal Banking and Thrift Agencies.
SUMMARY: This report has been prepared
by the FDIC pursuant to Section 37(c) of
the Federal Deposit Insurance Act (12
U.S.C 1831n(c)). Section 37(c) requires
each federal banking agency to report to
the Committee on Banking and
Financial Services of the House of
Representatives and to the Committee
on Banking, Housing, and Urban Affairs
of the Senate any differences between
any accounting or capital standard used
by such agency and any accounting or
capital standard used by any other such
agency. The report must also contain an
explanation of the reasons for any
discrepancy in such accounting and
capital standards and must be published
in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Robert F. Storch, Chief, Accounting
Section, Division of Supervision,
Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, D.C.
20429, telephone (202) 898-8906.
SUPPLEMENTARY INFORMATION: The text of
the report follows: Report to the
Committee on Banking and Financial
Services of the U.S. House of
Representatives and to the Committee
on Banking, Housing, and Urban Affairs
of the United States Senate Regarding
Differences in Capital and Accounting
Standards Among the Federal Banking
and Thrift Agencies.
A. Introduction
This report has been prepared by the
Federal Deposit Insurance Corporation
(FDIC) pursuant to Section 37(c) of the
Federal Deposit Insurance Act, which
requires the agency to submit a report to
specified Congressional Committee
describing any differences in regulatory
capital and accounting standards among
the federal banking and thrift agencies,
including an explanation of the reasons
for these differences. Section 37(c) also
requires the FDIC to publish this report
in the Federal Register. This report
covers differences existing during 1995
and 1996 and developments affecting
these differences.
The FDIC, the Board of Governors of
the Federal Reserve System (FRB), and
the Office of the Comptroller of the
Currency (OCC) (hereafter, the banking
agencies) have substantially similar
leverage and risk-based capital
standards. While the Office of Thrift
Supervision (OTS) employs a regulatory
capital framework that also includes
leverage and risk-based capital
requirements, it differs in several
respects from that of the banking
agencies. Nevertheless, the agencies
view the leverage and risk-based capital
requirements as minimum standards
and most institutions are expected to
operate with capital levels well above
the minimums, particularly those
institutions that are expanding or
experiencing unusual or high levels of
risk.
The banking agencies, under the
auspices of the Federal Financial
Institutions Examination Council
(FFIEC), have developed uniform
Reports of Condition and Income (Call
Reports) for all commercial banks and
FDIC-supervised savings banks. The
reporting standards followed by the
banking agencies through December 31,
1996, have been substantially consistent
with generally accepted accounting
principles (GAAP). In the limited
number of cases where the bank Call
Report standards differed from (GAAP),
the regulatory reporting requirements
were intended to be more conservative
than GAAP. The OTS requires each
savings association to file the Thrift
Financial Report (TFR), the reporting
standards for which are consistent with
GAAP. Thus, the reporting standards
applicable to the bank Call Report have
differed in some respect from the
reporting standards applicable to the
TFR.
On November 3, 1995, the FFIEC
announced that it had approved the
adoption of GAAP as the reporting basis
for the balance sheet, income statement,
and related schedules in the Call Report,
effective with the March 31, 1997,
report date. On December 31, 1996, the
FFIEC notified banks about the Call
Report revisions for 1997, including the
previously announced move to GAAP.
Adopting GAAP as the reporting basis
for recognition and measurement
purposes in the basic schedules of the
Call Report was designed to eliminate
existing differences between bank
regulatory reporting standards and
GAAP, thereby producing greater
consistency in the information collected
in bank Call Reports and general
purpose financial statements and
reducing regulatory burden. In addition,
the move to GAAP for Call Report
purposes in 1997 should for the most
part eliminate the differences in
accounting standards among the
agencies.
Section 303 of the Riegle Community
Development and Regulatory
Improvement Act (RCDRIA) of 1994 (12
U.S.C. 4803) requires the banking
agencies and the OTS to conduct a
systematic review of the regulations and
written policies in order to improve
efficiency, reduce unnecessary costs,
and eliminate inconsistencies. It also
directs the four agencies to work jointly
to make uniform all regulations and
guidelines implementing common
statutory or supervisory policies. The
results of these efforts must be
‘‘consistent with the principles of safety
and soundness, statutory law and
policy, and the public interest.’’ The
four agencies’ efforts to eliminate
existing differences among their
regulatory capital standards as part of
the Section 303 review are discussed in
the following section.
B. Differences in Capital Standards
Among the Federal Banking and Thrift
Agencies
B.1. Minimum Leverage Capital
The banking agencies have
established leverage capital standards
based upon the definition of tier 1 (or
core) capital contained in their risk-
based capital standards. These
standards require the most highly-rated
banks (i.e., those with a composite
rating of ‘‘1’’ under the Uniform
Financial Institutions Rating System) to
maintain a minimum leverage capital
ratio of at least 3 percent if they are not
anticipating or experiencing any
significant growth and meet certain
62311Federal Register / Vol. 62, No. 225 / Friday, November 21, 1997 / Notices
other conditions. All other banks must
maintain a minimum leverage capital
ratio that is at least 100 to 200 basis
points above this minimum (i.e., an
absolute minimum leverage ration of not
less than 4 percent).
The OTS has a 3 percent core capital
and a 1.5 percent tangible capital
leverage requirement for savings
associations. Consistent with the
requirements of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), the
OTS has proposed revisions to its
leverage standards for savings
associations so that its minimum
leverage standard will be at least as
stringent as the revised leverage
standard that the OCC applies to
national banks. However, from a
practical standpoint, the 4 percent
leverage requirement to be ‘‘adequately
capitalized’’ under the OTS’ Prompt
Correction Action rule is the controlling
standard for savings associations.
As a result of the Section 303 review
of the four agencies’ regulatory capital
standards, the agencies are considering
adopting a uniform leverage
requirement that would subject
institutions rated a composite 1 under
the Uniform Financial Institutions
Rating System to a minimum 3 percent
leverage ratio and all other institutions
to a minimum 4 percent leverage ratio.
This change would simplify and
streamline the banking agencies’
leverage rules and would make all four
agencies’ rules in this area uniform. On
February 4, 1997, the FDIC Board of
Directors approved the publication for
public comment of a proposed
amendment to the FDIC’s leverage
capital standards that would implement
this change. This proposal is to be
published jointly with the other
agencies.
B.2. Interest Rate Risk
Section 305 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA) mandates that the
agencies’ risk-based capital standards
take adequate account of interest rate
risk. The banking agencies requested
comment in August 1992 and
September 1993 on proposals to
incorporate interest rate risk into their
risk-based capital standards. In August
1995, each of the banking agencies
amended its capital standards to
specifically include an assessment of a
bank’s interest rate risk, as measured by
its exposure to declines in the economic
value of its capital due to changes in
interest rates, in the evaluation of bank
capital adequacy. At the same time, the
banking agencies issued a proposed
joint policy statement describing the
process the agencies would use to
measure and assess the exposer of the
economic value of a bank’s capital. After
considering the comments on the
proposed policy statement, the banking
agencies issued a Joint Agency Policy
Statement on Interest Rate Risk in June
1996 which provides guidance on sound
practices for managing interest rate risk.
This policy statement does not establish
a standardized measure of interest rate
risk nor does it create an explicit capital
charge for interest create risk. Instead,
the policy statement identifies the
standards upon which the agencies will
evaluate the adequacy and effectiveness
of a bank’s interest rate risk
management.
In 1993, the OTS adopted a final rule
which adds an interest rate risk
component to its risk-based capital
standards. Under this rule, savings
associations with a greater than normal
interest rate exposure must take a
deduction from the total capital
available to meet their risk-based capital
requirement. The deduction is equal to
one half of the difference between the
institution’s actual measured exposure
and the normal level of exposure. The
OTS has partially implemented this rule
by formalizing the review of interest rate
risk; however, no deductions from
capital are being made. As described
above, the approach adopted by the
banking agencies differs from that of the
OTS.
B.3. Subsidiaries
The banking agencies generally
consolidate all significant majority-
owned subsidiaries of the parent
organization for regulatory capital
purposes. The purpose of this practice
is to assure that capital requirements are
related to all of the risks to which the
bank ins exposed. For subsidiaries
which are not consolidated on a line-
for-line basis, their balance sheets may
be consolidated on a pro-rata basis, bank
investments in such subsidiaries may be
deducted entirely form capital, or the
investments may be risk-weighted at
100 percent, depending upon the
circumstances. These options for
handling subsidiaries for purposes of
determining the capital adequacy of the
parent organization provide the banking
agencies with the flexibility necessary to
ensure that institutions maintain capital
levels that are commensurate with the
actual risks involved.
Under OTS capital guidelines, a
distinction, mandated by FIRREA, is
drawn between subsidiaries engaged in
activities that are permissible for
national banks and subsidiaries engaged
in ‘‘impermissible’’ activies for national
banks. For regulatory capital purposes,
subsidiaries of savings associations that
engage only in permissible activities are
consolidated on a line-for-line basis, if
majority-owned, and on a pro rata basis,
if ownership is between 5 percent and
50 percent. As a general rule,
investments in, and loans to,
subsidiaries that engage in
impermissible activities are deducted
when determing the capital adequacy of
the parent. However, for subsidiaries
which were engaged in impermissible
activities prior to April 12, 1989,
investments in, and loans to, such
subsidiaries that were outstanding as of
that date were grandfathered and were
phased out of capital over a five-year
transition period that expired on July 1,
1994. During this transition period,
investments in subsidiaries engaged in
impermissible activities which had not
been phased out of capital were
consolidated on a pro rata basis. The
phase-out provisions were amended by
the Housing and Community
Development Act of 1992 with respect
to impermissible and activities. The
OTS was permitted to extend the
transition period until July 1, 1996, on
a case-by-case basis if certain conditions
were met.
B.4. Intangible Assets
The banking agencies’ rules permit
purchased credit card relationships and
mortgage servicing rights to count
toward capital requirements, subject to
certain limits. Both forms of intangible
assets are in the aggregate limited to 50
percent of Tier 1 capital. In addition,
purchased credit card relationships
alone are restricted to no more than 25
percent of an institution’s Tier 1 capital.
Any mortgage servicing rights and
purchased credit card relationships that
exceed these limits, as well as all other
intangible assets such as goodwill and
core deposit intangibles, are deducted
from capital and assets in calculating an
institution’s Tier 1 capital.
In February 1994, the OTS issued a
final rule making its capital treatment of
intangible assets generally consistent
with the banking agencies’ rules.
However, the OTS rule grandfathers
preexisting core deposit intangibles up
to 25 percent of core capital and all
purchased mortgage servicing rights
acquired before February 1990.
B.5. Capital Requirements for Recourse
Arrangements
B.5.a. Leverage Capital
Requirements—Through December 31,
1996, the banking agencies required full
leverage capital charges on most assets
sold with recourse, even when the
recourse is limited. This included
transactions where the recourse arises
other conditions. All other banks must
maintain a minimum leverage capital
ratio that is at least 100 to 200 basis
points above this minimum (i.e., an
absolute minimum leverage ration of not
less than 4 percent).
The OTS has a 3 percent core capital
and a 1.5 percent tangible capital
leverage requirement for savings
associations. Consistent with the
requirements of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), the
OTS has proposed revisions to its
leverage standards for savings
associations so that its minimum
leverage standard will be at least as
stringent as the revised leverage
standard that the OCC applies to
national banks. However, from a
practical standpoint, the 4 percent
leverage requirement to be ‘‘adequately
capitalized’’ under the OTS’ Prompt
Correction Action rule is the controlling
standard for savings associations.
As a result of the Section 303 review
of the four agencies’ regulatory capital
standards, the agencies are considering
adopting a uniform leverage
requirement that would subject
institutions rated a composite 1 under
the Uniform Financial Institutions
Rating System to a minimum 3 percent
leverage ratio and all other institutions
to a minimum 4 percent leverage ratio.
This change would simplify and
streamline the banking agencies’
leverage rules and would make all four
agencies’ rules in this area uniform. On
February 4, 1997, the FDIC Board of
Directors approved the publication for
public comment of a proposed
amendment to the FDIC’s leverage
capital standards that would implement
this change. This proposal is to be
published jointly with the other
agencies.
B.2. Interest Rate Risk
Section 305 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA) mandates that the
agencies’ risk-based capital standards
take adequate account of interest rate
risk. The banking agencies requested
comment in August 1992 and
September 1993 on proposals to
incorporate interest rate risk into their
risk-based capital standards. In August
1995, each of the banking agencies
amended its capital standards to
specifically include an assessment of a
bank’s interest rate risk, as measured by
its exposure to declines in the economic
value of its capital due to changes in
interest rates, in the evaluation of bank
capital adequacy. At the same time, the
banking agencies issued a proposed
joint policy statement describing the
process the agencies would use to
measure and assess the exposer of the
economic value of a bank’s capital. After
considering the comments on the
proposed policy statement, the banking
agencies issued a Joint Agency Policy
Statement on Interest Rate Risk in June
1996 which provides guidance on sound
practices for managing interest rate risk.
This policy statement does not establish
a standardized measure of interest rate
risk nor does it create an explicit capital
charge for interest create risk. Instead,
the policy statement identifies the
standards upon which the agencies will
evaluate the adequacy and effectiveness
of a bank’s interest rate risk
management.
In 1993, the OTS adopted a final rule
which adds an interest rate risk
component to its risk-based capital
standards. Under this rule, savings
associations with a greater than normal
interest rate exposure must take a
deduction from the total capital
available to meet their risk-based capital
requirement. The deduction is equal to
one half of the difference between the
institution’s actual measured exposure
and the normal level of exposure. The
OTS has partially implemented this rule
by formalizing the review of interest rate
risk; however, no deductions from
capital are being made. As described
above, the approach adopted by the
banking agencies differs from that of the
OTS.
B.3. Subsidiaries
The banking agencies generally
consolidate all significant majority-
owned subsidiaries of the parent
organization for regulatory capital
purposes. The purpose of this practice
is to assure that capital requirements are
related to all of the risks to which the
bank ins exposed. For subsidiaries
which are not consolidated on a line-
for-line basis, their balance sheets may
be consolidated on a pro-rata basis, bank
investments in such subsidiaries may be
deducted entirely form capital, or the
investments may be risk-weighted at
100 percent, depending upon the
circumstances. These options for
handling subsidiaries for purposes of
determining the capital adequacy of the
parent organization provide the banking
agencies with the flexibility necessary to
ensure that institutions maintain capital
levels that are commensurate with the
actual risks involved.
Under OTS capital guidelines, a
distinction, mandated by FIRREA, is
drawn between subsidiaries engaged in
activities that are permissible for
national banks and subsidiaries engaged
in ‘‘impermissible’’ activies for national
banks. For regulatory capital purposes,
subsidiaries of savings associations that
engage only in permissible activities are
consolidated on a line-for-line basis, if
majority-owned, and on a pro rata basis,
if ownership is between 5 percent and
50 percent. As a general rule,
investments in, and loans to,
subsidiaries that engage in
impermissible activities are deducted
when determing the capital adequacy of
the parent. However, for subsidiaries
which were engaged in impermissible
activities prior to April 12, 1989,
investments in, and loans to, such
subsidiaries that were outstanding as of
that date were grandfathered and were
phased out of capital over a five-year
transition period that expired on July 1,
1994. During this transition period,
investments in subsidiaries engaged in
impermissible activities which had not
been phased out of capital were
consolidated on a pro rata basis. The
phase-out provisions were amended by
the Housing and Community
Development Act of 1992 with respect
to impermissible and activities. The
OTS was permitted to extend the
transition period until July 1, 1996, on
a case-by-case basis if certain conditions
were met.
B.4. Intangible Assets
The banking agencies’ rules permit
purchased credit card relationships and
mortgage servicing rights to count
toward capital requirements, subject to
certain limits. Both forms of intangible
assets are in the aggregate limited to 50
percent of Tier 1 capital. In addition,
purchased credit card relationships
alone are restricted to no more than 25
percent of an institution’s Tier 1 capital.
Any mortgage servicing rights and
purchased credit card relationships that
exceed these limits, as well as all other
intangible assets such as goodwill and
core deposit intangibles, are deducted
from capital and assets in calculating an
institution’s Tier 1 capital.
In February 1994, the OTS issued a
final rule making its capital treatment of
intangible assets generally consistent
with the banking agencies’ rules.
However, the OTS rule grandfathers
preexisting core deposit intangibles up
to 25 percent of core capital and all
purchased mortgage servicing rights
acquired before February 1990.
B.5. Capital Requirements for Recourse
Arrangements
B.5.a. Leverage Capital
Requirements—Through December 31,
1996, the banking agencies required full
leverage capital charges on most assets
sold with recourse, even when the
recourse is limited. This included
transactions where the recourse arises