35688 Federal Register / Vol. 60, No. 131 / Monday, July 10, 1995 / Proposed Rules
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. 95–15]
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. R–0766]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 364
RIN 3064–AB13
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 570
[No. 95–114]
RIN 1550–AA54
Interagency Guidelines Establishing
Standards for Safety and Soundness
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Proposed guidelines.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board of Governors), the
Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift
Supervision (OTS) (collectively, the
agencies) are proposing asset quality
and earnings standards to be added to
the Interagency Guidelines Establishing
Standards for Safety and Soundness
(Guidelines) adopted pursuant to
section 39 of the Federal Deposit
Insurance Act (FDI Act) and appearing
as an appendix to each of the agencies’
standard for safety and soundness final
rule published elsewhere in this
separate part of the Federal Register.
The agencies may require an insured
depository institution to file a
compliance plan for failure to meet
these asset quality and earnings
standards when adopted in final form.
DATES: Comments must be submitted by
August 24, 1995.
ADDRESSES: Interested parties are
invited to submit written comments to
any or all of the agencies. All comments
will be shared among the agencies.
OCC: Communications Division, 250
E Street, SW., Washington, DC 20219,
attention: Docket No. 95–15. Comments
will be available for public inspection
and photocopying at the same location
on business days between 9 a.m. and 5
p.m.
Board of Governors: Comments,
which should refer to Docket No. R–
0766, may be mailed to Mr. William
Wiles, Secretary, Board of Governors of
the Federal Reserve System, 20th Street
and Constitution Avenue, NW.,
Washington, DC 20551. Comments
addressed to Mr. Wiles may also be
delivered to the Board’s mail room
between 8:45 a.m. and 5:15 p.m., and to
the security control room outside of
those hours. Both the mail room and
control room are accessible from the
courtyard entrance on 20th Street
between Constitution Avenue and C
Street, NW. Comments may be
inspected in room MP–500 between 9
a.m. and 5 p.m., except as provided in
§ 261.8 of the Board’s Rules Regarding
Availability of Information, 12 CFR
261.8.
FDIC: Robert E. Feldman, Acting
Executive Secretary, Attention: Room F–
402, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
Washington, DC 20429. Comments may
be hand-delivered to room F–400, 1776
F Street, NW., Washington, DC, on
business days between 8:30 a.m. and 5
p.m. [FAX number (202) 898–3838];
Internet E-mail comments @fdic.gov.
Comments will be available for
inspection and photocopying in room
7118, 550 17th Street, NW., Washington,
DC 20429, between 9 a.m. and 4:30 p.m.
on business days.
OTS: Send comments to Chief,
Dissemination Branch Records
Management and Information Policy,
Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552,
Attention Docket No. 95–114. These
submissions may be hand delivered to
1700 G Street, NW., from 9 a.m. to 5
p.m. on business days; they may be sent
by facsimile transmission to FAX
number (202) 906–7755. Comments will
be available for inspection at 1700 G
Street, NW., from 1 p.m. until 4 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
OCC: Emily R. McNaughton, National
Bank Examiner (202/874–5170), Office
of the Chief National Bank Examiner;
David Thede, Senior Attorney, (202/
874–5210) Securities and Corporate
Practices Division, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board of Governors: David Wright,
Supervisory Financial Analyst (202/
728–5854), Division of Banking
Supervision and Regulation; Scott G.
Alvarez, Associate General Counsel
(202/452–3583), Gregory A. Baer,
Managing Senior Counsel (202/452–
3236), Legal Division, Board of
Governors of the Federal Reserve
System. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202/452–
3544), Board of Governors of the Federal
Reserve System, 20th and C Streets,
NW., Washington, DC 20551.
FDIC: Robert W. Walsh, Manager,
Planning and Program Development
(202/898–6911) or Michael D. Jenkins,
Examination Specialist (202/898–6896),
Division of Supervision; Lisa M.
Stanley, Senior Counsel (202/898–
7494), Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
OTS: William Magrini, Project
Manager (202/906–5744), Cathern
Smith, Regional Coordinator (202/906–
6614), Supervision; Kevin Corcoran,
Assistant Chief Counsel (202/906–6962),
Teri M. Valocchi, Counsel (Banking and
Finance) (202/906–7299), Chief
Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Framework
Section 132 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA), added a new section
39 to the FDI Act which required each
Federal banking agency to establish by
regulation certain safety and soundness
standards for the insured depository
institutions and depository institution
holding companies for which it was the
primary Federal regulator. As enacted in
FDICIA, section 39(b) of the FDI Act
required the agencies to establish
standards by regulation specifying a
maximum ratio of classified assets to
capital and minimum earnings
sufficient to absorb losses without
impairing capital.
On September 23, 1994 the Riegle
Community Development and
Regulatory Improvement Act of 1994
(CDRI Act) was enacted. Section 318(a)
of the CDRI Act eliminated the
requirement that standards prescribed
under section 39 apply to depository
institution holding companies and
replaced the requirement that the
agencies establish quantitative asset
quality and earnings standards with a
requirement that the agencies establish
standards, by regulation or by guideline,
relating to asset quality and earnings
that the agencies determine to be
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 30
[Docket No. 95–15]
FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Docket No. R–0766]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 364
RIN 3064–AB13
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 570
[No. 95–114]
RIN 1550–AA54
Interagency Guidelines Establishing
Standards for Safety and Soundness
AGENCIES: Office of the Comptroller of
the Currency, Treasury; Board of
Governors of the Federal Reserve
System; Federal Deposit Insurance
Corporation; and Office of Thrift
Supervision, Treasury.
ACTION: Proposed guidelines.
SUMMARY: The Office of the Comptroller
of the Currency (OCC), the Board of
Governors of the Federal Reserve
System (Board of Governors), the
Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift
Supervision (OTS) (collectively, the
agencies) are proposing asset quality
and earnings standards to be added to
the Interagency Guidelines Establishing
Standards for Safety and Soundness
(Guidelines) adopted pursuant to
section 39 of the Federal Deposit
Insurance Act (FDI Act) and appearing
as an appendix to each of the agencies’
standard for safety and soundness final
rule published elsewhere in this
separate part of the Federal Register.
The agencies may require an insured
depository institution to file a
compliance plan for failure to meet
these asset quality and earnings
standards when adopted in final form.
DATES: Comments must be submitted by
August 24, 1995.
ADDRESSES: Interested parties are
invited to submit written comments to
any or all of the agencies. All comments
will be shared among the agencies.
OCC: Communications Division, 250
E Street, SW., Washington, DC 20219,
attention: Docket No. 95–15. Comments
will be available for public inspection
and photocopying at the same location
on business days between 9 a.m. and 5
p.m.
Board of Governors: Comments,
which should refer to Docket No. R–
0766, may be mailed to Mr. William
Wiles, Secretary, Board of Governors of
the Federal Reserve System, 20th Street
and Constitution Avenue, NW.,
Washington, DC 20551. Comments
addressed to Mr. Wiles may also be
delivered to the Board’s mail room
between 8:45 a.m. and 5:15 p.m., and to
the security control room outside of
those hours. Both the mail room and
control room are accessible from the
courtyard entrance on 20th Street
between Constitution Avenue and C
Street, NW. Comments may be
inspected in room MP–500 between 9
a.m. and 5 p.m., except as provided in
§ 261.8 of the Board’s Rules Regarding
Availability of Information, 12 CFR
261.8.
FDIC: Robert E. Feldman, Acting
Executive Secretary, Attention: Room F–
402, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
Washington, DC 20429. Comments may
be hand-delivered to room F–400, 1776
F Street, NW., Washington, DC, on
business days between 8:30 a.m. and 5
p.m. [FAX number (202) 898–3838];
Internet E-mail comments @fdic.gov.
Comments will be available for
inspection and photocopying in room
7118, 550 17th Street, NW., Washington,
DC 20429, between 9 a.m. and 4:30 p.m.
on business days.
OTS: Send comments to Chief,
Dissemination Branch Records
Management and Information Policy,
Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552,
Attention Docket No. 95–114. These
submissions may be hand delivered to
1700 G Street, NW., from 9 a.m. to 5
p.m. on business days; they may be sent
by facsimile transmission to FAX
number (202) 906–7755. Comments will
be available for inspection at 1700 G
Street, NW., from 1 p.m. until 4 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT:
OCC: Emily R. McNaughton, National
Bank Examiner (202/874–5170), Office
of the Chief National Bank Examiner;
David Thede, Senior Attorney, (202/
874–5210) Securities and Corporate
Practices Division, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board of Governors: David Wright,
Supervisory Financial Analyst (202/
728–5854), Division of Banking
Supervision and Regulation; Scott G.
Alvarez, Associate General Counsel
(202/452–3583), Gregory A. Baer,
Managing Senior Counsel (202/452–
3236), Legal Division, Board of
Governors of the Federal Reserve
System. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202/452–
3544), Board of Governors of the Federal
Reserve System, 20th and C Streets,
NW., Washington, DC 20551.
FDIC: Robert W. Walsh, Manager,
Planning and Program Development
(202/898–6911) or Michael D. Jenkins,
Examination Specialist (202/898–6896),
Division of Supervision; Lisa M.
Stanley, Senior Counsel (202/898–
7494), Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
OTS: William Magrini, Project
Manager (202/906–5744), Cathern
Smith, Regional Coordinator (202/906–
6614), Supervision; Kevin Corcoran,
Assistant Chief Counsel (202/906–6962),
Teri M. Valocchi, Counsel (Banking and
Finance) (202/906–7299), Chief
Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Framework
Section 132 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (FDICIA), added a new section
39 to the FDI Act which required each
Federal banking agency to establish by
regulation certain safety and soundness
standards for the insured depository
institutions and depository institution
holding companies for which it was the
primary Federal regulator. As enacted in
FDICIA, section 39(b) of the FDI Act
required the agencies to establish
standards by regulation specifying a
maximum ratio of classified assets to
capital and minimum earnings
sufficient to absorb losses without
impairing capital.
On September 23, 1994 the Riegle
Community Development and
Regulatory Improvement Act of 1994
(CDRI Act) was enacted. Section 318(a)
of the CDRI Act eliminated the
requirement that standards prescribed
under section 39 apply to depository
institution holding companies and
replaced the requirement that the
agencies establish quantitative asset
quality and earnings standards with a
requirement that the agencies establish
standards, by regulation or by guideline,
relating to asset quality and earnings
that the agencies determine to be
35689Federal Register / Vol. 60, No. 131 / Monday, July 10, 1995 / Proposed Rules
1 For the OCC, these Guidelines appear as
Appendix A to Part 30; for the Board of Governors,
these Guidelines appear as Appendix D to Part 208;
for the FDIC, these Guidelines appear as Appendix
A to Part 364; and for the OTS, these Guidelines
appear as Appendix A to Part 570.
appropriate. Pursuant to section 318 of
the CDRI Act, these amendments have
the same effective date as section 39 of
the FDI Act, as provided in section
132(c) of FDICIA.
B. Agencies’ Proposals
The agencies published a joint
advance notice of proposed rulemaking
in the Federal Register. 57 FR 31336
(July 15, 1992). The agencies received
over 400 comment letters in response to
the ANPR, with some letters submitted
to more than one agency. The agencies’
proposal requested comment on all
aspects of the safety and soundness
standards required to be prescribed
pursuant to section 39 of the FDI Act,
as enacted in FDICIA. Commenters
strongly recommended that the agencies
adopt general rather than specific
standards. The agencies published a
joint notice of proposed rulemaking in
the Federal Register on November 18,
1993, 59 FR 60802. The agencies
proposed quantitative asset quality and
earnings standards in accordance with
the statutory mandate set forth in
FDICIA.
C. Final Rule and Interagency
Guidelines Establishing Standards for
Safety and Soundness
Each of the agencies has adopted a
final rule (Final Rule) and Interagency
Guidelines Establishing Standards for
Safety and Soundness (Guidelines). The
agencies’ Final Rule establishes
deadlines for submission and review of
safety and soundness compliance plans
which may be required for failure to
meet one or more of the safety and
soundness standards adopted in the
Guidelines. The agencies’ Final Rule
and Guidelines are published elsewhere
in this separate part of the Federal
Register. The Guidelines will appear as
appendices to each of the agencies’
Final Rule.1
If adopted in final form, the agencies
intend to incorporate these asset quality
and earnings standards into the
Guidelines. Thus, if adopted in final
form, the agencies may require
submission of a compliance plan for
failure to meet the asset quality and
earnings standards.
II. Request for Comment on Proposed
Asset Quality and Earnings Standards
As enacted in FDICIA, section 39(b) of
the FDI Act required the agencies to
establish standards specifying a
maximum ratio of classified assets to
capital and minimum earnings
sufficient to absorb losses without
impairing capital. As amended by the
CDRI Act, section 39(b) no longer
requires the agencies to establish
quantitative standards. Instead, the
agencies are required to establish such
standards relating to asset quality and
earnings that the agencies determine to
be appropriate.
Although commenters generally
found the agencies’ proposed
quantitative standards acceptable, some
commenters criticized the proposed
standards as inflexible and simplistic.
While the agencies believe that the
standards as proposed are acceptable,
they also believe that more
comprehensive standards in these areas,
as allowed under section 39(b), as
amended, would be more useful and
appropriate. Therefore, the agencies are
proposing new standards for asset
quality and earnings that emphasize
monitoring, reporting and preventive or
corrective action appropriate to the size
of the institution and the nature and
scope of its activities. These standards
would be adopted by guideline.
The agencies believe the proposed
standards are more likely to aid in the
identification and resolution of
emerging problems than setting
minimum or maximum ratios. The
agencies intend to continue to perform
independent analyses that may include
asset quality and earnings ratio analysis
and will focus on an institution’s
oversight, reporting and corrective
actions in these areas. The agencies
believe that well-managed institutions
should not find it necessary to modify
their operations to comply with the
proposed guidelines.
A. Standards Relating to Asset Quality
The agencies are proposing asset
quality standards requiring monitoring
and reporting systems to identify
emerging problems and corrective
actions to resolve them. The standards
provide for institutions to identify
problem assets and estimate inherent
losses. Institutions would also be
required to: (1) Consider the size and
potential risks of material
concentrations of credit risk, (2)
compare the level of problem assets to
the level of capital and establish
reserves sufficient to absorb anticipated
losses on those and other assets, (3) take
appropriate corrective action to resolve
problem assets; and (4) provide periodic
asset quality reports to the board of
directors to assess the level of asset risk.
The complexity and sophistication of
an institution’s monitoring, reporting
systems and corrective actions should
be commensurate with the size, nature
and scope of the institution’s
operations. The agencies believe that the
proposed asset quality standards are
consistent with the practices of well-
managed institutions and represent the
long-standing and established
expectations of the agencies.
B. Standards Relating to Earnings
The agencies are proposing earnings
standards requiring monitoring and
reporting systems similar to the
standards for asset quality. The
standards are intended to ensure prompt
remedial actions to enhance early
identification and resolution of
problems. The standards require
institutions to compare their earnings
trends, relative to equity, assets and
other common benchmarks with their
historical experience and with their
peers. The standards also provide that
institutions should: (1) evaluate the
adequacy of earnings given the
institution’s size, and complexity, and
the risk profile of the institution’s assets
and operations, (2) assess the source,
volatility and sustainability of earnings,
(3) evaluate the effect of nonrecurring or
extraordinary income or expense, (4)
take steps to ensure that earnings are
sufficient to maintain adequate capital
and reserves after considering asset
quality and the institution’s rate of
growth, and (5) provide periodic reports
with enough information for
management and the board of directors
to assess earnings performance.
As with the asset quality standards,
the institution’s monitoring, reporting
systems and corrective actions should
be commensurate with the size, nature
and scope of the institution’s
operations. Once again, the agencies
believe that these earnings standards are
consistent with the practices of well-
managed institutions and represent the
long-standing and established
expectations of the agencies.
The agencies propose to add to the
Interagency Guidelines Establishing
Standards for Safety and Soundness
standards relating to asset quality and
earnings as set forth below. The
agencies request comment on all aspects
of the proposed standards.
Regulatory Flexibility Act
Pursuant to Section 605(b) of the
Regulatory Flexibility Act, the agencies
certify that the proposal will not have a
significant economic impact on a
substantial number of small entities.
Accordingly, a regulatory flexibility
analysis is not required. This proposal
adds asset quality and earnings
standards to the Interagency Guidelines
1 For the OCC, these Guidelines appear as
Appendix A to Part 30; for the Board of Governors,
these Guidelines appear as Appendix D to Part 208;
for the FDIC, these Guidelines appear as Appendix
A to Part 364; and for the OTS, these Guidelines
appear as Appendix A to Part 570.
appropriate. Pursuant to section 318 of
the CDRI Act, these amendments have
the same effective date as section 39 of
the FDI Act, as provided in section
132(c) of FDICIA.
B. Agencies’ Proposals
The agencies published a joint
advance notice of proposed rulemaking
in the Federal Register. 57 FR 31336
(July 15, 1992). The agencies received
over 400 comment letters in response to
the ANPR, with some letters submitted
to more than one agency. The agencies’
proposal requested comment on all
aspects of the safety and soundness
standards required to be prescribed
pursuant to section 39 of the FDI Act,
as enacted in FDICIA. Commenters
strongly recommended that the agencies
adopt general rather than specific
standards. The agencies published a
joint notice of proposed rulemaking in
the Federal Register on November 18,
1993, 59 FR 60802. The agencies
proposed quantitative asset quality and
earnings standards in accordance with
the statutory mandate set forth in
FDICIA.
C. Final Rule and Interagency
Guidelines Establishing Standards for
Safety and Soundness
Each of the agencies has adopted a
final rule (Final Rule) and Interagency
Guidelines Establishing Standards for
Safety and Soundness (Guidelines). The
agencies’ Final Rule establishes
deadlines for submission and review of
safety and soundness compliance plans
which may be required for failure to
meet one or more of the safety and
soundness standards adopted in the
Guidelines. The agencies’ Final Rule
and Guidelines are published elsewhere
in this separate part of the Federal
Register. The Guidelines will appear as
appendices to each of the agencies’
Final Rule.1
If adopted in final form, the agencies
intend to incorporate these asset quality
and earnings standards into the
Guidelines. Thus, if adopted in final
form, the agencies may require
submission of a compliance plan for
failure to meet the asset quality and
earnings standards.
II. Request for Comment on Proposed
Asset Quality and Earnings Standards
As enacted in FDICIA, section 39(b) of
the FDI Act required the agencies to
establish standards specifying a
maximum ratio of classified assets to
capital and minimum earnings
sufficient to absorb losses without
impairing capital. As amended by the
CDRI Act, section 39(b) no longer
requires the agencies to establish
quantitative standards. Instead, the
agencies are required to establish such
standards relating to asset quality and
earnings that the agencies determine to
be appropriate.
Although commenters generally
found the agencies’ proposed
quantitative standards acceptable, some
commenters criticized the proposed
standards as inflexible and simplistic.
While the agencies believe that the
standards as proposed are acceptable,
they also believe that more
comprehensive standards in these areas,
as allowed under section 39(b), as
amended, would be more useful and
appropriate. Therefore, the agencies are
proposing new standards for asset
quality and earnings that emphasize
monitoring, reporting and preventive or
corrective action appropriate to the size
of the institution and the nature and
scope of its activities. These standards
would be adopted by guideline.
The agencies believe the proposed
standards are more likely to aid in the
identification and resolution of
emerging problems than setting
minimum or maximum ratios. The
agencies intend to continue to perform
independent analyses that may include
asset quality and earnings ratio analysis
and will focus on an institution’s
oversight, reporting and corrective
actions in these areas. The agencies
believe that well-managed institutions
should not find it necessary to modify
their operations to comply with the
proposed guidelines.
A. Standards Relating to Asset Quality
The agencies are proposing asset
quality standards requiring monitoring
and reporting systems to identify
emerging problems and corrective
actions to resolve them. The standards
provide for institutions to identify
problem assets and estimate inherent
losses. Institutions would also be
required to: (1) Consider the size and
potential risks of material
concentrations of credit risk, (2)
compare the level of problem assets to
the level of capital and establish
reserves sufficient to absorb anticipated
losses on those and other assets, (3) take
appropriate corrective action to resolve
problem assets; and (4) provide periodic
asset quality reports to the board of
directors to assess the level of asset risk.
The complexity and sophistication of
an institution’s monitoring, reporting
systems and corrective actions should
be commensurate with the size, nature
and scope of the institution’s
operations. The agencies believe that the
proposed asset quality standards are
consistent with the practices of well-
managed institutions and represent the
long-standing and established
expectations of the agencies.
B. Standards Relating to Earnings
The agencies are proposing earnings
standards requiring monitoring and
reporting systems similar to the
standards for asset quality. The
standards are intended to ensure prompt
remedial actions to enhance early
identification and resolution of
problems. The standards require
institutions to compare their earnings
trends, relative to equity, assets and
other common benchmarks with their
historical experience and with their
peers. The standards also provide that
institutions should: (1) evaluate the
adequacy of earnings given the
institution’s size, and complexity, and
the risk profile of the institution’s assets
and operations, (2) assess the source,
volatility and sustainability of earnings,
(3) evaluate the effect of nonrecurring or
extraordinary income or expense, (4)
take steps to ensure that earnings are
sufficient to maintain adequate capital
and reserves after considering asset
quality and the institution’s rate of
growth, and (5) provide periodic reports
with enough information for
management and the board of directors
to assess earnings performance.
As with the asset quality standards,
the institution’s monitoring, reporting
systems and corrective actions should
be commensurate with the size, nature
and scope of the institution’s
operations. Once again, the agencies
believe that these earnings standards are
consistent with the practices of well-
managed institutions and represent the
long-standing and established
expectations of the agencies.
The agencies propose to add to the
Interagency Guidelines Establishing
Standards for Safety and Soundness
standards relating to asset quality and
earnings as set forth below. The
agencies request comment on all aspects
of the proposed standards.
Regulatory Flexibility Act
Pursuant to Section 605(b) of the
Regulatory Flexibility Act, the agencies
certify that the proposal will not have a
significant economic impact on a
substantial number of small entities.
Accordingly, a regulatory flexibility
analysis is not required. This proposal
adds asset quality and earnings
standards to the Interagency Guidelines