47138 Federal Register / Vol. 74, No. 177 / Tuesday, September 15, 2009 / Proposed Rules 

information provided by the cask 

vendor, the following: 

(i) The name and address of the cask 

vendor or lessor; 

(ii) The listing of spent fuel stored in 

the cask; and 

(iii) Any maintenance performed on 

the cask. 

(13) Conduct activities related to 

storage of spent fuel under this general 

license only in accordance with written 

procedures. 

(14) Make records and casks available 

to the Commission for inspection. 

(c) The record described in paragraph 

(b)(12) of this section must include 

sufficient information to furnish 

documentary evidence that any testing 

and maintenance of the cask has been 

conducted under an NRC-approved 

quality assurance program. 

(d) In the event that a cask is sold, 

leased, loaned, or otherwise transferred 

to another registered user, the record 

described in paragraph (b)(12) of this 

section must also be transferred to and 

must be accurately maintained by the 

new registered user. This record must be 

maintained by the current cask user 

during the period that the cask is used 

for storage of spent fuel and retained by 

the last user until decommissioning of 

the cask is complete. 

(e) Fees for inspections related to 

spent fuel storage under this general 

license are those shown in § 170.31 of 

this chapter. 

6. In § 72.230, revise paragraph (b) to 

read as follows: 

§ 72.230 Procedures for spent fuel storage 

cask submittals. 

* * * * * 

(b) Casks that have been certified for 

transportation of spent fuel under part 

71 of this chapter may be approved for 

storage of spent fuel under this subpart. 

An application must be submitted in 

accordance with the instructions 

contained in § 72.4, for a proposed term 

not to exceed 40 years. A copy of the 

CoC issued for the cask under part 71 

of this chapter, and drawings and other 

documents referenced in the certificate, 

must be included with the application. 

A safety analysis report showing that 

the cask is suitable for storage of spent 

fuel, for the term proposed in the 

application, must also be included. 

* * * * * 

7. In § 72.236, revise paragraph (g) to 

read as follows: 

§ 72.236 Specific requirements for spent 

fuel storage cask approval and fabrication. 

* * * * * 

(g) The spent fuel storage cask must 

be designed to store the spent fuel safely 

for the term proposed in the application, 

and permit maintenance as required. 

* * * * * 

8. Revise § 72.238 to read as follows: 

§ 72.238 Issuance of an NRC Certificate of 

Compliance. 

A Certificate of Compliance for a cask 

model will be issued by NRC for a term 

not to exceed 40 years on a finding that 

the requirements in § 72.236(a) through 

(i) are met. 

9. Revise § 72.240 to read as follows: 

§ 72.240 Conditions for spent fuel storage 

cask renewal. 

(a) The certificate holder may apply 

for renewal of the design of a spent fuel 

storage cask for a term not to exceed 40 

years. In the event that a certificate 

holder does not apply for a cask design 

renewal, any licensee that uses this cask 

model under the general license issued 

under § 72.210 may apply for a renewal 

of that cask design for a term not to 

exceed 40 years. 

(b) The application for renewal of the 

design of a spent fuel storage cask must 

be submitted not less than 30 days 

before the expiration date of the CoC. 

When the applicant has submitted a 

timely application for renewal, the 

existing CoC will not expire until the 

application for renewal has been 

determined by the NRC. 

(c) The application must be 

accompanied by a safety analysis report 

(SAR). The SAR must include the 

following: 

(1) Design bases information as 

documented in the most recently 

updated final safety analysis report 

FSAR as required by § 72.248; and 

(2) Time-limited aging analyses that 

demonstrate that structures, systems, 

and components important to safety will 

continue to perform their intended 

function for the requested period of 

extended operation; and 

(3) A description of the program for 

management of issues associated with 

aging that could adversely affect 

structures, systems, and components 

important to safety. 

(d) The design of a spent fuel storage 

cask will be renewed if the conditions 

in subpart G of this part and § 72.238 are 

met, and the application includes a 

demonstration that the storage of spent 

fuel has not, in a significant manner, 

adversely affected structures, systems, 

and components important to safety. 

Dated at Rockville, Maryland, this 8th day 

of September 2009. 

For the Nuclear Regulatory Commission. 

Annette L. Vietti-Cook, 

Secretary of the Commission. 

[FR Doc. E9–22126 Filed 9–14–09; 8:45 am] 

BILLING CODE 7590–01–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 3 

[Docket ID: OCC–2009–0012] 

RIN 1557–AD26 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 208 and 225 

[Regulations H and Y; Docket No. R–1368] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 325 

RIN 3064–AD48 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

12 CFR Part 567 

[No. OTS–2009–0015] 

RIN 1550–AC36 

Risk-Based Capital Guidelines; Capital 

Adequacy Guidelines; Capital 

Maintenance: Regulatory Capital; 

Impact of Modifications to Generally 

Accepted Accounting Principles; 

Consolidation of Asset-Backed 

Commercial Paper Programs; and 

Other Related Issues 

AGENCY: Office of the Comptroller of the 

Currency, Department of the Treasury; 

Board of Governors of the Federal 

Reserve System; Federal Deposit 

Insurance Corporation; and Office of 

Thrift Supervision, Department of the 

Treasury. 

ACTION: Notice of proposed rulemaking 

with request for public comment. 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC), Board of 

Governors of the Federal Reserve 

System (Board), Federal Deposit 

Insurance Corporation (FDIC), and the 

Office of Thrift Supervision (OTS) 

(collectively, the agencies) are 

requesting comment on a proposal to 

modify their general risk-based and 

advanced risk-based capital adequacy 

frameworks to eliminate the exclusion 

of certain consolidated asset-backed 

commercial paper programs from riskweighted assets and provide a 

reservation of authority in their general 

risk-based and advanced risk-based 

capital adequacy frameworks to permit 

the agencies to require banking 

organizations to treat entities that are 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 177 / Tuesday, September 15, 2009 / Proposed Rules 47139 

not consolidated under accounting 

standards as if they were consolidated 

for risk-based capital purposes, 

commensurate with the risk relationship 

of the banking organization to the 

structure. The agencies are issuing this 

proposal and request for comment to 

better align capital requirements with 

the actual risk of certain exposures and 

to obtain information and views from 

the public on the effect on regulatory 

capital that will result from the 

implementation of the Financial 

Accounting Standard Board’s (FASB) 

Statement of Financial Accounting 

Standards No. 166, Accounting for 

Transfers of Financial Assets, an 

Amendment of FASB Statement No. 140 

and Statement of Financial Accounting 

Standards No. 167, Amendments to 

FASB Interpretation No. 46(R). 

DATES: Comments on this notice of 

proposed rulemaking must be received 

by October 15, 2009. 

ADDRESSES: Comments should be 

directed to: 

OCC: Because paper mail in the 

Washington, DC area and at the agencies 

is subject to delay, commenters are 

encouraged to submit comments by the 

Federal eRulemaking Portal or e-mail, if 

possible. Please use the title ‘‘RiskBased Capital Guidelines; Capital 

Adequacy Guidelines; Capital 

Maintenance: Regulatory Capital; 

Impact of Modifications to Generally 

Accepted Accounting Principles; 

Consolidation of Asset-Backed 

Commercial Paper Programs; and Other 

Related Issues’’ to facilitate the 

organization and distribution of the 

comments. You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal— 

‘‘Regulations.gov’’: Go to http:// 

www.regulations.gov. Under the ‘‘More 

Search Options’’ tab click next to the 

‘‘Advanced Docket Search’’ option 

where indicated, select ‘‘Comptroller of 

the Currency’’ from the agency dropdown menu, then click ‘‘Submit.’’ In the 

‘‘Docket ID’’ column, select ‘‘OCC– 

2009–0012’’ to submit or view public 

comments and to view supporting and 

related materials for this proposed rule. 

The ‘‘How to Use This Site’’ link on the 

Regulations.gov home page provides 

information on using Regulations.gov, 

including instructions for submitting or 

viewing public comments, viewing 

other supporting and related materials, 

and viewing the docket after the close 

of the comment period. 

• E-mail: 

regs.comments@occ.treas.gov. 

• Mail: Office of the Comptroller of 

the Currency, 250 E Street, SW., Mail 

Stop 2–3, Washington, DC 20219. 

• Fax: (202) 874–5274. 

• Hand Delivery/Courier: 250 E 

Street, SW., Mail Stop 2–3, Washington, 

DC 20219. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

Number OCC–2009–0012’’ in your 

comment. In general, the OCC will enter 

all comments received into the docket 

and publish them on the 

Regulations.gov Web site without 

change, including any business or 

personal information that you provide 

such as name and address information, 

e-mail addresses, or phone numbers. 

Comments received, including 

attachments and other supporting 

materials, are part of the public record 

and subject to public disclosure. Do not 

enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

You may review comments and other 

related materials that pertain to this 

proposed rule by any of the following 

methods: 

• Viewing Comments Electronically: 

Go to http://www.regulations.gov, under 

the ‘‘More Search Options’’ tab click 

next to the ‘‘Advanced Document 

Search’’ option where indicated, select 

‘‘Comptroller of the Currency’’ from the 

agency drop-down menu, then click 

‘‘Submit.’’ In the ‘‘Docket ID’’ column, 

select ‘‘OCC–2009–0012’’ to view public 

comments for this rulemaking action. 

• Viewing Comments Personally: You 

may inspect and photocopy comments 

at the OCC, 250 E. Street, SW., 

Washington, DC. For security reasons, 

the OCC requires that visitors make an 

appointment to inspect comments. You 

may do so by calling (202) 874–4700. 

Upon arrival, visitors must present valid 

government-issued photo identification 

and submit to security screening in 

order to inspect and photocopy 

comments. 

• Docket: You may view or request 

available background documents and 

project summaries using the methods 

described above. 

Board: You may submit comments, 

identified by Docket No. R–1368, by any 

of the following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 

• FAX: (202) 452–3819 or (202) 452– 

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Street, NW.) between 9 a.m. and 5 p.m. 

on weekdays. 

FDIC: You may submit comments by 

any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Agency Web site: http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments/Legal 

ESS, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• Hand Delivered/Courier: The guard 

station at the rear of the 550 17th Street 

Building (located on F Street), on 

business days between 7 a.m. and 5 p.m. 

• E-mail: comments@FDIC.gov. 

Instructions: Comments submitted 

must include ‘‘FDIC’’ and ‘‘RIN 3064– 

AD48.’’ Comments received will be 

posted without change to http:// 

www.FDIC.gov/regulations/laws/ 

federal/propose.html, including any 

personal information provided. 

OTS: You may submit comments, 

identified by OTS–2009–0015, by any of 

the following methods: 

• Federal eRulemaking Portal: 

‘‘Regulations.gov’’: Go to http:// 

www.regulations.gov. Under the ‘‘more 

Search Options’’ tab click next to the 

‘‘Advanced Docket Search’’ option 

where indicated, select ‘‘Office of Thrift 

Supervision’’ from the agency 

dropdown menu, then click ‘‘Submit.’’ 

In the ‘‘Docket ID’’ column, select 

‘‘OTS–2009–0015’’ to submit or view 

public comments and to view 

supporting and related materials for this 

proposed rulemaking. The ‘‘How to Use 

This Site’’ link on the Regulations.gov 

home page provides information on 

using Regulations.gov, including 

instructions for submitting or viewing 

public comments, viewing other 

supporting and related materials, and 

viewing the docket after the close of the 

comment period. 


sroberts on DSKD5P82C1PROD with PROPOSALS
47140 Federal Register / Vol. 74, No. 177 / Tuesday, September 15, 2009 / Proposed Rules 

1Unless otherwise indicated, the term ‘‘banking 

organization’’ includes banks, savings associations, 

and bank holding companies (BHCs). 

2 12 CFR part 3 (OCC); 12 CFR part 208, appendix 

B and 12 CFR part 225 appendix D (Board); 12 CFR 

part 325.3 (FDIC); 12 CFR 567.8 (OTS). 

3 12 CFR part 3, appendix A (OCC); 12 CFR parts 

208 and 225, appendix A (Board); 12 CFR part 325, 

appendix A (FDIC); and 12 CFR part 567, subpart 

B (OTS). The risk-based capital rules generally do 

not apply to bank holding companies with $500 

million or less in consolidated assets. 

4 12 CFR part 3, appendix C (OCC); 12 CFR part 

208, appendix F and 12 CFR part 225, appendix G 

(Board); 12 CFR part 325, appendix D (FDIC); 12 

CFR 567, Appendix C (OTS). 

5Statement of Financial Accounting Standards 

No. 140 (FASB 2000) and Interpretation No. 46R 

(FASB 2003). All references made to FASB 

Statements of Financial Accounting Standards and 

Interpretations have been or will soon be included 

in the FASB Accounting Standards Codification 

that became effective on July 1, 2009. 

6The transfers are recognized as sales as long as 

they meet other criteria contained in the 2000 

version of FAS 140, as amended. See FAS 140, 

paragraph 9. 

7See relevant provisions in FAS 166 paragraphs 

5–7 and FAS 167 paragraphs 7–10. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: OTS– 

2009–0015. 

• Facsimile: (202) 906–6518. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days, Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: OTS–2009–0015. 

• Instructions: All submissions 

received must include the agency name 

and docket number for this rulemaking. 

All comments received will be posted 

without change, including any personal 

information provided. Comments, 

including attachments and other 

supporting materials received are part of 

the public record and subject to public 

disclosure. Do not enclose any 

information in your comment or 

supporting materials that you consider 

confidential or inappropriate for public 

disclosure. 

• Viewing Comments Electronically: 

Go to http://www.regulations.gov, under 

the ‘‘More Search Options’’ tab click 

next to the ‘‘Advanced Document 

Search’’ option where indicated, select 

‘‘Office of Thrift Supervision’’ from the 

agency drop-down menu, then click 

‘‘Submit.’’ In the ‘‘Docket ID’’ column, 

select ‘‘OTS–2009–0015’’ to view public 

comments for this notice of proposed 

rulemaking action. 

• Viewing Comments On-Site: You 

may inspect comments at the Public 

Reading Room, 1700 G Street, NW., by 

appointment. To make an appointment 

for access, call (202) 906–5922, send an 

e-mail to public.info@ots.treas.gov, or 

send a facsimile transmission to (202) 

906–6518. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Paul Podgorski, Risk Expert, 

Capital Policy Division, (202) 874–4755, 

or Carl Kaminski, Senior Attorney, 202 

874–5405, or Ron Shimabukuro, Senior 

Counsel, Legislative and Regulatory 

Activities Division, (202) 874–5090, 

Office of the Comptroller of the 

Currency, 250 E Street, SW., 

Washington, DC 20219. 

Board: Barbara J. Bouchard, Associate 

Director, (202) 452–3072, or Anna Lee 

Hewko, (202) 530–6260, Manager, 

Supervisory Policy and Guidance, 

Division of Banking Supervision and 

Regulation; or April C. Snyder, Counsel, 

(202) 452–3099, or Benjamin W. 

McDonough, Senior Attorney, (202) 

452–2036, Legal Division. For the 

hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (202) 263–4869. 

FDIC: Jim Weinberger, Senior Policy 

Analyst, (202) 898–7034, Christine 

Bouvier, Senior Policy Analyst (Bank 

Accounting), (202) 898–7289, Division 

of Supervision and Consumer 

Protection; or Mark Handzlik, Senior 

Attorney, (202) 898–3990, or Michael 

Phillips, Counsel, (202) 898–3581, 

Supervision Branch, Legal Division. 

OTS: Teresa A. Scott, Senior Policy 

Analyst, (202) 906–6478, Capital Risk, 

Christine Smith, Senior Policy Analyst, 

(202) 906–5740, Capital Risk, or Marvin 

Shaw, Senior Attorney, (202) 906–6639, 

Legislation and Regulation Division, 

Office of Thrift Supervision, 1700 G 

Street, NW., Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The agencies’ regulatory capital 

regime for banking organizations 1

incorporates both leverage and riskbased measures. The leverage measure 2

uses on-balance sheet assets as the basis 

for setting capital requirements that are 

intended to limit the degree to which a 

banking organization can leverage its 

equity capital base. The risk-based 

measures (the general risk-based capital 

rules 3 and the advanced approaches 

rules) 4 establish capital requirements 

intended to reflect the risks associated 

with on-balance sheet exposures as well 

as off-balance sheet exposures, such as 

guarantees, commitments, and 

derivative transactions. The agencies 

use generally accepted accounting 

principles (GAAP), as established by 

FASB, as the initial basis for 

determining whether an exposure is 

treated as on- or off-balance sheet for 

regulatory capital purposes. 

The GAAP treatment for structured 

finance transactions using a special 

purpose entity (SPE) generally has been 

governed by the requirements of 

Statement of Financial Accounting 

Standards No. 140, Accounting for 

Transfers and Servicing of Financial 

Assets and Extinguishments of 

Liabilities (FAS 140) and FASB 

Interpretation No. 46R, Consolidation of 

Variable Interest Entities (FIN 46(R)).5

Under FAS 140 (as currently in effect), 

transfers of assets to an entity that meets 

the definition of a qualifying special 

purpose entity (QSPE) are usually 

recognized as sales, which permits the 

transferor to remove the assets from its 

balance sheet.6 In addition, FIN 46(R) 

specifically excludes QSPEs from its 

scope despite the fact that many QSPEs 

would have otherwise been deemed 

variable interest entities (VIEs) subject 

to FIN 46(R) and possible consolidation. 

On June 12, 2009, FASB finalized 

modifications to FAS 140 and FIN 46(R) 

(the 2009 GAAP modifications) through 

Statement of Financial Accounting 

Standards No. 166, Accounting for 

Transfers of Financial Assets, an 

Amendment of FASB Statement No. 140 

(FAS 166), and Statement of Financial 

Accounting Standards No. 167, 

Amendments to FASB Interpretation 

No. 46(R) (FAS 167). FAS 166 and FAS 

167 are effective as of the beginning of 

a banking organization’s first annual 

financial statement reporting period that 

begins after November 15, 2009, 

including interim periods therein, and 

for interim and annual periods 

thereafter.7

As discussed in further detail below, 

the 2009 GAAP modifications, among 

other things, remove the concept of a 

QSPE from GAAP and alter the 

consolidation analysis for VIEs, thereby 

subjecting many VIEs that are not 

consolidated under current GAAP 

standards to consolidation 

requirements. These changes will 

require some banking organizations to 

consolidate the assets, liabilities, and 

equity of certain VIEs onto their balance 

sheets for financial and regulatory 

reporting purposes. 

II. The 2009 GAAP Modifications 

Under FAS 167, a VIE is an entity 

whose equity investment at risk is 

insufficient to permit the entity to 

finance its activities without additional 

subordinated financial support (for 


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8FAS 167, appendix D, paragraphs 5 and 6. 

9See FAS 167, appendix D, paragraphs 14 and 

14A–14G. 10See FAS 167, appendix D, paragraphs 14C–14E. 

If a company determines that power is shared 

among multiple parties so that no one party is 

deemed to have a controlling financial interest, it 

is not required to consolidate the VIE. FAS 167, 

appendix D, paragraph 14D. It is expected that some 

VIEs will not be consolidated by any company. 11See FAS 167 p. ii. 

12See FAS 166, appendix D, paragraphs 16A–17. 

13See FAS 166, appendix D, paragraph 16D. FAS 

166 also requires companies to provide periodically 

additional information about gains and losses 

resulting from transfers of financial assets. See id., 

paragraph 17. 

14 It is anticipated that most banking 

organizations affected by the 2009 GAAP 

modifications have annual reporting periods 

starting on January 1 and will implement the new 

standards on January 1, 2010. However, some 

banking organizations use different annual 

reporting periods and will implement the new 

standards at the beginning of their first fiscal year 

that starts after November 15, 2009. 

15Under GAAP, an allowance for loan and lease 

losses (ALLL) should be recognized when events 

have occurred indicating that it is probable that an 

asset has been impaired or that a liability has been 

incurred as of the balance sheet date and that the 

amount of the loss can be reasonably estimated. 

Under the risk-based capital rules, the ALLL is a 

component of tier 2 capital and, therefore, included 

in the numerator of the total risk-based capital ratio. 

However, the amount of ALLL that may be included 

in tier 2 capital is limited to 1.25 percentage points 

of gross risk-weighted assets. 

example, an entity with nominal 

common equity) and/or whose equity 

investors do not have rights or 

obligations with respect to the entity 

typical of equity investors. For example, 

a VIE generally exists when the 

administrators of an entity hold a 

nominal common equity interest, and 

debt holders hold the rest of the 

economic interests in the entity (which 

frequently are issued in various degrees 

of subordination). Similarly, an entity is 

a VIE if its equity holders, as a group, 

lack the right to make decisions about 

the entity’s activities; the obligation to 

absorb the expected losses of the entity, 

or the right to receive the expected 

residual returns of the entity.8 Thus, for 

example, an entity whose debt holders, 

rather than its common equity holders, 

have all essential voting rights and the 

rights to receive all revenue generated 

by the entity’s assets, generally would 

be a VIE. 

Determining whether a specific 

company is required to consolidate a 

VIE under FAS 167 depends on a 

qualitative analysis of whether that 

company has a ‘‘controlling financial 

interest’’ in the VIE. The analysis 

focuses on the company’s power over 

and interest in the VIE, rather than on 

quantitative equity ownership 

thresholds. A company has a controlling 

financial interest in a VIE if it has (1) the 

power to direct matters that most 

significantly impact the activities of the 

VIE, including, but not limited to, 

activities that impact the VIE’s 

economic performance (for example, 

servicing activities); and (2) either the 

obligation to absorb losses of the VIE 

that potentially could be significant to 

the VIE, or the right to receive benefits 

from the VIE that potentially could be 

significant to the VIE, or both.9

A company’s analysis of whether it 

must consolidate a VIE must incorporate 

the above criteria and take into account 

the company’s interest(s) in the VIE and 

the characteristics of the VIE, including 

the involvement of other VIE interest 

holders.10 FAS 167 also requires a 

company to conduct ongoing 

assessments using the above criteria to 

determine whether a VIE is subject to 

consolidation.11

FAS 166 amends FAS 140 by 

removing the QSPE concept from 

GAAP, strengthening the requirements 

for recognizing the transfer of financial 

assets to a third party, and requiring 

companies to make additional 

disclosures about any continuing 

involvement they may have in financial 

assets that they transfer.12 As a result, a 

company that transferred financial 

assets to an SPE that previously met the 

definition of a QSPE must now evaluate 

whether it must consolidate the assets, 

liabilities, and equity of the SPE 

pursuant to FAS 167. Furthermore, 

under the additional disclosure 

requirements in FAS 166, companies 

must detail in their financial statements 

their continuing involvement—through 

recourse or guarantee arrangements, 

servicing arrangements, or other 

relationships—in any financial assets 

that they transfer to an SPE (whether or 

not a company is required to 

consolidate the SPE following the 

transfer). These disclosure requirements 

apply as long as a transferring company 

is involved in financial assets that it has 

transferred.13

The 2009 GAAP modifications do not 

provide for the grandfathering of 

existing financial structures. Most 

banking organizations that will be 

required to consolidate and recognize 

on their balance sheets many previously 

unconsolidated VIEs due to the 2009 

GAAP modifications will consolidate as 

of January 1, 2010.14 These newly 

consolidated entities will therefore be 

included in relevant regulatory reports 

of banking organizations, such as the 

bank Reports of Condition and Income 

(Call Reports), the Thrift Financial 

Report (TFR), and the bank holding 

company financial statements (FR Y–9C 

Report). A preliminary analysis of the 

2009 GAAP modifications, as well as 

analysis derived from the agencies’ 

supervisory information, indicates that 

the categories of off-balance sheet 

exposures likely to be subject to 

consolidation on an originating or 

servicing banking organization’s balance 

sheet include: 

• Certain asset-backed commercial 

paper (ABCP) conduits; 

• Revolving securitizations structured 

as master trusts, including credit card 

and home equity line of credit (HELOC) 

securitizations; 

• Certain mortgage loan 

securitizations not guaranteed by the 

U.S. government or a U.S. governmentsponsored agency; 

• Certain term loan securitizations in 

which a banking organization retains a 

residual interest and servicing rights, 

including some student loan and 

automobile loan securitizations; and 

• Other SPEs, such as certain tender 

option bond trusts that were designed as 

QSPEs. 

The 2009 GAAP modifications may also 

require banking organizations to 

recognize on their balance sheets certain 

loan participations and other exposures 

not related to asset securitization. In 

addition, banking organizations may 

need to establish loan loss reserves 15 to 

cover incurred losses on the assets 

consolidated pursuant to the 2009 

GAAP modifications. Each banking 

organization must determine which 

structures and exposures must be 

consolidated onto its balance sheet, and 

assess other appropriate adjustments to 

relevant financial reports, as a result of 

the 2009 GAAP modifications. 

Question 1: Which types of VIEs will 

banking organizations have to 

consolidate onto their balance sheets 

due to the 2009 GAAP modifications, 

which types are not expected to be 

subject to consolidation, and why? 

Which types are likely to be 

restructured to avoid consolidation? 

III. Regulatory Capital and the 2009 

GAAP Modifications 

The agencies’ capital standards 

generally use GAAP treatment of an 

exposure as a starting point for assessing 

regulatory capital requirements for that 

exposure. For example, if certain assets 

of a banking organization are transferred 

to a VIE through a secured financing but 

remain on the banking organization’s 

balance sheet under GAAP, the VIE’s 

assets are risk-weighted like other 

consolidated assets. However, if the 

assets are securitized through sale to a 

VIE that the banking organization does 

not consolidate under GAAP, generally 

the banking organization is required to 


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16 12 CFR part 3, appendix A, § 4 (OCC); 12 CFR 

parts 208 and 225, appendix A § III (Board); 12 CFR 

part 325, appendix A, § II (FDIC); 12 CFR 567.6. 

17See 12 CFR 3.2(a) (OCC); 12 CFR part 208, 

appendix B § II.b and 12 CFR part 225, appendix 

D, § II.b (Board); 12 CFR 325.2(m) (FDIC); 12 CFR 

567.5(b)(4) (OTS). 

18Although Federal law requires that the 

accounting principles applicable to bank ‘‘reports or 

statements’’ be consistent with, or no less stringent 

than GAAP, it does not require the Federal banking 

agencies to adhere to GAAP when determining 

compliance with regulatory capital requirements. 

See 12 U.S.C. 1831n(a)(2) and 12 U.S.C. 1831n(b). 

19A notable example where the risk-based capital 

rules differ from GAAP is in the requirement that 

banking organizations hold capital against the 

contingent risk of a number of off-balance sheet 

exposures, such as loan commitments and letters of 

credit, as well as against the counterparty credit risk 

of derivatives. As a further example, while GAAP 

includes goodwill and intangibles in total 

stockholders’ equity, certain of these items are 

deducted from stockholders’ equity when 

calculating regulatory capital. See 12 CFR part 3, 

appendix A, § 2(c) (OCC); 12 CFR parts 208 and 

225, appendix A, §§ II and III.A (Board); 12 CFR 

part 325, appendix A, §§ I. and II.D. (FDIC); 12 CFR 

567.5(a)(1)(v) and 567.5(a)(2) (OTS). 

20Typical structures of this type include 

securitizations that are backed by credit card or 

HELOC receivables, single and multi-seller ABCP 

conduits, and structured investment vehicles. 

21A description of the design and 

implementation of the SCAP can be found at http:// 

www.federalreserve.gov/newsevents/press/bcreg/ 

bcreg20090424a1.pdf. Additionally, an overview of 

the results of the SCAP, including regulatory capital 

ratios calculated pro forma assuming 

implementation of the 2009 GAAP modifications, 

can be accessed at http://www.federalreserve.gov/ 

newsevents/press/bcreg/bcreg20090507a1.pdf. 

hold risk-based capital only against its 

contractual exposures to the VIE.16 The 

contractual exposures may take the form 

of on-balance sheet exposures such as 

asset-backed securities and residual 

interests, and off-balance sheet 

exposures such as liquidity facilities. 

The 2009 GAAP modifications generally 

would increase the amount of exposures 

recognized on banking organizations’ 

balance sheets. Accordingly, under the 

agencies’ current regulatory capital 

requirements, the 2009 GAAP 

modifications generally would result in 

higher regulatory capital requirements 

for those banking organizations that 

must consolidate VIEs. 

Under the agencies’ leverage capital 

requirements, tier 1 capital is assessed 

against a measure of a banking 

organization’s total assets, net of the 

ALLL and certain other exposures.17

Therefore, previously unconsolidated 

assets that now must be recognized on 

a banking organization’s balance sheet 

due to the 2009 GAAP modifications 

will increase the denominator of the 

banking organization’s leverage ratio. 

Although the 2009 GAAP modifications 

will also affect the numerator of the 

risk-based and leverage capital ratios, in 

many cases both the risk-based and 

leverage capital ratios of affected 

banking organizations will decrease 

following implementation of the 2009 

GAAP modifications. 

The risk-based capital rules specify 

the components of regulatory capital 

and recognize variations of risk levels 

among different exposures through 

different risk-weight assignments. 

Although for many years the agencies 

have used financial information 

reported under GAAP as the starting 

point for banking organizations’ 

regulatory reporting requirements,18 the 

risk-based capital rules adjust GAAP 

balance sheet inputs where appropriate 

to capture an exposure’s risk or the 

ability of elements of capital to absorb 

loss.19

In their consideration of the 2009 

GAAP modifications and the interaction 

of the modifications with the regulatory 

capital requirements, the agencies have 

determined that the qualitative analysis 

required under FAS 167, as well as 

enhanced requirements for recognizing 

transfers of financial assets under FAS 

166, converge in many respects with the 

agencies’ assessment of a banking 

organization’s risk exposure to a 

structured finance transaction and other 

transactions affected by the 2009 GAAP 

modifications. 

In the case of some structures that 

banking organizations were not required 

to consolidate prior to the 2009 GAAP 

modifications, the recent turmoil in the 

financial markets has demonstrated the 

extent to which the credit risk exposure 

of the sponsoring banking organization 

to such structures (and their related 

assets) has in fact been greater than the 

agencies estimated, and more associated 

with non-contractual considerations 

than the agencies had expected. For 

example, recent performance data on 

structures involving revolving assets 20

show that banking organizations have 

often provided non-contractual 

(implicit) support to prevent senior 

securities of the structure from being 

downgraded, thereby mitigating 

reputational risk and the associated 

alienation of investors, and preserving 

access to cost-effective funding. 

In light of this recent experience, the 

agencies believe that the broader 

accounting consolidation requirements 

implemented by the 2009 GAAP 

modifications will result in a regulatory 

capital treatment that more 

appropriately reflects the risks to which 

banking organizations are exposed. 

Additionally, the 2009 GAAP 

modifications require that a banking 

organization regularly update its 

consolidation analysis with respect to 

VIEs, and the enhanced requirements 

for recognition of asset transfers and 

ongoing disclosure requirements for 

financial assets with which the banking 

organization maintains some 

relationship. These requirements are 

consistent with the agencies’ view that 

the capital treatment of some previously 

unconsolidated VIEs does not reflect the 

actual risk to which the banking 

organization may be exposed. 

Question 2: Are there features and 

characteristics of securitization 

transactions or other transactions with 

VIEs, other SPEs, or other entities that 

are more or less likely to elicit banking 

organizations’ provision of noncontractual (implicit) support under 

stressed or other circumstances due to 

reputational risk, business model, or 

other reasons? Commenters should 

describe such features and 

characteristics and the methods of 

support that may be provided. The 

agencies are particularly interested in 

comments regarding credit card 

securitizations, structured investment 

vehicles, money market funds, hedge 

funds, and other entities that are likely 

beneficiaries of non-contractual support. 

The banking agencies have carefully 

considered the probable effect on 

banking organizations’ regulatory 

capital ratios that will result from the 

2009 GAAP modifications and the 

possible alignments between these 

effects and the risk-based principles of 

the risk-based capital rules. The 

agencies have also carefully considered 

the potential financial impact of the 

2009 GAAP modifications on banking 

organizations. As part of this 

consideration, the agencies reviewed 

relevant data from banking 

organizations’ public financial filings 

and regulatory reports as well as 

information obtained from the 

supervisory process, including the 

results of the Supervisory Capital 

Assessment Program (SCAP). The SCAP 

evaluated the capital position of the 

nineteen largest U.S. banking 

organizations, which are also the 

banking organizations most involved in 

asset securitization. As part of the 

SCAP, participating banking 

organizations’ capital adequacy was 

assessed using consolidation 

assumptions consistent with standards 

ultimately included in FAS 166 and 

FAS 167.21

Having considered this information, 

including the SCAP results, the agencies 

do not, at this time, find that a 

compelling basis exists for modifying 

their regulatory capital requirements to 

alter the effect of the 2009 GAAP 

modifications on banking organizations’ 

minimum regulatory capital 


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22 12 CFR 3.6(b) and (c) (OCC); 12 CFR part 208, 

appendix B, § I.a. and 12 CFR part 225, appendix 

D, § I.a (Board); 12 CFR part 325, appendix B 

(FDIC); 12 CFR 567.5 (OTS). 

23 12 CFR part 3.4(b) (OCC); 12 CFR parts 208 and 

225, appendix A § I (Board); 12 CFR part 325, 

appendix A § IIA (FDIC); 12 CFR 567.11 (OTS). 

24 12 CFR part 3, appendix A, § 3(a)(5) and 12 

CFR part 3, appendix C § 42(l) (OCC); 12 CFR part 

208, appendix A, § III.B.6.b and appendix F § 42(l) 

and 12 CFR part 225, appendix A, § III.B.6.b and 

appendix G § 42(l) (Board); 12 CFR part 325, 

appendix A, § II.B.6.b and 12 CFR part 325, 

appendix D, § 424(l) (FDIC); 12 CFR 

567.6(a)(2)(vi)(E) and 12 CFR part 567, appendix C, 

§ 42(l) (OTS). 

25 12 CFR part 3, appendix A, § 2(a)(3)(ii) (OCC); 

12 CFR parts 208 and 225, appendix A, § II A.1.c 

(Board); 12 CFR part 325, appendix A, § I.A.1.(d) 

(FDIC); 12 CFR 567.5(a)(iii)(OTS). See 12 CFR part 

3, appendix C § 11(a) (OCC); 12 CFR part 208, 

appendix F, § 11(a) and 12 CFR part 225, appendix 

G, § 11(a) (Board); 12 CFR part 325, appendix D, 

§ 11(a) (FDIC); 12 CFR part 567, appendix C, § 11(a) 

(OTS). 

26See 69 FR 44908 (July 28, 2004). 

requirements. Furthermore, as discussed 

above, the banking agencies believe that 

the capital treatment of many exposures 

that would be consolidated under the 

new accounting standards aligns with 

risk-based capital principles and results 

in more appropriate risk-based capital 

charges. The agencies also believe that 

it is most appropriate for the leverage 

ratio to continue to reflect the total onbalance sheet assets of a banking 

organization, in keeping with its role as 

a supplement to the risk-based capital 

measure that limits the maximum 

degree to which a banking organization 

can leverage its equity capital base.22

Question 3: What effect will the 2009 

GAAP modifications have on banking 

organizations’ financial positions, 

lending, and activities? How will the 

modifications impact lending typically 

financed by securitization and lending 

in general? How may the modifications 

affect the financial markets? What 

proportion of the impact is related to 

regulatory capital requirements? 

Commenters should provide specific 

responses and supporting data. 

Question 4: As is generally the case 

with respect to changes in accounting 

rules, the 2009 GAAP modifications 

would immediately affect banking 

organizations’ capital requirements. The 

agencies specifically request comment 

on the impact of immediate application 

of the 2009 GAAP modifications on the 

regulatory capital requirements of 

banking organizations that were not 

included in the SCAP. In light of the 

potential impact at this point in the 

economic cycle of the 2009 GAAP 

modifications on regulatory capital 

requirements, the agencies solicit 

comment on whether there are 

significant costs and burdens (or 

benefits) associated with immediate 

application of the 2009 GAAP 

modifications to regulatory capital 

requirements. If there are significant 

costs and burdens, or other relevant 

considerations, should the agencies 

consider a phase-in of the capital 

requirements that would result from the 

2009 GAAP modifications? Commenters 

should provide specific and detailed 

rationales and supporting evidence and 

data to support their positions. 

Additionally, if a phase-in of the 

impact of the GAAP modifications is 

appropriate, what type of phase-in 

should be considered? For example, 

would a phase-in over the course of a 

four-quarter period, as described below, 

for transactions entered into on or prior 

to December 31, 2009, reduce costs or 

burdens without reducing benefits? 

Under a four-quarter phase-in 

approach, the amount of a newlyconsolidated VIE’s assets that would be 

subject to the phase-in would be limited 

to the aggregate value of the assets held 

by the entity as of the last day of the 

fiscal year prior to its implementation of 

the 2009 GAAP modifications. For most 

banking organizations, the aggregate 

value would be calculated as of 

December 31, 2009. 

During such a phase-in, banking 

organizations would be required to hold 

capital (for purposes of calculating both 

the leverage and risk-based capital 

ratios) incrementally against 25 percent 

of exposures subject to consolidation 

due to the 2009 GAAP modifications for 

each of the first three quarters of 2010, 

and against 100 percent of the exposures 

thereafter. For example, if, as a result of 

the 2009 GAAP modifications, a 

banking organization would have to 

consolidate $10 billion of assets 

associated with transactions entered 

into on or before December 31, 2009, it 

would be required to include $2.5 

billion of these assets in its regulatory 

capital ratios the first quarter 2010, $5 

billion the second, $7.5 billion the third, 

and the full $10 billion of assets in the 

fourth quarter and future reporting 

periods. During such a phase-in period, 

the amount of capital that an institution 

holds against all of its exposures to a 

single VIE as of December 31, 2009, 

would not be reduced as a result of this 

phase-in. For example, if a banking 

organization is effectively required to 

hold risk-based capital against all 

exposures in a VIE due to a provision 

of implicit recourse, that capital 

treatment would continue throughout 

2010. For another example, if in the first 

quarter of the phase-in the amount of 

capital required for a banking 

organization’s credit enhancements to a 

securitization on December 31, 2009, 

exceeds the amount of capital required 

for 25 percent (the first quarter phasein amount) of the newly consolidated 

underlying assets, the banking 

organization would be required to hold 

the greater amount of capital. 

Regulatory capital rules establish only 

a minimum capital requirement. In all 

cases, banking organizations should 

hold capital commensurate with the 

level and nature of the risks to which 

they are exposed. Supervisors will 

review a banking organization’s 

securitization and other structured 

finance activities on an individual 

transaction and business-line basis, and 

may require a banking organization to 

increase its capital if they conclude that 

its capital position is not commensurate 

with its risk.23

IV. Asset-Backed Commercial Paper 

Programs 

The agencies propose to eliminate 

existing provisions in the risk-based 

capital rules that permit a banking 

organization, if it is required to 

consolidate under GAAP an ABCP 

program that it sponsors, to exclude the 

consolidated ABCP program assets from 

risk-weighted assets and instead assess 

the risk-based capital requirement 

against any contractual exposures of the 

organization arising from such ABCP 

programs.24 The agencies also propose 

to eliminate the associated provision in 

the general risk-based capital rules 

(incorporated by reference in the 

advanced approaches) that excludes 

from tier 1 capital the minority interest 

in a consolidated ABCP program not 

included in a banking organization’s 

risk-weighted assets.25

The agencies initially implemented 

these provisions in the general riskbased capital rules in 2004 in response 

to changes in GAAP that required 

consolidation of certain ABCP conduits 

by sponsors. The provisions were driven 

largely by the agencies’ belief at the time 

that banking organizations sponsoring 

ABCP conduits generally faced limited 

risk exposures to ABCP programs, 

because these exposures generally were 

confined to the credit enhancements 

and liquidity facility arrangements 

banking organizations provide to these 

programs.26

Additionally, the agencies believed 

previously that operational controls and 

structural provisions, as well as overcollateralization or other credit 

enhancements provided by the 

companies that sell assets into ABCP 

programs, could further mitigate the risk 

to which sponsoring banking 

organizations were exposed. However, 

in light of the increased incidence of 


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27See 5 U.S.C. 603(a). 28See 13 CFR 121.201. 

banking organizations providing noncontractual support to these programs, 

as well as the general credit risk 

concerns discussed above, the agencies 

have reconsidered the appropriateness 

of excluding consolidated ABCP 

program assets from risk-weighted 

assets and have determined that 

continuing the exclusion is no longer 

justified. Under the proposal, if a 

banking organization is required to 

consolidate an entity associated with an 

ABCP program under GAAP, it must 

hold regulatory capital against the assets 

of the entity. It would not be permitted 

to calculate its risk-based capital 

requirements with respect to the entity 

based on its contractual exposure to the 

entity. 

V. Reservation of Authority 

The agencies expect that there may be 

instances when a banking organization 

structures a financial transaction with 

an SPE to avoid consolidation under 

FAS 166 and FAS 167, and the resulting 

capital treatment is not commensurate 

with the actual risk relationship of the 

banking organization to the entity. 

Under this proposal, the banking 

organization’s primary Federal 

supervisor would retain the authority to 

require the banking organization to treat 

the entity as if it were consolidated onto 

the banking organization’s balance sheet 

for risk-based capital purposes. 

Question 5: The agencies request 

comment on all aspects of this proposed 

rule, including the proposal to remove 

the exclusion of consolidated ABCP 

program assets from risk-weighted 

assets under the risk-based capital rules, 

the proposed reservation of authority 

provisions, and the regulatory capital 

treatment that would result from the 

2009 GAAP modifications absent 

changes to the agencies’ regulatory 

capital requirements. 

Question 6: Does this proposal raise 

competitive equity concerns with 

respect to accounting and regulatory 

capital treatments in other jurisdictions 

or with respect to international 

accounting standards? 

Although the agencies believe that 

GAAP, as modified, should remain the 

starting point for calculating regulatory 

capital ratios and that the capital 

requirements resulting from the 2009 

GAAP modifications generally will 

result in a more appropriate reflection of 

credit risk, the agencies recognize that 

the principles underlying the 2009 

GAAP modifications—power, benefits, 

and obligation to bear losses—and the 

resulting consolidation treatment, may 

not in all situations and respects 

correspond to a treatment that would 

result from a more pure risk focus. 

Question 7: Among the structures that 

likely will be consolidated under the 

2009 GAAP modifications, for which 

types, if any, should the agencies 

consider assessing a different risk-based 

capital requirement than the capital 

treatment that will result from the 

implementation of the modifications? 

How are commenters’ views influenced 

by proposals for reforming the 

securitization markets that require 

securitizers to retain a percentage of the 

credit risk on any asset that is 

transferred, sold or conveyed through a 

securitization? Commenters should 

provide a detailed explanation and 

supporting empirical analysis of why 

the features and characteristics of these 

structure types merit an alternative 

treatment, how the risks of the 

structures should be measured, and 

what an appropriate alternative capital 

treatment would be. Responses should 

also discuss in detail with supporting 

evidence how such different capital 

treatment may or may not give rise to 

capital arbitrage opportunities. 

Question 8: Servicers of securitized 

residential mortgages who participate in 

the Treasury’s Making Home Affordable 

Program (MHAP) receive certain 

incentive payments in connection with 

loans modified under the program. If a 

structure must be consolidated solely 

due to loan modifications under MHAP, 

should these assets be included in the 

leverage and risk-based capital 

requirements? Commenters should 

specify the rationale for an alternative 

treatment and what an appropriate 

alternative capital requirement would 

be. 

Question 9: Which features and 

characteristics of transactions that may 

not be subject to consolidation after the 

2009 GAAP modifications become 

effective should be subject to risk-based 

capital requirements as if consolidated 

in order to more appropriately reflect 

risk? 

Question 10: Will securitized loans 

that remain on the balance sheet be 

subjected to the same ALLL 

provisioning process, including 

comparable loss rates, as similar loans 

that are not securitized? If the answer is 

no, please explain. If the answer is yes, 

how would banking organizations 

reflect the benefits of risk sharing if 

investors in securitized, on-balance 

sheet loans absorb realized credit 

losses? Commenters should provide 

quantification of such benefits, and any 

other effects of loss sharing, wherever 

possible. Additionally, are there policy 

alternatives to address any unique 

challenges the pending change in 

accounting standards present with 

regard to the ALLL provisioning process 

including, for example, the current 

constraint on the amount of provisions 

that are includible in tier 2 capital? 

Commenters should provide 

quantification of the effects of the 

current limits on the includibility of 

provisions in tier 2 capital and the 

extent to which the 2009 GAAP 

modifications and the changes in 

regulatory capital requirements 

proposed in this NPR affect those limits. 

VI. Regulatory Analysis 

Regulatory Flexibility Act 

The Regulatory Flexibility Act, 5 

U.S.C. 601 et seq. (RFA), generally 

requires that, in connection with a 

notice of proposed rulemaking, an 

agency prepare and make available for 

public comment an initial regulatory 

flexibility analysis that describes the 

impact of a proposed rule on small 

entities.27 Under regulations issued by 

the Small Business Administration,28 a 

small entity includes a commercial 

bank, bank holding company, or savings 

association with assets of $175 million 

or less (a small banking organization). 

As of June 30, 2009, there were 

approximately 2,533 small bank holding 

companies, 385 small savings 

associations, 749 small national banks, 

432 small State member banks, and 

3,040 small State nonmember banks. As 

a general matter, the Board’s general 

risk-based capital rules apply only to a 

bank holding company that has 

consolidated assets of $500 million or 

more. Therefore, the proposed changes 

to the Board’s capital adequacy 

guidelines for bank holding companies 

will not affect small bank holding 

companies. 

Other than the proposed 

modifications to the risk-based capital 

rules that would no longer allow 

banking organizations to exclude 

consolidated ABCP programs from riskweighted assets, the proposed rule does 

not impose any additional obligations, 

restrictions, burdens, or reporting, 

recordkeeping or compliance 

requirements on banks or savings 

associations, including small banking 

organizations, nor does it duplicate, 

overlap or conflict with other Federal 

rules. The agencies expect that the 

proposed modifications to the general 

risk-based capital rules would not 

materially affect small banking 

organizations because they do not 

sponsor ABCP programs. 

Paperwork Reduction Act 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995 


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29See Public Law 104–4. 

(44 U.S.C. 3506), the agencies have 

reviewed the proposed rule. The Board 

reviewed the proposed rule under the 

authority delegated to the Board by the 

Office of Management and Budget. The 

agencies note that instructions related to 

ABCP conduits in schedule RC–R of the 

Consolidated Reports of Condition and 

Income (OMB Nos. 7100–0036, 1557– 

0081, and 3064–0052; FFIEC 031 and 

041) and schedule HC–R of the 

Consolidated Financial Statements for 

Bank Holding Companies (OMB No. 

7100–0128; FR Y–9C) would need to be 

revised under the proposal. The 

agencies, however, do not believe that 

there would be any additional burden 

associated with these instructional 

changes as they would be in accordance 

with GAAP. 

OCC/OTS Executive Order 12866 

Executive Order 12866 requires 

Federal agencies to prepare a regulatory 

impact analysis for agency actions that 

are found to be ‘‘significant regulatory 

actions.’’ Significant regulatory actions 

include, among other things, 

rulemakings that ‘‘have an annual effect 

on the economy of $100 million or more 

or adversely affect in a material way the 

economy, a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or Tribal governments or 

communities.’’ The OCC and the OTS 

each determined that its portion of the 

proposed rule is not a significant 

regulatory action under Executive Order 

12866. 

OCC/OTS Unfunded Mandates Reform 

Act of 1995 Determination 

The Unfunded Mandates Reform Act 

of 1995 29 (UMRA) requires that an 

agency prepare a budgetary impact 

statement before promulgating a rule 

that includes a Federal mandate that 

may result in the expenditure by State, 

local, and Tribal governments, in the 

aggregate, or by the private sector of 

$100 million or more (adjusted annually 

for inflation) in any one year. If a 

budgetary impact statement is required, 

section 205 of the UMRA also requires 

an agency to identify and consider a 

reasonable number of regulatory 

alternatives before promulgating a rule. 

The OCC and the OTS each have 

determined that its proposed rule will 

not result in expenditures by State, 

local, and Tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any one year. 

Accordingly, neither the OCC nor the 

OTS has prepared a budgetary impact 

statement or specifically addressed the 

regulatory alternatives considered. 

Solicitation of Comments on Use of 

Plain Language 

Section 722 of the GLBA required the 

agencies to use plain language in all 

proposed and final rules published after 

January 1, 2000. The agencies invite 

comment on how to make this proposed 

rule easier to understand. For example: 

• Have the agencies organized the 

material to suit your needs? If not, how 

could they present the rule more 

clearly? 

• Are the requirements in the rule 

clearly stated? If not, how could the rule 

be more clearly stated? 

• Do the regulations contain technical 

language or jargon that is not clear? If 

so, which language requires 

clarification? 

• Would a different format (grouping 

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes would achieve that? 

• Is this section format adequate? If 

not, which of the sections should be 

changed and how? 

• What other changes can the 

agencies incorporate to make the 

regulation easier to understand? 

List of Subjects 

12 CFR Part 3 

Administrative practice and 

procedure, Banks, Banking, Capital, 

National banks, Reporting and 

recordkeeping requirements, Risk. 

12 CFR Part 208 

Confidential business information, 

Crime, Currency, Federal Reserve 

System, Mortgages, Reporting and 

recordkeeping requirements, Risk. 

12 CFR Part 225 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

12 CFR Part 325 

Administrative practice and 

procedure, Banks, banking, Capital 

adequacy, Reporting and recordkeeping 

requirements, Savings associations, 

State nonmember banks. 

12 CFR Part 567 

Capital, Reporting and recordkeeping 

requirements, Risk, Savings 

associations. 

Department of the Treasury 

Office of the Comptroller of the 

Currency 

12 CFR Chapter I 

Authority and Issuance 

For the reasons stated in the common 

preamble, the Office of the Comptroller 

of the Currency proposes to amend Part 

3 of chapter I of Title 12, Code of 

Federal Regulations as follows: 

PART 3—MINIMUM CAPITAL RATIOS; 

ISSUANCE OF DIRECTIVES 

1. The authority citation for part 3 

continues to read as follows: 

Authority: 12 U.S.C. 93a, 161, 1818, 

1828(n), 1828 note, 1831n note, 1835, 3907, 

and 3909. 

2. Section 3.4 is amended by adding 

paragraph (c) to read as follows: 

§ 3.4 Reservation of authority. 

* * * * * 

(c) The OCC may find that that the 

capital treatment for an exposure not 

subject to consolidation on the bank’s 

balance sheet does not appropriately 

reflect the risks imposed on the bank. 

Accordingly, the OCC may require the 

bank to treat the exposure as if it were 

consolidated onto the bank’s balance 

sheet for the purpose of determining 

compliance with the bank’s minimum 

risk-based capital requirements set forth 

in Appendix A or Appendix C to this 

Part. The OCC will look to the substance 

of and risk associated with the 

transaction as well as other relevant 

factors the OCC deems appropriate in 

determining whether to require such 

treatment and in determining the bank’s 

compliance with minimum risk-based 

capital requirements. 

3. In appendix A to Part 3: 

A. In section 2, remove and reserve 

paragraph (a)(3)(ii), 

B. In section 3, remove and reserve 

paragraph (a)(5), 

C. Revise paragraph (a)(6). 

The revision reads as follows: 

Appendix A to Part 3—Risk Based 

Capital Guidelines 

* * * * * 

Section 3. * * * 

* * * * * 

(a) * * * 

(6) Other variable interest entities subject 

to consolidation. If a bank is required to 

consolidate the assets of a variable interest 

entity under generally accepted accounting 

principles, the bank must assess a risk-based 

capital charge based on the appropriate risk 

weight of the consolidated assets in 

accordance with sections 3(a) and 4 of this 

appendix A. Any direct credit substitutes and 

recourse obligations (including residual 


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interests), and loans that a bank may provide 

to such a variable interest entity are not 

subject to any capital charge under section 4 

of this appendix A. 

4. In appendix C to Part 3: 

A. In section 1, redesignate paragraph 

(c)(3) as paragraph (c)(4), 

B. Add a new paragraph (c)(3), 

C. Remove section 42(l) and 

redesignate section 42(m) as section 

42(l) 

The additions and revisions read as 

follows: 

Appendix C to Part 3—Capital 

Adequacy Guidelines for Banks: 

Internal-Ratings-Based and Advanced 

Measurement Approaches 

* * * * * 

Section 1. * * * 

(c) * * * 

(3) Regulatory capital treatment of 

unconsolidated entities. If the OCC 

determines that the capital treatment for a 

banking organization’s exposure or other 

relationship to an entity not consolidated on 

the bank’s balance sheet is not commensurate 

with the actual risk relationship of the 

banking organization to the entity, for riskbased capital purposes, it may require the 

banking organization to treat the entity as if 

it were consolidated onto the bank’s balance 

sheet and require the bank to hold capital 

against the entity’s exposures. The OCC will 

look to the substance of and risk associated 

with the transaction as well as other relevant 

factors the OCC deems appropriate in 

determining whether to require such 

treatment and in determining the bank’s 

compliance with minimum risk-based capital 

requirements. In making a determination 

under this paragraph, the OCC will apply 

notice and response procedures in the same 

manner and to the same extent as the notice 

and response procedures in 12 CFR 3.12. 

* * * * * 

Board of Governors of the Federal 

Reserve System 

12 CFR Chapter II 

Authority and Issuance 

For the reasons stated in the common 

preamble, the Board of Governors of 

Federal Reserve System amends parts 

208 and 225 of Chapter II of title 12 of 

the Code of Federal Regulations as 

follows: 

PART 208—MEMBERSHIP OF STATE 

BANKING INSTITUTIONS IN THE 

FEDERAL RESERVE SYSTEM 

(REGULATION H) 

5. The authority for part 208 

continues to read as follows: 

Authority: 12 U.S.C. 24, 36, 92a, 93a, 

248(a), 248(c), 321–338a, 371d, 461, 481–486, 

601, 611, 1814, 1816, 1818, 1820(d)(9), 

1833(j), 1828(o), 1831, 1831o, 1831p–1, 

1831r–1, 1831w, 1831x 1835a, 1882, 2901– 

2907, 3105, 3310, 3331–3351, and 3905– 

3909; 15 U.S.C. 78b, 78I(b), 78l(i),780–4(c)(5), 

78q, 78q–1, and 78w, 1681s, 1681w, 6801, 

and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 

4104a, 4104b, 4106 and 4128. 

6. In appendix A to part 208: 

A. Amend section I by adding a new 

paragraph immediately prior to the last 

undesignated paragraph, 

B. Amend paragraph (c) of section 

II.A.1 by removing the last sentence, 

C. Remove paragraph (b) of section 

III.B.6 and redesignate paragraph (c) of 

section III.B.6 as paragraph (b). 

The addition reads as follows: 

Appendix A to Part 208—Capital 

Adequacy Guidelines for State Member 

Banks: Risk-Based Measure 

I. * * * 

If the Federal Reserve determines that the 

capital treatment for a bank’s exposure or 

other relationship to an entity not 

consolidated on the bank’s balance sheet is 

not commensurate with the actual risk 

relationship of the bank to the entity, for riskbased capital purposes, it may require the 

bank to treat the entity as if it were 

consolidated onto the bank’s balance sheet 

and require the bank to hold capital against 

the entity’s exposures. 

* * * * * 

7. In appendix F to part 208: 

A. Redesignate paragraph (c)(3) as 

(c)(4) and add a new paragraph (c)(3); 

B. Remove section 42(l) and 

redesignate section 42(m) as section 

42(l). 

The addition reads as follows: 

Appendix F to Part 208—Capital 

Adequacy Guidelines for Banks: 

Internal-Ratings-Based and Advanced 

Measurement Approaches 

* * * * * 

Section 1. * * * 

(c) * * * 

(3) Regulatory capital treatment of 

unconsolidated entities. If the Federal 

Reserve determines that the capital treatment 

for a bank’s exposure or other relationship to 

an entity not consolidated on the bank’s 

balance sheet is not commensurate with the 

actual risk relationship of the bank to the 

entity, for risk-based capital purposes, it may 

require the bank to treat the entity as if it 

were consolidated onto the bank’s balance 

sheet and require the bank to hold capital 

against the entity’s exposures. 

* * * * * 

PART 225—BANK HOLDING 

COMPANIES AND CHANGE IN BANK 

CONTROL (REGULATION Y) 

8. The authority for part 225 

continues to read as follows: 

Authority: 12 U.S.C. 1817(j)(13), 1818, 

1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), 

1972(1), 3106, 3108, 3310, 3331–3351, 3907, 

and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 

6805. 

9. In appendix A to part 225, 

A. Amend section I by adding the 

following paragraph immediately prior 

to the last undesignated paragraph, 

B. Amend paragraph (iii) of section 

II.A.1.c by removing the last sentence, 

C. Remove paragraph (b) of section 

III.B.6 and redesignate paragraph (c) of 

section III.B.6 as paragraph (b). 

Appendix A to Part 225—Capital 

Adequacy Guidelines for Bank Holding 

Companies: Risk-Based Measure 

I. * * * 

If the Federal Reserve determines that the 

capital treatment for a banking organization’s 

exposure or other relationship to an entity 

not consolidated on the banking 

organization’s balance sheet is not 

commensurate with the actual risk 

relationship of the banking organization to 

the entity, for risk-based capital purposes, it 

may require the banking organization to treat 

the entity as if it were consolidated onto the 

banking organization’s balance sheet and 

require the banking organization to hold 

capital against the entity’s exposures. 

* * * * * 

10. In appendix G to part 225, 

A. In section 1, redesignate paragraph 

(c)(3) as paragraph (c)(4) and add a new 

paragraph (c)(3), 

B. Remove section 42(l) and 

redesignate section 42(m) as section 

42(l). 

The added text will read as follows: 

Appendix F to Part 208—Capital 

Adequacy Guidelines for Banks: 

Internal-Ratings-Based and Advanced 

Measurement Approaches 

* * * * * 

1. * * * 

(c) * * * 

(3) Regulatory capital treatment of 

unconsolidated entities. If the Federal 

Reserve determines that the capital treatment 

for a banking organization’s exposure or 

other relationship to an entity not 

consolidated on the banking organization’s 

balance sheet is not commensurate with the 

actual risk relationship of the banking 

organization to the entity, for risk-based 

capital purposes, it may require the banking 

organization to treat the entity as if it were 

consolidated onto the banking organization’s 

balance sheet and require the banking 

organization to hold capital against the 

entity’s exposures. 

Federal Deposit Insurance Corporation 

12 CFR Chapter III 

Authority for Issuance 

For the reasons stated in the common 

preamble, the Federal Deposit Insurance 

Corporation amends Part 325 of Chapter 

III of Title 12, Code of the Federal 

Regulations as follows: 

PART 325—CAPITAL MAINTENANCE 

11. The authority citation for part 325 

continues to read as follows: 


sroberts on DSKD5P82C1PROD with PROPOSALS
Federal Register / Vol. 74, No. 177 / Tuesday, September 15, 2009 / Proposed Rules 47147 

Authority: 12 U.S.C. 1815(a), 1815(b), 

1816, 1818(a), 1818(b), 1818(c), 1818(t), 

1819(Tenth), 1828(c), 1828(d), 1828(i), 

1828(n), 1828(o), 1831o, 1835, 3907, 3909, 

4808; Pub. L. 102–233, 105 Stat. 1761, 1789, 

1790, (12 U.S.C. 1831n note); Pub. L. 102– 

242, 105 Stat. 2236, as amended by Pub. L. 

103–325, 108 Stat. 2160, 2233 (12 U.S.C. 

1828 note); Pub. L. 102–242, 105 Stat. 2236, 

2386, as amended by Pub. L. 102–550, 106 

Stat. 3672, 4089 (12 U.S.C. 1828 note). 

12. In Appendix A to part 325, 

A. Revise section I.A.1.(d); 

B. Amend section II.A. by adding a 

new paragraph 4; 

C. Remove section II.B.6.b. and 

redesignate section II.B.6.c. as section 

II.B.6.b. 

The added text to read as follows: 

Appendix A to Part 325—Statement of 

Policy on Risk Based Capital 

* * * * * 

I. * * * 

A. * * * 

1. * * * * * 

(d) Minority interests in small business 

investment companies, investment funds that 

hold nonfinancial equity investments (as 

defined in section II.B.(6)(ii) of this appendix 

A), and subsidiaries that are engaged in nonfinancial activities are not included in the 

bank’s Tier 1 or total capital base if the 

bank’s interest in the company or fund is 

held under one of the legal authorities listed 

in section II.B.(6)(ii) of this appendix A. 

* * * * * 

II. * * * 

A. * * * * * 

4. The Director of the Division of 

Supervision and Consumer Protection (DSC) 

may, on a case-by-case basis, determine that 

the regulatory capital treatment for an 

exposure to a transaction that is not subject 

to consolidation on the balance sheet is not 

commensurate with the risk of the exposure 

and the relationship of the bank to the 

transaction. In making this determination, 

the Director of DSC may require the bank to 

treat the transaction as if it were consolidated 

on the balance sheet of the bank for 

regulatory capital purposes and calculate the 

appropriate regulatory capital ratios 

accordingly. 

* * * * * 

13. In Appendix D to part 325, 

A. Amend section 1(c) by 

redesignating paragraph (c)(3) as 

paragraph (c)(4) and adding a new 

paragraph (c)(3); 

B. Remove section 42(l) and 

redesignate section 42(m) as section 

42(l) 

The added text should read as 

follows: 

Appendix D to Part 325—Capital 

Adequacy Guidelines for Banks: 

Internal-Ratings-Based and Advanced 

Measurement Approaches 

* * * * * 

Section 1. * * * 

(c) * * * 

(3) The FDIC may, on a case-by-case basis, 

determine that the regulatory capital 

treatment for an exposure to a transaction 

that is not subject to consolidation on the 

balance sheet is not commensurate with the 

risk of the exposure and the relationship of 

the bank to the transaction. In making this 

determination, the FDIC may require the 

bank to treat the transaction as if it were 

consolidated on the balance sheet of the bank 

for regulatory capital purposes and calculate 

the appropriate regulatory capital ratios 

accordingly. 

* * * * * 

Department of the Treasury 

Office of Thrift Supervision 

12 CFR Chapter V 

For reasons set forth in the common 

preamble, the Office of Thrift 

Supervision amends part 567 of Chapter 

V of title 12 of the Code of Federal 

Regulations as follows: 

PART 567—CAPITAL 

14. The authority for citation for part 

567 continues to read as follows: 

Authority: 12 U.S.C. 1462, 1462a, 1463, 

1464, 1467a, 1828 (note) 

15. In § 567.5 revise paragraph 

(a)(1)(iii) to read as follows: 

§ 567.5 Components of capital. 

(a) * * * 

(1) * * * 

(iii) Minority interests in the equity 

accounts of the subsidiaries that are 

fully consolidated. 

* * * * * 

16. In Section 567.6 

A. Remove paragraphs 

(a)(2)(vi)(E)(3)(i) and (ii); 

B. Redesignate (a)(2)(vi)(E)(3)(iii) as 

(a)(2)(vi)(E)(3). 

17. In Section 567.11 

A. Redesignate paragraph (c)(3) as 

paragraph (c)(4) and add a new 

paragraph (c)(3); 

B. Add paragraph (d). 

The added text reads as follows: 

§ 567.11 Reservation of authority. 

* * * * * 

(c) * * * 

(3) OTS may find that the capital 

treatment for an exposure to a 

transaction not subject to consolidation 

on the savings association’s balance 

sheet does not appropriately reflect the 

risks imposed on the savings 

association. Accordingly, OTS may 

require the savings association to treat 

the transaction as if it were consolidated 

on the savings association’s balance 

sheet. OTS will look to the substance of 

and risk associated with the transaction 

as well as other relevant factors in 

determining whether to require such 

treatment and in calculating regulatory 

capital as OTS deems appropriate. 

* * * * * 

(d) In making a determination under 

this paragraph (c) of this section, the 

OTS will notify the savings association 

of the determination and solicit a 

response from the savings association. 

After review of the response by the 

savings association, the OTS shall issue 

a final supervisory decision regarding 

the determination made under 

paragraph (c) of this section. 

18. In Appendix C to part 567, Section 

1, redesignate paragraph (c)(3) as 

paragraph (c)(4) to read as follows: 

Appendix C to Part 567—Risk-Based 

Capital Requirements—Internal 

Ratings-Based and Advanced 

Measurement Approaches 

* * * * * 

(c) * * * 

(3) Regulatory capital treatment of 

unconsolidated entities. OTS may find that 

the capital treatment for an exposure to a 

transaction not subject to consolidation on 

the savings association’s balance sheet does 

not appropriately reflect the risks imposed on 

the savings association. Accordingly, OTS 

may require the savings association to treat 

the transaction as if it were consolidated on 

the savings association’s balance sheet. OTS 

will look to the substance of and risk 

associated with the transaction as well as 

other relevant factors in determining whether 

to require such treatment and in calculating 

regulatory capital as OTS deems appropriate. 

(4) Other supervisory authority. Nothing in 

this appendix limits the authority of the OTS 

under any other provision of law or 

regulation to take supervisory or enforcement 

action, including action to address unsafe or 

unsound practices or conditions, deficient 

capital levels, or violations of law. 

* * * * * 

Appendix C to Part 567—[Amended] 

19. In appendix C to part 567 remove 

section 42(l) and redesignate section 

42(m) as section 42(l). 

By order of the Board of Governors of the 

Federal Reserve System. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated: Washington, DC, this 27th day of 

August 2009. 

By order of the Board of Directors. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

John C. Dugan, 

Comptroller of the Currency. 

Dated: August 31, 2009. 


sroberts on DSKD5P82C1PROD with PROPOSALS
47148 Federal Register / Vol. 74, No. 177 / Tuesday, September 15, 2009 / Proposed Rules 

By the Office of Thrift Supervision. 

John E. Bowman, 

Acting Director. 

[FR Doc. E9–21497 Filed 9–14–09; 8:45 am] 

BILLING CODE 6210–02–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2009–0788; Directorate 

Identifier 2009–NM–193–AD] 

RIN 2120–AA64 

Airworthiness Directives; Boeing 

Model 737–300, –400, and –500 Series 

Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: We propose to adopt a new 

airworthiness directive (AD) for certain 

Boeing Model 737–300, –400, and –500 

series airplanes. This proposed AD 

would require repetitive external nondestructive inspections to detect cracks 

in the fuselage skin along the chem-mill 

step at stringers S–1 and S–2 right, 

between station (STA) 827 and STA 

847, and repair if necessary. This 

proposed AD results from a report of a 

hole in the fuselage skin common to 

stringer S–1 and S–2 left, between STA 

827 and STA 847 on an airplane that 

diverted to an alternate airport due to 

cabin depressurization. We are 

proposing this AD to detect and correct 

fatigue cracking of the fuselage skin 

panels at the chem-milled steps, which 

could result in sudden fracture and 

failure of the fuselage skin panels, and 

consequent rapid decompression of the 

airplane. 

DATES: We must receive comments on 

this proposed AD by October 30, 2009. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590. 

• Hand Delivery: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590, 

between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

For service information identified in 

this proposed AD, contact Boeing 

Commercial Airplanes, Attention: Data 

& Services Management, P.O. Box 3707, 

MC 2H–65, Seattle, Washington 98124– 

2207; telephone 206–544–5000, 

extension 1; fax 206–766–5680; e-mail 

me.boecom@boeing.com; Internet 

https://www.myboeingfleet.com. You 

may review copies of the referenced 

service information at the FAA, 

Transport Airplane Directorate, 1601 

Lind Avenue, SW., Renton, Washington. 

For information on the availability of 

this material at the FAA, call 425–227– 

1221 or 425–227–1152. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Management Facility between 9 

a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. The AD 

docket contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Office 

(telephone 800–647–5527) is in the 

ADDRESSES section. Comments will be 

available in the AD docket shortly after 

receipt. 

FOR FURTHER INFORMATION CONTACT: 

Wayne Lockett, Aerospace Engineer, 

Airframe Branch, ANM–120S, FAA, 

Seattle Aircraft Certification Office, 

1601 Lind Avenue, SW., Renton, 

Washington 98057–3356; telephone 

(425) 917–6447; fax (425) 917–6590. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send any written 

relevant data, views, or arguments about 

this proposed AD. Send your comments 

to an address listed under the 

ADDRESSES section. Include ‘‘Docket No. 

FAA–2009–0788; Directorate Identifier 

2009–NM–193–AD’’ at the beginning of 

your comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of this proposed AD. We will 

consider all comments received by the 

closing date and may amend this 

proposed AD because of those 

comments. 

We will post all comments we 

receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact we receive 

about this proposed AD. 

Discussion 

We have received one report from an 

operator of a hole in the fuselage skin 

common to stringer S–1 and S–2 left, 

between station (STA) 827 and STA 

847. The crack started along the chemmill edge along stringer S–1. The 

airplane skin in the area had 20-inch 

tear strap bays, and a structural full pad 

up doubler provision for an emergency 

locator transmitter (ELT) antenna at this 

location. The airplane diverted to an 

alternate airport due to cabin 

depressurization and subsequent 

deployment of the oxygen masks. The 

airplane had accumulated 42,569 total 

flight cycles. The cause of the fatigue 

cracking is under investigation. 

Airplanes with 10-inch tear strap bays 

are also susceptible to cracks at this 

location. This condition, if not 

corrected, could result in sudden 

fracture and failure of the fuselage skin 

panels, and consequent rapid 

decompression of the airplane. 

Relevant Service Information 

We have reviewed Boeing Alert 

Service Bulletin 737–53A1301, dated 

September 3, 2009. The service bulletin 

describes procedures for repetitive 

external non-destructive inspections 

(NDI) to detect cracks in the fuselage 

skin along the chem-mill step at 

stringers S–1 and S–2 right, between 

STA 827 and STA 847, and contacting 

Boeing for repair instructions. The NDI 

inspections that can be used are 

medium frequency eddy current, 

magneto optical imaging, or c-scan. The 

service bulletin specifies that it is not 

necessary to inspect the chem-mill steps 

under an existing repair doubler 

provided all of the following apply: 

• The repair was installed after the 

release date of the service bulletin; 

• The repair was approved by the 

FAA or by a Boeing Company 

Authorized Representative who was 

authorized by the FAA to make such 

findings; and 

• The repair extends a minimum of 

three rows of fasteners on each side of 

the chem-mill line in the 

circumferential direction. 

FAA’s Determination and Requirements 

of This Proposed AD 

We are proposing this AD because we 

evaluated all relevant information and 

determined the unsafe condition 

described previously is likely to exist or 

develop in other products of the same 

type design. This proposed AD would 

require accomplishing the actions 

specified in the service information 

described previously, except as 

discussed under ‘‘Differences Between 

the Proposed AD and the Service 

Bulletin.’’ 

Operators should note that paragraph 

(i) of this AD specifies certain 

conditions for terminating the repetitive 


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