20178 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Notices 

Estimated Number of Respondents: 

125. 

Estimated Total Annual Burden 

Hours: 375. 

Dated: April 17, 2007. 

Francis W. Foote, 

Chief, Regulations and Procedures Division. 

[FR Doc. E7–7697 Filed 4–20–07; 8:45 am] 

BILLING CODE 4810–31–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

[Docket ID OCC–2007–0009] 

FEDERAL RESERVE SYSTEM 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[No. 2007–14] 

Joint Report: Differences in 

Accounting and Capital Standards 

Among the Federal Banking Agencies; 

Report to Congressional Committees 

AGENCIES: Office of the Comptroller of 

the Currency (OCC), Treasury; Board of 

Governors of the Federal Reserve 

System (Board); Federal Deposit 

Insurance Corporation (FDIC); and 

Office of Thrift Supervision (OTS), 

Treasury. 

ACTION: Report to the congressional 

committees. 

SUMMARY: The OCC, the Board, the 

FDIC, and the OTS (the Agencies) have 

prepared this report pursuant to section 

37(c) of the Federal Deposit Insurance 

Act. Section 37(c) requires the Agencies 

to jointly submit an annual report to the 

Committee on Financial Services of the 

United States House of Representatives 

and to the Committee on Banking, 

Housing, and Urban Affairs of the 

United States Senate describing 

differences between the capital and 

accounting standards used by the 

Agencies. The report must be published 

in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Nancy Hunt, Risk Expert (202–

874–4923), Office of the Comptroller of 

the Currency, 250 E Street, SW., 

Washington, DC 20219. 

Board: John F. Connolly, Senior 

Supervisory Financial Analyst (202–

452–3621), Division of Banking 

Supervision and Regulation, Board of 

Governors of the Federal Reserve 

System, 20th Street and Constitution 

Avenue, NW., Washington, DC 20551. 

FDIC: Robert F. Storch, Chief 

Accountant (202–898–8906), Division of 

Supervision and Consumer Protection, 

Federal Deposit Insurance Corporation, 

550 17th Street, NW., Washington, DC 

20429. 

OTS: Christine A. Smith, Project 

Manager (202–906–5740), Supervision 

Policy, Office of Thrift Supervision, 

1700 G Street, NW., Washington, DC 

20552. 

SUPPLEMENTARY INFORMATION: The text of 

the report follows: 

Report to the Committee on Financial 

Services of the United States House of 

Representatives and to the Committee 

on Banking, Housing, and Urban Affairs 

of the United States Senate regarding 

differences in accounting and capital 

standards among the federal banking 

agencies. 

Introduction 

The Office of the Comptroller of the 

Currency (OCC), the Board of Governors 

of the Federal Reserve System (FRB), the 

Federal Deposit Insurance Corporation 

(FDIC), and the Office of Thrift 

Supervision (OTS) (‘‘the federal banking 

agencies’’ or ‘‘the agencies’’) must 

jointly submit an annual report to the 

Committee on Financial Services of the 

U.S. House of Representatives and the 

Committee on Banking, Housing, and 

Urban Affairs of the U.S. Senate 

describing differences between the 

accounting and capital standards used 

by the agencies. The report must be 

published in the Federal Register. 

This report, which covers differences 

existing as of December 31, 2006, is the 

fifth joint annual report on differences 

in accounting and capital standards to 

be submitted pursuant to Section 37(c) 

of the Federal Deposit Insurance Act (12 

U.S.C. 1831n(c)), as amended. Prior to 

the agencies’ first joint annual report, 

Section 37(c) required a separate report 

from each agency. 

Since the agencies filed their first 

reports on accounting and capital 

differences in 1990, the agencies have 

acted in concert to harmonize their 

accounting and capital standards and 

eliminate as many differences as 

possible. Section 303 of the Riegle 

Community Development and 

Regulatory Improvement Act of 1994 (12 

U.S.C. 4803) also directed the agencies 

to work jointly to make uniform all 

regulations and guidelines 

implementing common statutory or 

supervisory policies. The results of 

these efforts must be ‘‘consistent with 

the principles of safety and soundness, 

statutory law and policy, and the public 

interest.’’ In recent years, the agencies 

have revised their capital standards to 

address changes in credit and certain 

other risk exposures within the banking 

system and to align the amount of 

capital institutions are required to hold 

more closely with the credit risks and 

certain other risks to which they are 

exposed. These revisions have been 

made in a uniform manner whenever 

possible and practicable to minimize 

interagency differences. 

While the differences in capital 

standards have diminished over time, a 

few differences remain. Some of the 

remaining capital differences are 

statutorily mandated. Others were 

significant historically but now no 

longer affect in a measurable way, either 

individually or in the aggregate, 

institutions supervised by the federal 

banking agencies. In this regard, the 

OTS plans to eliminate two such de 

minimis differences during 2007 that 

have been fully discussed in previous 

joint annual reports ((i) covered assets 

and (ii) pledged deposits, 

nonwithdrawable accounts, and certain 

certificates), and these differences have 

been excluded from this annual report. 

In addition to the specific differences 

in capital standards noted below, the 

agencies may have differences in how 

they apply certain aspects of their rules. 

These differences usually arise as a 

result of case-specific inquiries that 

have only been presented to one agency. 

Agency staffs seek to minimize these 

occurrences by coordinating responses 

to the fullest extent reasonably 

practicable. 

The federal banking agencies have 

substantially similar capital adequacy 

standards. These standards employ a 

common regulatory framework that 

establishes minimum leverage and riskbased capital ratios for all banking 

organizations (banks, bank holding 

companies, and savings associations). 

The agencies view the leverage and riskbased capital requirements as minimum 

standards, and most institutions are 

expected to operate with capital levels 

well above the minimums, particularly 

those institutions that are expanding or 

experiencing unusual or high levels of 

risk. 

The OCC, the FRB, and the FDIC, 

under the auspices of the Federal 

Financial Institutions Examination 

Council, have developed uniform 

Reports of Condition and Income (Call 

Reports) for all insured commercial 

banks and state-chartered savings banks. 

The OTS requires each OTS-supervised 

savings association to file the Thrift 

Financial Report (TFR). The reporting 

standards for recognition and 

measurement in the Call Reports and 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Notices 20179 

1A national bank that has a financial subsidiary 

must satisfy a number of statutory requirements in 

addition to the capital deduction and 

deconsolidation requirements described in the text. 

The bank (and each of its depository institution 

affiliates) must be well capitalized and well 

managed. Asset size restrictions apply to the 

aggregate amount of assets of all of the bank’s 

financial subsidiaries. Certain debt rating 

requirements apply, depending on the size of the 

national bank. The national bank is required to 

maintain policies and procedures to protect the 

bank from financial and operational risks presented 

by the financial subsidiary. It is also required to 

have policies and procedures to preserve the 

corporate separateness of the financial subsidiary 

and the bank’s limited liability. Finally, 

transactions between the bank and its financial 

subsidiary generally must comply with the Federal 

Reserve Act’s (FRA) restrictions on affiliate 

transactions and the financial subsidiary is 

considered an affiliate of the bank for purposes of 

the anti-tying provisions of the Bank Holding 

Company Act. See 12 U.S.C. Section 5136A. 

2See 12 U.S.C. Section 335 (state member banks 

subject to the ‘‘same conditions and limitations’’

that apply to national banks that hold financial 

subsidiaries). 

3The applicable statutory requirements for state 

nonmember banks are as follows. The bank (and 

each of its insured depository institution affiliates) 

must be well capitalized. The bank must comply 

with the capital deduction and deconsolidation 

requirements. It must also satisfy the requirements 

for policies and procedures to protect the bank from 

financial and operational risks and to preserve 

corporate separateness and limited liability for the 

bank. Further, transactions between the bank and a 

subsidiary that would be classified as a financial 

subsidiary generally are subject to the affiliate 

transactions restrictions of the FRA. See 12 U.S.C. 

Section 1831w. 

4See 12 U.S.C. Section 1841(l)(2). 

5See 12 CFR Section 559.2 for the OTS’s 

definition of subordinate organization. 

the TFR are consistent with U.S. 

generally accepted accounting 

principles (GAAP). Thus, there are no 

significant differences in regulatory 

accounting standards for regulatory 

reports filed with the federal banking 

agencies. Only one minor difference 

remains between the accounting 

standards of the OTS and those of the 

other federal banking agencies, and that 

difference relates to push-down 

accounting, as more fully explained 

below. 

Differences in Capital Standards 

Among the Federal Banking Agencies 

Financial Subsidiaries 

The Gramm-Leach-Bliley Act (GLBA) 

establishes the framework for financial 

subsidiaries of banks.1 GLBA amends 

the National Bank Act to permit 

national banks to conduct certain 

expanded financial activities through 

financial subsidiaries. Section 121(a) of 

the GLBA (12 U.S.C. 24a) imposes a 

number of conditions and requirements 

upon national banks that have financial 

subsidiaries, including specifying the 

treatment that applies for regulatory 

capital purposes. The statute requires 

that a national bank deduct from assets 

and tangible equity the aggregate 

amount of its equity investments in 

financial subsidiaries. The statute 

further requires that the financial 

subsidiary’s assets and liabilities not be 

consolidated with those of the parent 

national bank for applicable capital 

purposes. 

State member banks may have 

financial subsidiaries subject to all of 

the same restrictions that apply to 

national banks.2 State nonmember 

banks may also have financial 

subsidiaries, but they are subject only to 

a subset of the statutory requirements 

that apply to national banks and state 

member banks.3 Finally, national banks, 

state member banks, and state 

nonmember banks may not establish or 

acquire a financial subsidiary or 

commence a new activity in a financial 

subsidiary if the bank, or any of its 

insured depository institution affiliates, 

has received a less than satisfactory 

rating as of its most recent examination 

under the Community Reinvestment 

Act.4

The OCC, the FDIC, and the FRB 

adopted final rules implementing their 

respective provisions of Section 121 of 

GLBA for national banks in March 2000, 

for state nonmember banks in January 

2001, and for state member banks in 

August 2001. GLBA did not provide 

new authority to OTS-supervised 

savings associations to own, hold, or 

operate financial subsidiaries, as 

defined. 

Subordinate Organizations Other Than 

Financial Subsidiaries 

Banks supervised by the OCC, the 

FRB, and the FDIC generally consolidate 

all significant majority-owned 

subsidiaries other than financial 

subsidiaries for regulatory capital 

purposes. This practice assures that 

capital requirements are related to the 

aggregate credit (and, where applicable, 

market) risks to which the banking 

organization is exposed. For 

subsidiaries other than financial 

subsidiaries that are not consolidated on 

a line-for-line basis for financial 

reporting purposes, joint ventures, and 

associated companies, the parent 

banking organization’s investment in 

each such subordinate organization is, 

for risk-based capital purposes, 

deducted from capital or assigned to the 

100 percent risk-weight category, 

depending upon the circumstances. The 

FRB’s and the FDIC’s rules also permit 

the banking organization to consolidate 

the investment on a pro rata basis in 

appropriate circumstances. These 

options for handling unconsolidated 

subsidiaries, joint ventures, and 

associated companies for purposes of 

determining the capital adequacy of the 

parent banking organization provide the 

agencies with the flexibility necessary to 

ensure that institutions maintain capital 

levels that are commensurate with the 

actual risks involved. 

Under the OTS’s capital regulations, a 

statutorily mandated distinction is 

drawn between subsidiaries, which 

generally are majority-owned, that are 

engaged in activities that are 

permissible for national banks and those 

that are engaged in activities 

‘‘impermissible’’ for national banks. 

Where subsidiaries engage in activities 

that are impermissible for national 

banks, the OTS requires the deduction 

of the parent’s investment in these 

subsidiaries from the parent’s assets and 

capital. If a subsidiary’s activities are 

permissible for a national bank, that 

subsidiary’s assets are generally 

consolidated with those of the parent on 

a line-for-line basis. If a subordinate 

organization, other than a subsidiary, 

engages in impermissible activities, the 

OTS will generally deduct investments 

in and loans to that organization.5 If 

such a subordinate organization engages 

solely in permissible activities, the OTS 

may, depending upon the nature and 

risk of the activity, either assign 

investments in and loans to that 

organization to the 100 percent riskweight category or require full 

deduction of the investments and loans. 

Collateralized Transactions 

The FRB and the OCC assign a zero 

percent risk weight to claims 

collateralized by cash on deposit in the 

institution or by securities issued or 

guaranteed by the U.S. Government, 

U.S. Government agencies, or the 

central governments of other countries 

that are members of the Organization for 

Economic Cooperation and 

Development (OECD). The OCC and the 

FRB rules require the collateral to be 

marked to market daily and a positive 

margin of collateral protection to be 

maintained daily. The FRB requires 

qualifying claims to be fully 

collateralized, while the OCC rule 

permits partial collateralization. 

The FDIC and the OTS assign a zero 

percent risk weight to claims on 

qualifying securities firms that are 

collateralized by cash on deposit in the 

institution or by securities issued or 

guaranteed by the U.S. Government, 

U.S. Government agencies, or other 

OECD central governments. The FDIC 

and the OTS accord a 20 percent risk 

weight to such claims on other parties. 


jlentini on PROD1PC65 with NOTICES
20180 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Notices 

6 71 FR 55958 (September 25, 2006). 

Noncumulative Perpetual Preferred 

Stock 

Under the federal banking agencies’

capital standards, noncumulative 

perpetual preferred stock is a 

component of Tier 1 capital. The capital 

standards of the OCC, the FRB, and the 

FDIC require noncumulative perpetual 

preferred stock to give the issuer the 

option to waive the payment of 

dividends and to provide that waived 

dividends neither accumulate to future 

periods nor represent a contingent claim 

on the issuer. 

As a result of these requirements, if a 

bank supervised by the OCC, the FRB, 

or the FDIC issues perpetual preferred 

stock and is required to pay dividends 

in a form other than cash, e.g., stock, 

when cash dividends are not or cannot 

be paid, the bank does not have the 

option to waive or eliminate dividends, 

and the stock would not qualify as 

noncumulative. If an OTS-supervised 

savings association issues perpetual 

preferred stock that requires the 

payment of dividends in the form of 

stock when cash dividends are not paid, 

the stock may, subject to supervisory 

approval, qualify as noncumulative. 

Equity Securities of GovernmentSponsored Enterprises 

The FRB, the FDIC, and the OTS 

apply a 100 percent risk weight to 

equity securities of governmentsponsored enterprises (GSEs), other than 

the 20 percent risk weighting of Federal 

Home Loan Bank stock held by banking 

organizations as a condition of 

membership. The OCC applies a 20 

percent risk weight to all GSE equity 

securities. 

Limitation on Subordinated Debt and 

Limited-Life Preferred Stock 

The OCC, the FRB, and the FDIC limit 

the amount of subordinated debt and 

intermediate-term preferred stock that 

may be treated as part of Tier 2 capital 

to 50 percent of Tier 1 capital. The OTS 

does not prescribe such a restriction. 

The OTS does, however, limit the 

amount of Tier 2 capital to 100 percent 

of Tier 1 capital, as do the other 

agencies. 

In addition, for banking organizations 

supervised by the OCC, the FRB, and 

the FDIC, at the beginning of each of the 

last five years of the life of a 

subordinated debt or limited-life 

preferred stock instrument, the amount 

that is eligible for inclusion in Tier 2 

capital is reduced by 20 percent of the 

original amount of that instrument (net 

of redemptions). The OTS provides 

thrifts the option of using either the 

discounting approach used by the other 

federal banking agencies, or an 

approach which, during the last seven 

years of the instrument’s life, allows for 

the full inclusion of all such 

instruments, provided that the aggregate 

amount of such instruments maturing in 

any one year does not exceed 20 percent 

of the thrift’s total capital. 

Tangible Capital Requirement 

Savings associations supervised by 

the OTS, by statute, must satisfy a 1.5 

percent minimum tangible capital 

requirement. Other subsequent statutory 

and regulatory changes, however, 

imposed higher capital standards 

rendering it unlikely, if not impossible, 

for the 1.5 percent tangible capital 

requirement to function as a meaningful 

regulatory trigger. This statutory 

tangible capital requirement does not 

apply to institutions supervised by the 

OCC, the FRB, or the FDIC. 

Market Risk Rules 

In 1996, the OCC, the FRB, and the 

FDIC adopted rules requiring banks and 

bank holding companies with 

significant exposure to market risk to 

measure and maintain capital to support 

that risk. The OTS did not adopt a 

market risk rule because no OTSsupervised savings association engaged 

in the threshold level of trading activity 

addressed by the other agencies’ rules. 

As the nature of many savings 

associations’ activities has changed 

since 1996, market risk has become an 

increasingly more significant risk factor 

to consider in the capital management 

process. Accordingly, the OTS has 

joined the other agencies in proposing a 

revised market risk rule.6

Differences in Accounting Standards 

Among the Federal Banking Agencies 

Push-Down Accounting 

Push-down accounting is the 

establishment of a new accounting basis 

for a depository institution in its 

separate financial statements as a result 

of the institution becoming substantially 

wholly owned. Under push-down 

accounting, when a depository 

institution is acquired in a purchase, yet 

retains its separate corporate existence, 

the assets and liabilities of the acquired 

institution are restated to their fair 

values as of the acquisition date. These 

values, including any goodwill, are 

reflected in the separate financial 

statements of the acquired institution, as 

well as in any consolidated financial 

statements of the institution’s parent. 

The OCC, the FRB, and the FDIC 

require the use of push-down 

accounting for regulatory reporting 

purposes when an institution’s voting 

stock becomes at least 95 percent owned 

by an investor or a group of investors 

acting collaboratively. This approach is 

generally consistent with accounting 

interpretations issued by the staff of the 

Securities and Exchange Commission. 

The OTS requires the use of push-down 

accounting when an institution’s voting 

stock becomes at least 90 percent owned 

by an investor or investor group. 

Dated: April 9, 2007. 

John C. Dugan, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, April 9, 2007. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, this 11th day of 

April, 2007. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: April 16, 2007. 

By the Office of Thrift Supervision. 

John M. Reich, 

Director. 

[FR Doc. 07–1986 Filed 4–20–07; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

[Revenue Procedure 2004–29] 

Proposed Collection; Comment 

Request for Regulation Project 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice and request for 

comments. 

SUMMARY: The Department of the 

Treasury, as part of its continuing effort 

to reduce paperwork and respondent 

burden, invites the general public and 

other Federal agencies to take this 

opportunity to comment on proposed 

and/or continuing information 

collections, as required by the 

Paperwork Reduction Act of 1995, 

Public Law 104–13 (44 U.S.C. 

3506(c)(2)(A)). Currently, the IRS is 

soliciting comments concerning 

Revenue Procedure 2004–29, Statistical 

Sampling in § 274 Context. 

DATES: Written comments should be 

received on or before June 22, 2007 to 

be assured of consideration. 

ADDRESSES: Direct all written comments 

to Glenn Kirkland, Internal Revenue 

Service, room 6512, 1111 Constitution 

Avenue, NW., Washington, DC 20224. 


jlentini on PROD1PC65 with NOTICES