This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

30369

Vol. 63, No. 107

Thursday, June 4, 1998

1The Board has worked with the Office of the

Comptroller of the Currency, the Federal Deposit

Insurance Corporation, and the Office of Thrift

Supervision (collectively, the Agencies) to fulfill

the CDRI Act section 303 mandate.

2Both proposals would make uniform the riskbased capital treatment of construction loans on

presold residential properties, loans secured by

junior liens on 1- to 4-family residential properties,

and investments in mutual funds.

3The BOPEC rating system is used by supervisors

to summarize their evaluations of the strength and

soundness of bank holding companies in a

comprehensive and uniform manner.

4 In addition, a bank holding company

commenting on the proposal for banks and thrifts

expressed support for the Tier 1 leverage

component of the bank holding company proposal.

FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R–0948]

Leverage Capital Standards: Tier 1

Leverage Ratio

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board of Governors of the

Federal Reserve System (Board) is

amending its Tier 1 leverage capital

standard for bank holding companies.

The effect of this final rule is to simplify

the Board’s leverage capital standard for

bank holding companies and to

incorporate the market risk capital rule

into the leverage standard.

EFFECTIVE DATE: June 30, 1998.

FOR FURTHER INFORMATION CONTACT:

Norah Barger, Assistant Director (202/

452–2402), Barbara Bouchard, Manager

(202/452–3072), T. Kirk Odegard,

Financial Analyst (202/530–6225),

Division of Banking Supervision and

Regulation. For the hearing impaired

only, Telecommunication Device for the

Deaf (TDD), Diane Jenkins (202/452–

3544), Board of Governors of the Federal

Reserve System, 20th and C Streets,

N.W., Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION:

Background

On October 27, 1997, the Board issued

a proposal to amend its risk-based and

Tier 1 leverage capital standards for

bank holding companies (62 FR 55692).

This proposal stemmed in large part

from an interagency effort to streamline

capital standards pursuant to section

303 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRI Act).1

That Act required the Agencies to

review their own regulations and

written policies and to streamline those

regulations where possible, and also

required the Agencies to work jointly to

make uniform all regulations and

guidelines implementing common

statutory or supervisory policies. To

fulfill the section 303 mandate, the

Agencies reviewed their capital

standards for banks and thrifts to

identify areas where they had

substantively different capital

treatments or where streamlining was

appropriate. As a result of these

reviews, the Agencies proposed

conforming amendments to their riskbased and leverage capital standards for

banks and thrifts (62 FR 55686)

concurrently with the Board’s proposal

for bank holding companies on October

27, 1997.

While not technically mandated

under section 303 of the CDRI Act, the

Board decided to amend the risk-based

and leverage capital standards for bank

holding companies to make them more

uniform with those for banks and thrifts.

The concurrently issued interagency

and Board proposals were identical with

respect to risk-based capital standards,2

but differed with respect to Tier 1

leverage capital standards. Specifically,

the Board’s proposal for bank holding

companies incorporated the Board’s

market risk capital rule, which became

effective this year. The Agencies are

currently working to complete a final

rule based on the proposal for banks and

thrifts. The Board intends to implement

amendments to the risk-based capital

standards for bank holding companies

concurrently with the implementation

of the interagency CDRI Act rulemaking

for banks and thrifts. Because the

Board’s proposal to amend the leverage

capital standard for bank holding

companies differed from the interagency

proposal for banks and thrifts, however,

the Board has decided that it is not

necessary to wait for the completion of

the interagency rulemaking to finalize

its rulemaking on the bank holding

company leverage capital standard.

The Board’s Proposal

The Board’s proposal established a

minimum Tier 1 leverage ratio (Tier 1

capital to total assets) of 3.0 percent for

all bank holding companies that are

rated a composite ‘‘1’’ under the

BOPEC3 rating system or that have

implemented the risk-based capital

market risk measure set forth in the

Board’s capital adequacy guidelines (12

CFR 225, Appendix E). All other bank

holding companies must maintain a

minimum Tier 1 leverage ratio of 4.0

percent. Higher capital ratios could be

required for bank holding companies

that had significant financial and/or

operational weaknesses, had a high risk

profile, or were undergoing or

anticipating rapid growth. Prior to

implementation of this final rule, bank

holding companies that were not ‘‘1’’

rated under the BOPEC system were

required to maintain a minimum

leverage ratio of 3.0 percent, plus an

additional 100 to 200 basis points. This

proposal differed from the interagency

proposal for banks in that the

interagency proposal did not lower the

minimum leverage capital standard for

banks that had adopted the market risk

capital rule.

Comments Received

The Board received three public

comments on the Tier 1 leverage

component of the bank holding

company proposal (two from bank

holding companies and one from an

industry trade group), all of which

supported the proposal.4 Two of these

commenters supported immediate

adoption of the proposal to reduce

regulatory burden on bank holding

companies engaged in significant

trading activities. Moreover, these

commenters encouraged the Board to

discontinue entirely the use of the

leverage ratio as an indicator of safety

and soundness for such institutions.

They argued that the leverage ratio was

an inadequate measure of relative risk,

and was unnecessary in light of strict

international risk-based capital

standards. Moreover, these commenters
30370 Federal Register / Vol. 63, No. 107 /Thursday, June 4, 1998 /Rules and Regulations

argued that the existence of the leverage

capital requirement placed domestic

institutions at a competitive

disadvantage relative to broker-dealers

and foreign banking organizations that

were not subject to minimum leverage

requirements. In the absence of

elimination of the leverage ratio,

however, these commenters supported

the proposed reduction of the minimum

required leverage ratio for bank holding

companies that have adopted the market

risk capital rule. These commenters also

requested that the Agencies: (a) apply

the leverage ratio reduction to banks

that have adopted the market risk

capital rule; and (b) exclude the leverage

ratio requirement entirely from the

prompt corrective action guidelines for

banks.

Final Rule

The Board has determined to adopt a

final rule that is consistent with the

original proposal with respect to the

bank holding company leverage capital

standard. The final rule provides that

the minimum Tier 1 leverage ratio for

the most highly-rated bank holding

companies, as well as those that have

implemented the market risk capital

rule, is 3.0 percent. The minimum

leverage ratio for all other bank holding

companies is 4.0 percent. The final rule

also incorporates certain changes in

wording to adjust for these new

provisions. These stylistic changes are

not intended to alter in any substantial

way the other provisions of the leverage

capital standard for bank holding

companies. The Board acknowledges

commenter concerns about the

usefulness of the leverage ratio as a

supervisory tool for those institutions

that have adopted the market risk

capital measure. Although further

modifications to the leverage ratio are

beyond the scope of this final rule, the

Board may consider whether the

leverage requirements should be further

modified in the future.

Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act, the Board

has determined that this final rule

would not have a significant economic

impact on a substantial number of small

entities within the meaning of the

Regulatory Flexibility Act (5 U.S.C. 601

et seq.). The effect of the final rule will

be to reduce regulatory burden on bank

holding companies by simplifying the

Tier 1 leverage standard. The most

highly-rated bank holding companies, as

well as those that have adopted the

market risk capital rule, will be required

to meet a lower leverage capital

standard under this rule. Accordingly, a

regulatory flexibility analysis is not

required.

Paperwork Reduction Act

The Board has determined that the

final rule does not involve a collection

of information pursuant to the

provisions of the Paperwork Reduction

Act of 1995 (44 U.S.C. 3501 et seq.).

Deferred Effective Date

The Board has determined that the

delayed effective date requirements of

the Administrative Procedure Act (5

U.S.C. 553) do not apply with respect to

this final rule. A delayed effective date

is not required with respect to agency

action that relieves a restriction (5

U.S.C. 553(d)(1)). Because this final rule

would relieve a restriction on certain

bank holding companies and would not

impose any new restrictions on bank

holding companies, the Board

concludes that the requirements of

section 553 do not apply to this final

rule.

List of Subjects in 12 CFR Part 225

Administrative practice and

procedure, Banks, banking, Federal

Reserve System, Holding companies,

Reporting and recordkeeping

requirements, Securities.

For the reasons set forth in the

preamble, part 225 of chapter II of title

12 of the Code of Federal Regulations is

amended as set forth below.

PART 225—BANK HOLDING

COMPANIES AND CHANGE IN BANK

CONTROL (REGULATION Y)

1. The authority citation for part 225

is revised 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.

2. In appendix D to part 225, section

II.a. is revised to read as follows:

Appendix D To Part 225—Capital

Adequacy Guidelines for Bank Holding

Companies: Tier 1 Leverage Measure

* * * * *

II. * * *

a. The Board has established a minimum

ratio of Tier 1 capital to total assets of 3.0

percent for strong bank holding companies

(rated composite ‘‘1’’ under the BOPEC rating

system of bank holding companies), and for

bank holding companies that have

implemented the Board’s risk-based capital

measure for market risk as set forth in

appendices A and E of this part. For all other

bank holding companies, the minimum ratio

of Tier 1 capital to total assets is 4.0 percent.

Banking organizations with supervisory,

financial, operational, or managerial

weaknesses, as well as organizations that are

anticipating or experiencing significant

growth, are expected to maintain capital

ratios well above the minimum levels.

Moreover, higher capital ratios may be

required for any bank holding company if

warranted by its particular circumstances or

risk profile. In all cases, bank holding

companies should hold capital

commensurate with the level and nature of

the risks, including the volume and severity

of problem loans, to which they are exposed.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, May 29, 1998.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 98–14808 Filed 6–3–98; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 97–CE–09–AD; Amendment 39–

10558; AD 98–12–01]

RIN 2120–AA64

Airworthiness Directives; Pilatus

Aircraft Ltd. Models PC–6, PC–6/A,

PC–6/B, and PC–6/C Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD) that

applies to certain Pilatus Aircraft Ltd.

(Pilatus) Models PC–6, PC–6/A, PC–6/B,

and PC–6/C series airplanes equipped

with turbo-prop engines. This AD

requires modifying the fuel system to

improve the venting between the

collector tank, the main wing tanks, and

the engine. This AD is the result of

mandatory continuing airworthiness

information (MCAI) issued by the

airworthiness authority for Switzerland.

The actions specified by this AD are

intended to prevent engine fuel

starvation during maximum climb and

descent caused by poor fuel tank

venting with low fuel levels, which

could result in a loss of engine power

during critical phases of flight.

DATES: Effective July 13, 1998.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of July 13,

1998.

ADDRESSES: Service information that

applies to this AD may be obtained from

Pilatus Aircraft Ltd., Customer Liaison

Manager, CH–6370 Stans, Switzerland;

telephone: +41 41–6196 233; facsimile:

+41 41–6103 351. This information may

also be examined at the Federal