Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 / Notices 3897

First Commerce Corporation, New

Orleans, Louisiana, and thereby

indirectly acquire First National Bank of

Commerce, New Orleans, Louisiana;

City National Bank of Baton Rouge,

Baton Rouge, Louisiana; Rapides Bank &

Trust Company in Alexandria,

Alexandria, Louisiana; The First

National Bank of Lafayette, Lafayette,

Louisiana; The First National Bank of

Lake Charles, Lake Charles, Louisiana;

Central Bank, Monroe, Louisiana; and

First United Bank of Farmerville,

Farmerville, Louisiana.

In connection with this application,

Applicant also has applied to acquire

First Commerce Service Corporation,

New Orleans, Louisiana, and thereby

engage in providing data processing and

data transmission services, facilities,

data bases, advice and access to such

services, facilities, pursuant to §

225.28(b)(14) of the Board’s Regulation

Y.

B. Federal Reserve Bank of St. Louis

(Randall C. Sumner, Vice President) 411

Locust Street, St. Louis, Missouri 63102-

2034:

1. First United Bancshares, Inc., El

Dorado, Arkansas; to merge with First

Republic Bancshares, Inc., Rayville,

Louisiana, and thereby indirectly

acquire First Republic Bank, Rayville,

Louisiana.

2. Unity Bancshares, L.L.C., St. John,

Missouri; to become a bank holding

company by acquiring 60.1 percent of

the voting shares of St. Johns

Bancshares, Inc., St. John, Missouri, and

thereby indirectly acquire St. Johns

Bank and Trust Company, St. John,

Missouri.

C. Federal Reserve Bank of Kansas

City (D. Michael Manies, Assistant Vice

President) 925 Grand Avenue, Kansas

City, Missouri 64198-0001:

1. AmCorp Financial Inc., Ardmore,

Oklahoma; to acquire 100 percent of the

voting shares of First State Bank,

Morton, Texas. In addition, the bank’s

main office will be relocated to Keller,

Texas, and the bank will be renamed

American Bank, Keller, Texas.

Board of Governors of the Federal Reserve

System, January 22, 1998.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 98–1938 Filed 1–26–98; 8:45 am]

BILLING CODE 6210-01-F

FEDERAL RESERVE SYSTEM

Notice of Proposals to Engage in

Permissible Nonbanking Activities or

to Acquire Companies that are

Engaged in Permissible Nonbanking

Activities

The companies listed in this notice

have given notice under section 4 of the

Bank Holding Company Act (12 U.S.C.

1843) (BHC Act) and Regulation Y, (12

CFR Part 225) to engage de novo, or to

acquire or control voting securities or

assets of a company that engages either

directly or through a subsidiary or other

company, in a nonbanking activity that

is listed in § 225.28 of Regulation Y (12

CFR 225.28) or that the Board has

determined by Order to be closely

related to banking and permissible for

bank holding companies. Unless

otherwise noted, these activities will be

conducted throughout the United States.

Each notice is available for inspection

at the Federal Reserve Bank indicated.

The notice also will be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing on the

question whether the proposal complies

with the standards of section 4 of the

BHC Act.

Unless otherwise noted, comments

regarding the applications must be

received at the Reserve Bank indicated

or the offices of the Board of Governors

not later than February 20, 1998.

A. Federal Reserve Bank of

Richmond (A. Linwood Gill III,

Assistant Vice President) 701 East Byrd

Street, Richmond, Virginia 23261-4528:

1. City Holding Company, Charleston,

West Virginia; to acquire Del Amo

Savings Bank, F.S.B., Torrance,

California, and thereby engage in

operating a savings and loan

association, pursuant to §

225.28(b)(4)(ii) of the Board’s Regulation

Y.

Board of Governors of the Federal Reserve

System, January 21, 1998.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 98–1825 Filed 1–26–98; 8:45 am]

BILLING CODE 6210-01-F

FEDERAL RESERVE SYSTEM

Sunshine Act Meeting

TIME AND DATE: 12:00 noon, Monday,

February 2, 1998.

PLACE: Marriner S. Eccles Federal

Reserve Board Building, 20th and C

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

STATUS: Closed.

MATTERS TO BE CONSIDERED:

1. Federal Reserve Bank and Branch

director appointments. (This item was

originally announced for a closed

meeting on January 14, 1998.) 2. Personnel actions (appointments,

promotions, assignments,

reassignments, and salary actions)

involving individual Federal Reserve

System employees. 3. Any matters carried forward from a

previously announced meeting.

CONTACT PERSON FOR MORE INFORMATION:

Joseph R. Coyne, Assistant to the Board;

202–452–3204.

SUPPLEMENTARY INFORMATION: You may

call 202–452–3206 beginning at

approximately 5 p.m. to business days

before the meeting for a recorded

announcement of bank and bank

holding company applications

scheduled for the meeting; or you may

contact the Board’s Web site at http://

www.bog.frb.fed.us for an electronic

announcement that not only lists

applications, but also indicates

procedural and other information about

the meeting.

Dated: January 23, 1998.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 98–2112 Filed 1–23–98; 3:32 pm]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

Differences in Capital and Accounting

Standards Among the Federal Banking

and Thrift Agencies; Report to

Congressional Committees

AGENCY: Board of Governors of the

Federal Reserve System (FRB).

ACTION: Notice of report to the

Committee on Banking, Housing, and

Urban Affairs of the United States

Senate and to the Committee on

Banking and Financial Services of the

United States House of Representatives.

SUMMARY: This report was prepared by

the FRB pursuant to section 121 of the

Federal Deposit Insurance Corporation

Improvement Act of 1991 (12 U.S.C.

1831n(c)). Section 121 requires each

Federal banking and thrift agency to

report annually to the above specified

Congressional Committees regarding

any differences between the accounting

or capital standards used by such

agency and the accounting or capital

standards used by other banking and

thrift agencies. The report must be

published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Gerald A. Edwards, Deputy Associate

Director (202/452–2741), Norah Barger,

Assistant Director (202/452–2402),
3898 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 / Notices

1The first two reports prepared by the Federal

Reserve Board were made pursuant to section 1215

of the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA). The subsequent

reports were made pursuant to section 121 of the

Federal Deposit Insurance Corporation

Improvement Act of 1991 (FDICIA), which

superseded section 1215 of FIRREA.

2At the federal level, the Federal Reserve System

has primary supervisory responsibility for statechartered banks that are members of the Federal

Reserve System, as well as for all bank holding

companies and certain operations of foreign

banking organizations. The FDIC has primary

responsibility for state nonmember banks and FDICsupervised savings banks. National banks are

supervised by the OCC. The OTS has primary

responsibility for savings and loan associations.

Barbara Bouchard, Manager (202/452–

3072), or Arthur Lindo, Supervisory

Financial Analyst (202/452–2695),

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 & C Street, NW,

Washington, DC 20551.

SUPPLEMENTARY INFORMATION: The text of

the report follows:

Report to the Congressional Committees

Regarding Differences in Capital and

Accounting Standards Among the

Federal Banking and Thrift Agencies

Introduction and Overview

This is the eighth annual report 1 on

the differences in capital standards and

accounting practices that currently exist

among the three banking agencies (the

Board of Governors of the Federal

Reserve System (FRB), the Office of the

Comptroller of the Currency (OCC), and

the Federal Deposit Insurance

Corporation (FDIC) and the Office of

Thrift Supervision (OTS).2

Overview

As stated in the previous reports to

Congress, the three bank regulatory

agencies have, for a number of years,

employed a common regulatory

framework that establishes minimum

capital adequacy ratios for commercial

banking organizations. In 1989, all three

banking agencies and the OTS adopted

a risk-based capital framework that was

based upon the international capital

accord (Basle Accord) developed by the

Basle Committee on Banking

Regulations and Supervisory Practices

(Basle Supervisors Committee) and

endorsed by the central bank governors

of the G–10 countries.

The risk-based capital framework

establishes minimum ratios of capital to

risk-weighted assets. The Basle Accord

requires banking organizations to have

total capital (Tier 1 plus Tier 2) equal

to at least 8 percent and Tier 1 capital

equal to at least 4 percent of riskweighted assets. Tier 1 capital includes

common stock and surplus, retained

earnings, qualifying perpetual preferred

stock and surplus, and minority interest

in consolidated subsidiaries, less

disallowed intangibles such as goodwill.

Tier 2 capital includes certain

supplementary capital items such as

general loan loss reserves, subordinated

debt, and certain other preferred stock

and convertible debt capital

instruments, subject to appropriate

limitations and conditions. The amount

of Tier 2 includable in regulatory capital

is limited to 100 percent of Tier 1. In

addition, institutions that incorporate

market risk exposure into their riskbased capital requirements may use

‘‘Tier 3’’ capital (i.e., short-term

subordinated debt with certain

restrictions on repayment provisions) to

support their exposure to market risk.

Tier 3 capital is limited to

approximately 70 percent of an

institution’s measure for market risk.

Risk-weighted assets are calculated by

assigning risk weights of zero, 20, 50,

and 100 percent to broad categories of

assets and off-balance sheet items based

upon their relative credit risk. The OTS

has adopted a risk-based capital

standard that in most respects is similar

to the framework adopted by the

banking agencies. Differences between

the OTS capital rules and those of the

banking agencies are noted elsewhere in

this report.

The measurement of capital adequacy

in the present framework is mainly

directed toward assessing capital in

relation to credit risk. In December

1995, the G–10 Governors endorsed an

amendment to the Basle Accord that

will, beginning in January 1998, require

internationally-active banks to measure

and hold capital to support their market

risk exposure. Specifically, banks will

be required to hold capital against their

exposure to general market risk

associated with changes in interest

rates, equity prices, exchange rates, and

commodity prices, as well as for

exposure to specific risk associated with

equity positions and certain debt

positions in the trading portfolio. The

FRB, FDIC, and OCC issued in August

1996 amendments to their respective

risk-based capital standards that

implemented the market risk

amendment to the Accord. The banking

agencies’ amendments contain a

threshold amount of trading activity:

institutions with trading assets and

liabilities greater than or equal to 10

percent of assets or trading assets and

liabilities greater than or equal to $1

billion are required to apply the market

risk rules. The OTS did not amend its

capital rules in this regard since savings

institutions do not have such significant

levels of trading activity.

In addition to the risk-based capital

requirements, the agencies also have

established leverage standards setting

forth minimum ratios of capital to total

assets. The three banking agencies

employ uniform leverage standards,

while the OTS has established, pursuant

to FIRREA, a somewhat different

standard. On October 27, 1997, the

agencies issued for public comment a

proposal that would eliminate these

differences.

All of the agencies view the risk-based

capital standards as a minimum

supervisory benchmark. In part, this is

because the risk-based capital

framework focuses primarily on credit

risk; it does not take full or explicit

account of certain other banking risks,

such as exposure to changes in interest

rates. The full range of risks to which

depository institutions are exposed are

reviewed and evaluated carefully during

on-site examinations. In view of these

risks, most banking organizations are

expected to, and generally do, maintain

capital levels well above the minimum

risk-based and leverage capital

requirements.

The staffs of the agencies meet

regularly to identify and address

differences and inconsistencies in their

capital standards. The agencies are

committed to continuing this process in

an effort to achieve full uniformity in

their capital standards. In addition, the

agencies have considered the remaining

differences as part of a regulatory review

undertaken to comply with Section 303

of the Riegle Community Development

and Regulatory Improvement Act of

1994 (Riegle Act), which specifies that

the agencies ‘‘make uniform all

regulations and guidelines

implementing common statutory or

supervisory policies.’’

Efforts To Achieve Uniformity

Leverage Capital Ratios

The three banking agencies employ a

leverage standard based upon the

common definition of Tier 1 capital

contained in their risk-based capital

guidelines. These standards, established

in the second half of 1990 and in early

1991, require the most highly-rated

institutions to meet a minimum Tier 1

capital ratio of 3 percent. For all other

institutions, these standards generally

require an additional cushion of at least

100 to 200 basis points, i.e., a minimum

leverage ratio of at least 4 to 5 percent,

depending upon an organization’s

financial condition. As required by

FIRREA, the OTS has established a 3
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 / Notices 3899

3The UFIRS is used by supervisors to summarize

their evaluations of the strength and soundness of

financial institutions in a comprehensive and

uniform manner.

percent core capital ratio and a 1.5

percent tangible capital leverage

requirement for thrift institutions.

Certain adjustments discussed in this

report apply to the core capital

definition used by savings associations.

On October 27, 1997, the four

agencies issued a proposal for public

comment addressing the leverage

standards (62 FR 55686). Under the

proposal, institutions rated a composite

1 under the Uniform Financial

Institutions Rating System (UFIRS) 3

would be subject to a minimum 3.0

percent leverage ratio and all other

institutions would be subject to a

minimum 4.0 percent leverage ratio.

This change would simplify and

streamline the Board’s, FDIC’s, and

OCC’s leverage rules. In addition,

changes proposed by the OTS, if

adopted, would make all the agencies’

rules uniform. The comment period for

the proposal ended on December 26,

1997. Agency staffs intend to issue a

final amendment in early 1998.

Efforts to Incorporate Non-Credit Risks

The Federal Reserve has been working

with the other U.S. banking agencies

and with regulatory authorities abroad

to develop methods of measuring

certain market and price risks and

determining appropriate capital

standards for these risks. These efforts

have related to interest rate risk arising

from all activities of a bank and to

market risk associated principally with

an institution’s trading activities.

Regarding domestic efforts, the

banking agencies have, for several years,

been working to develop capital

standards pertaining to interest rate risk.

In June 1996, the U.S. banking agencies

issued a joint policy statement

describing a common framework for the

supervision of interest rate risk in

banking organizations. It calls for a

review of the qualitative characteristics

and adequacy of an institution’s interest

rate risk management, as well as an

assessment of risk relative to its

earnings and the economic value of its

capital. The framework is consistent

with 1995 revisions to the U.S. riskbased capital rules that incorporated the

exposure of that economic value to

changes in interest rates as an important

element in the evaluation of capital

adequacy. In September 1997, the Basle

Supervisors Committee, with the

agreement of the G–10 governors,

released a paper, based on the U.S. joint

policy statement, that contains a set of

principles for the management of

interest rate risk.

In 1995 the Basle Supervisors

Committee issued an amendment to the

Basle Accord that requires

internationally-active banks to hold

capital against market risk exposure.

The FRB, FDIC and OCC amended their

respective risk-based capital guidelines

in 1996 to implement the amendment to

the Accord. Under the agencies’

guidelines, affected institutions must

use an internal value-at-risk model to

measure market risk and calculate

corresponding capital requirements. The

market risk rules become mandatory for

certain institutions in January 1998. The

OTS does not intend, at this time, to

issue a rule on market risk since the

savings institutions they supervise do

not have significant levels of trading

activity.

As mentioned in the introduction, the

agencies have been meeting to fulfill the

requirements of Section 303 of the

Riegle Act that calls for uniform rules

and guidelines. In this regard, in

October 1997, the agencies issued for

public comment a proposal that would

eliminate existing minor differences

among the agencies’ risk-based capital

treatment for the following assets:

presold residential properties, junior

liens on 1- to 4-family residential

properties, and banks’ holdings of

mutual funds. In addition, the agencies

worked together on the following capital

issues.

Recourse

The agencies published in the Federal

Register on November 5, 1997, (62 FR

5994), uniform, proposed rules that

would use credit ratings to match the

risk-based capital assessment more

closely to an institution’s relative risk of

loss in certain asset securitizations.

Unrealized Gains on Certain Equity

Securities

In October 1997 the agencies issued

for public comment an interagency

proposal that would permit institutions

to include in Tier 2 capital up to 45

percent of unrealized gains on certain

available-for-sale equity securities (62

FR 55682).

Capital Impact of Recent Changes to

Accounting Standards

From time to time, the Financial

Accounting Standards Board (FASB)

issues new and modified financial

accounting standards. The adoption of

some of these standards for regulatory

reporting purposes has the potential of

affecting the definition and calculation

of regulatory capital. Accordingly, the

staffs of the agencies work together to

propose uniform regulatory capital

responses to such accounting changes.

Over this past year, the agencies have

dealt with certain capital effects of

Statement of Financial Accounting

Standard (FAS) No. 125, ‘‘Accounting

for Transfers and Servicing of Financial

Assets and Extinguishments of

Liabilities’’ which supersedes FAS No.

122, ‘‘Accounting for Mortgages

Servicing Rights.’’ FAS 125,

‘‘Accounting for Transfers and Servicing

of Financial Assets and

Extinguishments of Liabilities.’’

The agencies issued a proposal on

August 4, 1997, to amend their capital

standards to address the treatment of

servicing assets on both mortgage assets

and financial assets other than

mortgages (62 FR 42006). The public

comment period ended on October 3,

1997. The proposed rule reflects

changes in accounting standards for

servicing assets made in FAS 125. FAS

125 extended the accounting treatment

for mortgage servicing to servicing on all

financial assets. The proposed

amendment would raise the capital

limitation on the sum of all mortgage

servicing assets and purchased credit

card relationships from 50 percent of

Tier 1 capital to 100 percent of Tier 1

capital. Furthermore, servicing assets on

financial assets other than mortgages

would be deducted from Tier 1 capital.

A final rule should be in place in the

first part of 1998.

Capital Differences

Differences among the risk-based

capital standards of the OTS and the

three banking agencies are discussed

below.

Certain Collateral Transactions

The four agencies, on August 16,

1996, published a joint proposed

rulemaking that would, if implemented,

eliminate capital differences among the

agencies’ risk-based capital treatment

for collateralized transactions (61 FR

42565).

The Federal Reserve permits certain

collateralized transactions to be riskweighted at zero percent. This

preferential treatment is available only

for claims fully collateralized by cash on

deposit in the bank or by securities

issued or guaranteed by OECD central

governments or U.S. government

agencies. A positive margin of collateral

must be maintained on a daily basis

fully taking into account any change in

the banking organization’s exposure to

the obligor or counterparty under a

claim in relation to the market value of

the collateral held in support of that

claim. Other collateralized claims, or
3900 Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 / Notices

portions thereof, are risk-weighted at 20

percent.

The OCC permits portions of claims

collateralized by cash or OECD

government securities to receive a zero

percent risk weight, provided that the

collateral is marked to market daily and

a positive margin is maintained. The

FDIC’s and OTS’s rules permit portions

of claims collateralized by cash or OECD

government securities to receive a 20

percent risk weight.

Under the agencies’ proposed rule,

portions of claims collateralized by cash

or OECD government securities could be

assigned a zero percent risk weight,

provided the transactions meet certain

criteria, which would be uniform among

the agencies. Agency staffs intend to

finalize the outstanding proposal in

early 1998.

FSLIC/FDIC—Covered Assets (Assets

Subject to Guarantee Arrangements by

the FSLIC or FDIC)

The three banking agencies generally

place these assets in the 20 percent risk

category, the same category to which

claims on depository institutions and

government-sponsored agencies are

assigned. The OTS places these assets in

the zero percent risk category.

Limitation of Subordinated Debt and

Limited-life Preferred Stock

The three banking agencies limit the

amount of subordinated debt and

limited-life preferred stock that may be

included in Tier 2 capital to 50 percent

of Tier 1 capital. In addition, maturing

capital instruments must be discounted

by 20 percent in search of the last five

years prior to maturity. The OTS has no

limitation on the total amount of

limited-life preferred stock or maturing

capital instruments that may be

included within Tier 2 capital. In

addition, the OTS allows savings

institutions the option of: (1)

discounting maturing capital

instruments issued on or after

November 7, 1989, by 20 percent a year

over the last 5 years of their term; or (2)

including the full amount of such

instruments provided that the amount

maturing in any of the next seven years

does not exceed 20 percent of the thrift’s

total capital.

Subsidiaries

Consistent with the Basle Accord and

long-standing supervisory practices, the

three banking agencies generally

consolidate all significant majorityowned subsidiaries of the parent

organization for capital purposes. This

consolidation assures that the capital

requirements are related to all of the

risks to which the banking organization

is exposed. As with most other bank

subsidiaries, banking and finance

subsidiaries generally are consolidated

for regulatory capital purposes.

However, in cases where banking and

finance subsidiaries are not

consolidated, the Federal Reserve,

consistent with the Basle Accord,

generally deducts investments in such

subsidiaries in determining the

adequacy of the parent bank’s capital.

The Federal Reserve’s risk-based

capital guidelines provide a degree of

flexibility in the capital treatment of

unconsolidated subsidiaries (other than

banking and finance subsidiaries) and

investments in joint ventures and

associated companies. For example, the

Federal Reserve may deduct

investments in such subsidiaries from

an organization’s capital, may apply an

appropriate risk-weighted capital charge

against the proportionate share of the

assets of the entity, may require a lineby-line consolidation of the entity, or

otherwise may require that the parent

organization maintain a level of capital

above the minimum standard that is

sufficient to compensate for any risk

associated with the investment.

The guidelines also permit the

deduction of investments in subsidiaries

that, while consolidated for accounting

purposes, are not consolidated for

certain specified supervisory or

regulatory purposes. For example, the

Federal Reserve deducts investments in,

and unsecured advances to, Section 20

securities subsidiaries from the parent

bank holding company’s capital. The

FDIC accords similar treatment to

securities subsidiaries of state

nonmember banks established pursuant

to Section 337.4 of the FDIC regulations.

Similarly, in accordance with Section

325.5(f) of the FDIC regulations, a state

nonmember bank must deduct

investments in, and extensions of credit

to, certain mortgage banking

subsidiaries in computing the parent

bank’s capital. The Federal Reserve does

not have a similar requirement with

regard to mortgage banking subsidiaries.

The OCC does not have requirements

dealing specifically with the capital

treatment of either mortgage banking or

securities subsidiaries. The OCC,

however, does reserve the right to

require a national bank, on a case-bycase basis, to deduct from capital

investments in, and extensions of credit

to, any nonbanking subsidiary.

The deduction of investments in

subsidiaries from the parent’s capital is

designed to ensure that the capital

supporting the subsidiary is not also

used as the basis of further leveraging

and risk-taking by the parent banking

organization. In deducting investments

in, and advances to, certain subsidiaries

from the parent’s capital, the Federal

Reserve expects the parent banking

organization to meet or exceed

minimum regulatory capital standards

without reliance on the capital invested

in the particular subsidiary. In assessing

the overall capital adequacy of banking

organizations, the Federal Reserve may

also consider the organization’s fully

consolidated capital position.

Under the OTS capital guidelines, a

distinction, mandated by FIRREA, is

drawn between subsidiaries that are

engaged in activities permissible for

national banks and subsidiaries that are

engaged in ‘‘impermissible’’ activities

for national banks. Subsidiaries of thrift

institutions that engage only

inpermissible activities are consolidated

on a line-by-line basis if majority-owned

and on a pro rata basis if ownership is

between 5 and 50 percent. As a general

rule, investments, including loans, in

subsidiaries that engage in

impermissible activities are deducted in

determining the capital adequacy of the

parent.

Mortgage-Backed Securities (MBS)

The three banking agencies, in

general, place privately-issued MBS in a

risk category appropriate to the

underlying assets but in no case to the

zero percent risk category. In the case of

privately-issued MBS where the direct

underlying assets are mortgages, this

treatment generally results in a risk

weight of 50 percent or 100 percent.

Privately-issued MBS that have

government agency or governmentsponsored agency securities as their

direct underlying assets are generally

assigned to the 20 percent risk category.

The OTS assigns privately-issued high

quality mortgage-related securities to

the 20 percent risk category. These are,

generally, privately-issued MBS with

AA or better investment ratings.

Both the banking and thrift agencies

automatically assign to the 100 percent

risk weight category certain MBS,

including interest-only strips, residuals,

and similar instruments that can absorb

more than their pro rata share of loss.

Agricultural Loan Loss Amortization

In the computation of regulatory

capital, those banks accepted into the

agricultural loan loss amortization

program pursuant to Title VIII of the

Competitive Equality Banking Act of

1987 are permitted to defer and

amortize losses incurred on agricultural

loans between January 1, 1984 and

December 31, 1991. The program also

applies to losses incurred between

January 1, 1983 and December 31, 1991,

as a result of reappraisals and sales of
Federal Register / Vol. 63, No. 17 /Tuesday, January 27, 1998 / Notices 3901

agricultural Other Real Estate Owned

(OREO) and agricultural personal

property. These loans must be fully

amortized over a period not to exceed

seven years and, in any case, must be

fully amortized by year-end 1998.

Savings institutions are not eligible to

participate in the agricultural loan loss

amortization program established by

this statute.

Treatment of Junior Liens on 1- to 4-

Family Residential Properties

In some cases, a banking organization

may make two loans on a single

residential property, one secured by a

first lien, the other by a second lien. In

such a situation, the Federal Reserve

views these two transactions as a single

lien, provided there are no intervening

liens. The total amount of these

transactions would be assigned to either

the 50 percent or the 100 percent risk

category depending upon whether

certain other criteria are met.

One criterion is that the loan must be

made in accordance with prudent

underwriting standards, including an

appropriate ratio of the current loan

balance to the value of the property (the

loan-to-value ratio or LTV). When

considering whether a loan is consistent

with prudent underwriting standards,

the Federal Reserve evaluates the LTV

ratio based on the combined loan

amount. If the combined loan amount

satisfies prudent underwriting

standards, both the first and second lien

are assigned to the 50 percent risk

category. The FDIC also combines the

first and second liens to determine the

appropriateness of the LTV ratio, but it

applies the risk weights differently than

the Federal Reserve. If the LTV ratio

based on the combined loan amount

satisfies prudent underwriting

standards, the FDIC risk weights the

first lien at 50 percent and the second

lien at 100 percent, otherwise both liens

are risk weighted at 100 percent. The

OCC treats all first and second liens

separately, with qualifying first liens

risk weighted at 50 percent and nonqualifying first liens and all second

liens risk weighted at 100 percent. The

OTS has interpreted its rule to treat first

and second liens to a single borrower as

a single extension of credit, similar to

the Federal Reserve.

Under the proposal issued by the

agencies in October 1997, the agencies

would follow the OCC capital treatment

for first and second liens.

Pledged Deposits and Nonwithdrawable

Accounts

The capital guidelines of the OTS

permit thrift institutions to include in

capital certain pledged deposits and

nonwithdrawable accounts that meet

the criteria of the OTS. Income Capital

Certificates and Mutual Capital

Certificates held by the OTS may also be

included in capital by thrift institutions.

These instruments are not relevant to

commercial banks, and, therefore, they

are not addressed in the banking

agencies’ capital rules.

Construction Loans on Presold

Residential Property

The agencies all assign a qualifying

loan to a builder to finance the

construction of a presold 1- to 4-family

residential property to the 50 percent

risk category provided certain

conditions are satisfied. The Federal

Reserve and the FDIC permit a 50

percent risk weight once the residential

property is sold, whether the sale occurs

before or after the construction loan has

been made. The OCC and the OTS

permit the 50 percent risk weight

treatment only if the property is sold to

an individual who will occupy the

residence upon completion of

construction before the extension of

credit to the builder.

The agencies’ October proposal set

forth the treatment followed by the

Federal Reserve and the FDIC.

Mutual Funds

The three banking agencies generally

assign all of a bank’s holding in a

mutual fund to the risk category

appropriate to the highest risk asset that

a particular mutual fund is permitted to

hold under its operating rules. The OCC

also permits, on a case-by-case basis, an

institution’s investment to be allocated

on a pro rata basis among the risk

categories based on the percentages of a

portfolio authorized to be invested in a

particular risk weight category. The OTS

applies a capital charge appropriate to

the riskiest asset that a mutual fund is

actually holding at a particular time.

The OTS also permits, on a case-by-case

basis pro rata allocation among risk

categories based on the fund’s actual

holdings. All of the agencies’ rules

provide that the minimum risk weight

for investment in mutual funds is 20

percent.

The agencies have proposed following

the banking agencies’ general treatment

and permitting institutions, at their

option, to assign such investment on a

pro rata basis according to the

investment limits in the mutual fund

prospectus.

Accounting Standards

Over the years, the three banking

agencies, under the auspices of the

Federal Financial Institutions

Examination Council (FFIEC), have

developed Uniform Reports of

Condition and Income (Call Reports) for

all commercial banks and FDICsupervised savings banks. The reporting

standards followed by the three banking

agencies for recognition and measuring

purposes are consistent with generally

accepted accounting principles (GAAP).

The agencies adopted GAAP as the

reporting basis for the Call Report,

effective for March 1997 reports. The

adoption of GAAP for Call Report

purposes eliminated the differences in

accounting standards among the

agencies that were set forth in previous

reports to Congress. Thus, there are no

material differences in regulatory

accounting standards for regulatory

reports filed with the federal banking

agencies by commercial banks, savings

banks, and savings associations.

By order of the Board of Governors of the

Federal Reserve System, January 21, 1998.

William W. Wiles,

Secretary of the Board.

[FR Doc. 98–1812 Filed 1–26–98; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Office of the Secretary

Agency Information Collection

Activities: Submission for OMB

Review; Comment Request

The Department of Health and Human

Services, Office of the Secretary

publishes a list of information

collections it has submitted to the Office

of Management and Budget (OMB) for

clearance in compliance with the

Paperwork Reduction Act of 1995 (44

U.S.C. Chapter 35) and 5 CFR 1320.5.

The following are those information

collections recently submitted to OMB.

1. Self-Evaluation and Recordkeeping

Required by the Regulation

Implementing Section 504 of the

Rehabilitation Act of 1973 (45 CFR

84.6(c))—Extension—0990–0124—

Recipients of DHHS funds must conduct

a single-time evaluation of their policies

and practices for compliance with

Section 504 of the Rehabilitation Act of

1973. Respondents: State or local

governments, businesses or other forprofit, non-profit institutions; Annual

Number of Respondents: 2,120;

Frequency of Response: once; Burden

per Response: 16 hours; Total Annual

Burden: 33,920 hours.

OMB Desk Officer: Allison Eydt.

Copies of the information collection

packages listed above can be obtained

by calling the OS Reports Clearance

Officer on (202) 690–6207. Written