```

[Federal Register Volume 89, Number 232 (Tuesday, December 3, 2024)]
[Notices]
[Pages 95786-95788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-28227]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION

Joint Report to Congressional Committees: Differences in 
Accounting and Capital Standards Among the Federal Banking Agencies as 
of September 30, 2024

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; and Federal Deposit Insurance 
Corporation.

ACTION: Report to congressional committees.

-----------------------------------------------------------------------

SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, 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 U.S. House 
of Representatives and to the Committee on Banking, Housing, and Urban 
Affairs of the U.S. Senate describing differences among the accounting 
and capital standards used by the agencies for insured depository 
institutions (institutions). Section 37(c) requires that this report be 
published in the Federal Register. The agencies have not identified any 
material differences among the agencies' accounting and capital 
standards applicable to the institutions they regulate and supervise.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Joshua Kuntz, Risk Expert, Capital Policy, (202) 649-5074, 
Carl Kaminski, Assistant Director, Chief Counsel's Office, (202) 649-
5869, Office of the Comptroller of the Currency, 400 7th Street SW, 
Washington, DC 20219. If you are deaf, hard of hearing, or have a 
speech disability, please dial 7-1-1 to access telecommunications relay 
services.
    Board: Andrew Willis, Manager, (202) 912-4323, Daniel Schwindt, 
Financial Institution Policy Analyst III, (202) 960-5463, Division of 
Supervision and Regulation, Mark Buresh, Senior Special Counsel (202) 
452-5270 and Jasmin Keskinen, Senior Attorney, (202) 475-6650, Legal 
Division, Board of Governors of the Federal Reserve System, 20th Street 
and Constitution Avenue NW, Washington, DC 20551.

[[Page 95787]]

For users of Telecommunications Device for the Deaf (TDD) and TTY-TRS, 
please call 711 from any telephone, anywhere in the United States.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, (703) 245-
0778, Christine Bouvier, Assistant Chief Accountant, (202) 898-7289, 
Richard Smith, Capital Policy Analyst, Capital Policy Section, (703) 
254-0782, Division of Risk Management Supervision, Merritt Pardini, 
Counsel, (202) 898-6680, Legal Division, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The text of the report follows:

Report to Congress

Report to the Committee on Financial Services of the U.S. House of 
Representatives and to the Committee on Banking, Housing, and Urban 
Affairs of the U.S. Senate Regarding Differences in Accounting and 
Capital Standards Among the Federal Banking Agencies

Introduction

    In accordance with section 37(c),\1\ the agencies are submitting 
this joint report, which covers differences among their accounting and 
capital standards existing as of September 30, 2024, applicable to 
institutions.\2\ As of September 30, 2024, the agencies have not 
identified any material differences among the agencies' accounting 
standards applicable to institutions.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 1831n(c)(1) and 12 U.S.C. 1831n(c)(3).
    \2\ Although not required under section 37(c), this report 
includes descriptions of certain of the Board's capital standards 
applicable to depository institution holding companies where such 
descriptions are relevant to the discussion of capital standards 
applicable to institutions.
---------------------------------------------------------------------------

    In 2013, the agencies revised the risk-based and leverage capital 
rule for institutions (capital rule),\3\ which harmonized the agencies' 
capital rule in a comprehensive manner.\4\ Since 2013, the agencies 
have revised the capital rule on several occasions, further reducing 
the number of differences in the agencies' capital rule. Today, only a 
few differences remain, which are statutorily mandated for certain 
categories of institutions, or which reflect certain technical, 
generally nonmaterial differences among the agencies' capital rule. No 
new material differences were identified in the capital standards 
applicable to institutions in this report compared to the previous 
report submitted by the agencies pursuant to section 37(c).
---------------------------------------------------------------------------

    \3\ See 78 FR 62018 (October 11, 2013) (final rule issued by the 
OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final 
rule issued by the FDIC). The FDIC later issued its final rule in 79 
FR 20754 (April 14, 2014). The agencies' respective capital rule is 
at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 324 
(FDIC). The capital rule applies to institutions, as well as to 
certain bank holding companies (BHCs) and savings and loan holding 
companies (SLHCs). See also 12 CFR 217.1(c).
    \4\ The capital rule reflects the scope of each agency's 
regulatory jurisdiction. For example, the Board's capital rule 
includes requirements related to BHCs, SLHCs, and state member banks 
(SMBs), while the FDIC's capital rule includes provisions for state 
nonmember banks and state savings associations, and the OCC's 
capital rule includes provisions for national banks and federal 
savings associations.
---------------------------------------------------------------------------

Differences in the Standards Among the Federal Banking Agencies

Differences in Accounting Standards

    As of September 30, 2024, the agencies have not identified any 
material differences among themselves in the accounting standards 
applicable to institutions.

Differences in Capital Standards

    The following are the remaining technical differences among the 
capital standards of the agencies' capital rule.\5\
---------------------------------------------------------------------------

    \5\ Certain minor differences, such as terminology specific to 
each agency for the institutions that it supervises, are not 
included in this report.
---------------------------------------------------------------------------

Definitions
    The agencies' capital rule largely contains the same 
definitions.\6\ The differences that exist generally serve to 
accommodate the different needs of the institutions that each agency 
charters, regulates, and/or supervises.
---------------------------------------------------------------------------

    \6\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 
(FDIC).
---------------------------------------------------------------------------

    The agencies' capital rule has differing definitions of a pre-sold 
construction loan. The capital rule of all three agencies provides that 
a pre-sold construction loan means any ``one-to-four family residential 
construction loan to a builder that meets the requirements of section 
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in 
addition to other criteria, the purchaser has not terminated the 
contract.'' \7\ The Board's definition provides further clarification 
that, if a purchaser has terminated the contract, the institution must 
immediately apply a 100 percent risk weight to the loan and report the 
revised risk weight in the next quarterly Consolidated Reports of 
Condition and Income (Call Report).\8\ Similarly, if the purchaser has 
terminated the contract, the OCC and FDIC capital rule would 
immediately disqualify the loan from receiving a 50 percent risk 
weight, and would apply a 100 percent risk weight to the loan. The 
change in risk weight would be reflected in the next quarterly Call 
Report. Thus, the minor wording difference between the agencies should 
have no practical consequence.
---------------------------------------------------------------------------

    \7\ 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC).
    \8\ 12 CFR 217.2.
---------------------------------------------------------------------------

Capital Components and Eligibility Criteria for Regulatory Capital 
Instruments
    While the capital rule generally provides uniform eligibility 
criteria for regulatory capital instruments, there are some textual 
differences among the agencies' capital rule. The capital rule of each 
of the three agencies requires that, for an instrument to qualify as 
common equity tier 1 or additional tier 1 capital, cash dividend 
payments be paid out of net income and retained earnings, but the 
Board's capital rule also allows cash dividend payments to be paid out 
of related surplus.\9\ The provision in the Board's capital rule that 
allows dividends to be paid out of related surplus is a difference in 
substance among the agencies' capital rule. However, due to the 
restrictions on institutions regulated by the Board in separate 
regulations, this additional language in the Board's rule has a 
practical impact only on bank holding companies (BHCs) and savings and 
loan holding companies (SLHCs) and is not a difference as applied to 
institutions. The agencies apply the criteria for determining 
eligibility of regulatory capital instruments in a manner that ensures 
consistent outcomes for institutions.
---------------------------------------------------------------------------

    \9\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board).
---------------------------------------------------------------------------

    Both the Board's capital rule and the FDIC's capital rule also 
include an additional sentence noting that institutions regulated by 
each agency are subject to restrictions independent of the capital rule 
on paying dividends out of surplus and/or that would result in a 
reduction of capital stock.\10\ These additional sentences do not 
create differences in substance between the agencies' capital 
standards, but rather note that restrictions apply under separate 
regulations.
---------------------------------------------------------------------------

    \10\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board); 12 
CFR 324.20(b)(1)(v) and 324.20(c)(1)(viii) (FDIC). Although not 
referenced in the capital rule, the OCC has similar restrictions on 
dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain restrictions on the 
payment of dividends that apply under separate regulations, and 
therefore not discussed in this report, are different among the 
agencies. Compare 12 CFR 208.5 (Board) and 12 CFR 5.64 (OCC) with 12 
CFR 303.241 (FDIC).
---------------------------------------------------------------------------

    In addition, the Board's capital rule includes a requirement that a 
Board-regulated institution must obtain prior approval before redeeming 
regulatory

[[Page 95788]]

capital instruments.\11\ This requirement effectively applies only to a 
BHC or an SLHC and is, therefore, not included in the OCC's and FDIC's 
capital rule. All three agencies require institutions to obtain prior 
approval before redeeming regulatory capital instruments in other 
regulations.\12\ The additional provision in the Board's capital rule, 
therefore, only has a practical impact on BHCs and SLHCs and is not a 
difference as applied to institutions.
---------------------------------------------------------------------------

    \11\ Board-regulated institution refers to an SMB, a BHC, or an 
SLHC. See 12. CFR 217.2; 12 CFR 217.20(f); see also 12 CFR 
217.20(b)(1)(iii).
    \12\ See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5 
(Board); 12 CFR 303.241 (FDIC).
---------------------------------------------------------------------------

Capital Deductions
    There is a technical difference between the FDIC's capital rule and 
the OCC's and Board's capital rule with regard to an explicit 
requirement for deduction of examiner-identified losses. The agencies 
require their examiners to determine whether their respective 
supervised institutions have appropriately identified losses. The 
FDIC's capital rule, however, explicitly requires FDIC-supervised 
institutions to deduct identified losses from common equity tier 1 
capital elements, to the extent that the institutions' common equity 
tier 1 capital would have been reduced if the appropriate accounting 
entries had been recorded.\13\ Generally, identified losses are those 
items that an examiner determines to be chargeable against income, 
capital, or general valuation allowances.
---------------------------------------------------------------------------

    \13\ 12 CFR 324.22(a)(9).
---------------------------------------------------------------------------

    For example, identified losses may include, among other items, 
assets classified as loss, off-balance-sheet items classified as loss, 
any expenses that are necessary for the institution to record in order 
to replenish its general valuation allowances to an adequate level, and 
estimated losses on contingent liabilities. The Board and the OCC 
expect their supervised institutions to promptly recognize examiner-
identified losses, but the requirement is not explicit under their 
capital rule. Instead, the Board and the OCC apply their supervisory 
authorities to ensure that their supervised institutions charge off any 
identified losses.
Subsidiaries of Savings Associations
    There are special statutory requirements for the agencies' capital 
treatment of a savings association's investment in or credit to its 
subsidiaries as compared with the capital treatment of such 
transactions between other types of institutions and their 
subsidiaries. Specifically, the Home Owners' Loan Act (HOLA) 
distinguishes between subsidiaries of savings associations engaged in 
activities that are permissible for national banks and those engaged in 
activities that are not permissible for national banks.\14\
---------------------------------------------------------------------------

    \14\ 12 U.S.C. 1464(t)(5).
---------------------------------------------------------------------------

    When subsidiaries of a savings association are engaged in 
activities that are not permissible for national banks,\15\ the parent 
savings association generally must deduct the parent's investment in 
and extensions of credit to these subsidiaries from the capital of the 
parent savings association. If a subsidiary of a savings association 
engages solely in activities permissible for national banks, no 
deduction is required, and investments in and loans to that 
organization may be assigned the risk weight appropriate for the 
activity.\16\ As the appropriate federal banking agencies for federal 
and state savings associations, respectively, the OCC and the FDIC 
apply this capital treatment to those types of institutions. The 
Board's regulatory capital framework does not apply to savings 
associations and, therefore, does not include this requirement.
---------------------------------------------------------------------------

    \15\ Subsidiaries engaged in activities not permissible for 
national banks are considered non-includable subsidiaries.
    \16\ A deduction from capital is only required to the extent 
that the savings association's investment exceeds the generally 
applicable thresholds for deduction of investments in the capital of 
an unconsolidated financial institution.
---------------------------------------------------------------------------

Tangible Capital Requirement
    Federal law subjects savings associations to a specific tangible 
capital requirement but does not similarly do so with respect to banks. 
Under section 5(t)(2)(B) of HOLA, savings associations are required to 
maintain tangible capital in an amount not less than 1.5 percent of 
total assets.\17\ The capital rule of the OCC and the FDIC includes a 
requirement that savings associations maintain a tangible capital ratio 
of 1.5 percent.\18\ This statutory requirement does not apply to banks 
and, thus, there is no comparable regulatory provision for banks. The 
distinction is of little practical consequence, however, because under 
the Prompt Corrective Action (PCA) framework, all institutions are 
considered critically undercapitalized if their tangible equity falls 
below 2 percent of total assets.\19\ Generally speaking, the 
appropriate federal banking agency must appoint a receiver within 90 
days after an institution becomes critically undercapitalized.\20\
---------------------------------------------------------------------------

    \17\ 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
    \18\ 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(1)(vi) (FDIC). 
The Board's regulatory capital framework does not apply to savings 
associations and, therefore, does not include this requirement.
    \19\ See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 (OCC); 12 
CFR 208.45 (Board); 12 CFR 324.403 (FDIC).
    \20\ 12 U.S.C. 1831o(h)(3)(A).
---------------------------------------------------------------------------

Enhanced Supplementary Leverage Ratio
    The agencies adopted enhanced supplementary leverage ratio 
standards that took effect beginning on January 1, 2018.\21\ These 
standards require certain BHCs to exceed a 5 percent supplementary 
leverage ratio to avoid limitations on distributions and certain 
discretionary bonus payments and also require the subsidiary 
institutions of these BHCs to meet a 6 percent supplementary leverage 
ratio to be considered ``well capitalized'' under the PCA 
framework.\22\ The rule text establishing the scope of application for 
the enhanced supplementary leverage ratio differs among the agencies. 
The Board and the FDIC apply the enhanced supplementary leverage ratio 
standards for institutions based on parent BHCs being identified as 
global systemically important BHCs as defined in 12 CFR 217.2.\23\ The 
OCC applies enhanced supplementary leverage ratio standards to the 
institution subsidiaries under their supervisory jurisdiction of a top-
tier BHC that has more than $700 billion in total assets or more than 
$10 trillion in assets under custody.\24\
---------------------------------------------------------------------------

    \21\ See 79 FR 24,528 (May 1, 2014).
    \22\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 
208.43(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC).
    \23\ 12 CFR 208.43(b)(1)(i)(D)(2) (Board); 12 CFR 
324.403(b)(1)(ii) (FDIC).
    \24\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC).

Michael J. Hsu,
Acting Comptroller of the Currency. Board of Governors of the Federal 
Reserve System.

Ann E. Misback,
Secretary of the Board.

Federal Deposit Insurance Corporation.

    Dated at Washington, DC, on November 25, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-28227 Filed 12-2-24; 8:45 am]
BILLING CODE 6210-01-P; 6714-01-P; 4810-33-P
```