Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices 3227

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 third and

fourth 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superseded section 1215 of FIRREA.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 all bank holding

companies. The FDIC has primary responsibility for

state nonmember banks and FDIC-supervised

savings banks. National banks are supervised by the

OCC. The OTS has primary responsibility for

savings and loan associations.

FHLBank will only review Statements

for completeness, as the Finance Board

will conduct the actual review.

E. Notice to Public

At the same time that the FHLBank

members selected for review are notified

of their selection, each FHLBank will

also notify community groups and other

interested members of the public.

The purpose of this notification will

be to solicit public comment on the

Community Support records of the

FHLBank members pending review.

Any person wishing to submit written

comments on the Community Support

performance of a FHLBank member

under review in this quarter should

send those comments to the member’s

FHLBank by the due date indicated in

order to be considered in the review

process.

Date: January 9, 1995.

By the Federal Housing Finance Board.

Nicolas P. Retsinas,

HUD Secretary’s Designee to the Board.

[FR Doc. 95–887 Filed 1–12–95; 8:45 am]

BILLING CODE 6725–01–P

FEDERAL MARITIME COMMISSION

Ocean Freight Forwarder License;

Applicants

Notice is hereby given that the

following applicants have filed with the

Federal Maritime Commission

applications for licenses as ocean freight

forwarders pursuant to section 19 of the

Shipping Act of 1984 (46 U.S.C. app.

1718 and 46 CFR 510).

Persons knowing of any reason why

any of the following applicants should

not receive a license are requested to

contact the Office of Freight Forwarders,

Federal Maritime Commission,

Washington, DC 20573.

Aries Freight Systems, Inc., 16554 Air

Center Blvd., Bldg. C, Houston, TX

77032, Officers: John Daniel McIntyre,

Jr., CEO, Jeffrey Lee McIntyre,

President, Daniel Henry Fagerstrom,

Vice President

Skyway International Cargo, Inc., 28551

Southfield Road, Suite B, Lathrup

Village, MI 48076, Officers: Habib

Fakhouri, President, George

Majdalani, Vice President

Solano International, 347 Third Avenue,

Bellmawr, NJ 08031, Paula (A.K.A.

Penny) Solano, Sole Proprietor

Amerasa Rapid Transit USA Inc., dba

Focus 21 Forwarding, 1440 Broadway,

#606, Oakland, CA 94612, Officers:

Richard Eber, President, Bin Li,

Stockholder

Blue Sky, Blue Sea Company dba

International Shipping Company

(USA), 169 Frelinghuysen Avenue,

Newark, NJ 07114, Officers: Ali

Aelaei, President, Asad Ferasat, Vice

President

Sunway International, Inc., 2531

Ambling Circle, Crofton, MD 21114,

Officers: Qun Wu Yao, Vice President,

Bangxiong Zhou, Vice President

Overseas Express Services, 8901 S.

LaCienega Blvd., Suite 205A,

Inglewood, CA 90301, Abdulrazak

Morgan Farah, Sole Proprietor

Blue Sky Blue Sea, Inc. dba

International Shipping Company,

Cargo Building 68, JFK International

Airport, Jamaica, NY 11430, Officers:

Asad Ferasat, President, Vahe

Mekertichian, Vice President

L.A. Matrix, Inc., 20815 S. Belshaw,

Carson, CA 90749, Officers: Douglas

Cruikshank, Co-President, Ronald S.

Cruse, Co-President

Bay Area Matrix, Inc., 14072 Catalina

Street, San Leandro, CA 94577,

Officers: Douglas Cruikshank, CoPresident, Ronald S. Cruse, Treasurer

Dated: January 10, 1995.

By the Federal Maritime Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 95–959 Filed 1–12–95; 8:45 am]

BILLING CODE 6730–01–M

FEDERAL RESERVE SYSTEM

Report to Congressional Committees

Regarding Differences in Capital and

Accounting Standards Among the

Federal Banking and Thrift Agencies

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Notice.

SUMMARY: This report to the Committee

on Banking, Housing, and Urban Affairs

of the United States Senate and to the

Committee on Banking, Finance and

Urban Affairs of the United States

House of Representatives has been

prepared by the Federal Reserve Board

pursuant to section 121 of the Federal

Deposit Insurance Corporation

Improvement Act of 1991. 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 also

contain an explanation of the reasons

for any discrepancy in such accounting

or capital standards.

FOR FURTHER INFORMATION CONTACT:

Rhoger H Pugh, Assistant Director (202)/

728–5883), Norah M. Barger, Manager

(202/452–2402), Gerald A. Edwards, Jr.,

Assistant Director (202/452–2741),

Robert Motyka, Supervisory Financial

Analyst (202/452–3621), Nancy J.

Rawlings, Senior Financial Analyst

(202/452–3059), Division of Banking

Supervision and Regulation, Board of

Governors of the Federal Reserve

System. For the hearing impaired only,

Telecommunication Device for the Deaf

(TDD), Dorothea Thompson (202/452–

3544), Board of Governors of the Federal

Reserve System, 20th & C Street, N.W.,

Washington, D.C. 20551.

Introduction and Overview

This is the fifth 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 Section One

of the report focuses on differences in

the agencies’ capital standards; Section

Two discusses differences in accounting

standards. The remainder of this

introduction provides an overview of

the discussion contained in these

sections.

Capital Standards

As stated in the previous reports to

the 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

(referred to as the Basle Supervisors’

Committee) and endorsed by the central

bank governors of the G–10 countries.

The risk-based capital framework

establishes minimum ratios of total and
3228 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices

3 In those cases where bank Call Report standards

are different from GAAP, the regulatory reporting

requirements are intended to be more conservative

than GAAP.

Tier 1 (core) capital to risk-weighted

assets. The Basle Accord requires

banking organizations to have total

capital equal to at least 8 percent, and

Tier 1 capital equal to at least 4 percent,

of risk-weighted assets after a phase-in

period that ended on December 31,

1992. Tier 1 capital is principally

comprised of common shareholders’

equity and qualifying perpetual

preferred stock, less disallowed

intangibles, such as goodwill. The other

component of total capital, Tier 2, may

include certain supplementary capital

items, such as general loan loss reserves

and subordinated debt. The risk-based

capital requirements are viewed by the

three banking agencies and the OTS as

minimum standards, and most

institutions are expected to, and

generally do, maintain capital levels

well above the minimums.

In addition to specifying identical

ratios, the risk-based capital framework

implemented by the three banking

agencies includes a common definition

of regulatory capital and a uniform

system of risk weights and categories.

While the minimum standards and risk

weighting framework are common to all

the banking agencies, there are some

technical differences in language and

interpretation among the agencies. The

OTS employs a similar risk-based

capital framework, although it differs in

some respects from that adopted by the

three banking agencies. These

differences, as well as other technical

differences in the agencies’ capital

standards, are discussed in Section One

of this report.

In addition to the risk-based capital

requirements, the agencies also have

established leverage standards setting

forth minimum ratios of capital to total

assets. As discussed in Section One, the

three banking agencies employ uniform

leverage standards, while the OTS has

established, pursuant to FIRREA,

somewhat different standards.

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 this regard,

Section One contains discussions of the

banking agencies’ efforts during the past

year to achieve uniformity with respect

to the capital treatment of the sale of

assets with recourse, implementation of

proposed amendments made by the

Basle Supervisors’ Committee to the

Basle Accord, and the capital treatment

of assets to address recent accounting

changes issued by the Financial

Accounting Standards Board (FASB).

In addition, the agencies have

continued to coordinate efforts in

revising the risk-based capital

requirements as required by provisions

of section 305 of FDICIA to take into

account interest rate risk and risks

arising from concentrations of credit

and nontraditional activities. With

regard to interest rate risk, the agencies,

on the basis of public comments

received, are considering a revision to

their notice of proposed rulemaking

issued on September 14, 1993, that is

expected to be issued sometime in the

near future. With regard to the risks

arising from concentrations of credit

and nontraditional activities, in 1994

the Federal Reserve, FDIC, and OTS

approved uniform final rules. These

rules will become effective once the

OCC’s final rule has been approved, as

it is expected to be in the near future.

During 1994, one difference between

the risk-based capital guidelines of the

three banking agencies and the OTS was

eliminated. The difference concerned

the treatment of multifamily mortgages.

The three banking agencies had placed

such mortgages in the 100 percent risk

category, while the OTS had permitted

a 50 percent risk weight for multifamily

mortgage loans secured by buildings

with 5–36 units with at least an 80

percent loan-to-value ratio and 80

percent occupancy rate. Late last year

and early this year, the three banking

agencies and OTS adopted uniform

amendments to their rules to implement

section 618(b) of the Resolution Trust

Corporation Refinancing, Restructuring,

and Improvement Act of 1991. This Act

mandated the lowering under the riskbased capital framework of the risk

category for multifamily loans meeting

certain criteria to 50 percent.

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 are substantially consistent,

aside from a few limited exceptions,

with generally accepted accounting

principles (GAAP) as they are applied

by commercial banks.3 The uniform

bank Call Report serves as the basis for

calculating risk-based capital and

leverage ratios, as well as for other

regulatory purposes. Thus, material

differences in regulatory accounting and

reporting standards among commercial

banks and FDIC-supervised savings

banks do not exist.

The OTS requires each thrift

institution to file the Thrift Financial

Report (TFR), which is generally

consistent with GAAP. The TFR differs

in some respects from the bank Call

Report in that, as previously mentioned,

there are a few areas in which the bank

Call Report departs from GAAP. A

summary of the differences between the

bank Call Report and the TFR is

presented in Section Two.

As in the past, the agencies are

continuing interagency efforts to reduce

paperwork and regulatory burdens. The

Federal Reserve has taken a leadership

role in coordinating these efforts in

developing supervisory guidance to

further improve regulatory reporting

requirements. For example, during 1994

Federal Reserve and FASB officials have

met to discuss major accounting issues

affecting the banking industry, as well

as the remaining few differences

between GAAP and regulatory reporting

standards. The agencies are also

working on projects that are intended to

refine and improve policies and address

the few reporting differences that

currently exist between the banking

agencies and the OTS. On December 21,

1993, the three banking agencies and the

OTS, under the auspices of the FFIEC,

issued an interagency policy statement

on the allowance for loan and lease

losses (ALLL). The policy statement,

which was developed on an interagency

basis to provide comprehensive

guidance on the ALLL, is consistent

with GAAP. The agencies are also

coordinating actions to reduce the

possibility that new differences in

accounting and reporting policies may

arise. In this regard, the agencies

recently adopted the same regulatory

reporting requirements for FAS 114, a

new accounting standard covering loan

impairment that becomes effective in

1995.

Section One

Differences in Capital Standards

Among Federal Banking and Thrift

Supervisory Agencies

Overview

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
Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices 3229

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 percent core capital ratio

and a 1.5 percent tangible capital

leverage requirement for thrift

institutions. However, the OTS has not

yet finalized a new leverage rule, which

has been under consideration for some

time. This leverage rule is intended to

conform to the leverage rules of the

three banking agencies. The differences

that will exist after the OTS has adopted

its new standard pertain to the

definition of core capital. While this

definition generally conforms to Tier 1

bank capital, certain adjustments

discussed in this report apply to the

core capital definition used by savings

associations. In addition, core capital as

currently defined by the OTS includes

qualifying supervisory goodwill. By the

end of 1994, such goodwill will be

phased out of thrift core capital.

Therefore, beginning with the first

quarter of 1995, the treatment of

goodwill for thrift institutions will be

consistent with that of the banking

agencies.

Risk-Based Capital Ratios

The three banking agencies have

adopted risk-based capital standards

consistent with the Basle Accord. These

standards, which were fully phased in

at the end of 1992, require all

commercial banking organizations to

maintain a minimum ratio of total

capital (Tier 1 plus Tier 2) to riskweighted assets of 8 percent. Tier 1

capital includes common stock and

surplus, retained earnings, qualifying

perpetual preferred stock and surplus,

and minority interests in consolidated

subsidiaries, less goodwill. Tier 1

capital must comprise at least 50

percent of the total risk-based capital

requirement. Tier 2 capital includes

such components as general loan loss

reserves, subordinated term debt, and

certain other preferred stock and

convertible debt capital instruments,

subject to appropriate limitations and

conditions. Risk-weighted assets are

calculated by assigning risk weights of

0, 20, 50, and 100 percent to broad

categories of assets and off-balance sheet

items based upon their relative credit

risks. The OTS has adopted a risk-based

capital standard that in most respects is

similar to the framework adopted by the

banking agencies.

All the banking agencies view the

risk-based capital standard as a

minimum supervisory benchmark. In

part, this is because the risk-based

capital standard 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 operate

with capital levels well above the

minimum risk-based and leverage

capital requirements.

Efforts to Incorporate Non-Credit Risks

The Federal Reserve has for some

time been working with the other U.S.

banking agencies and the regulatory

authorities on the Basle Supervisors’

Committee to develop possible methods

to measure and address certain market

and price risks. In April, 1993, the Basle

Supervisors’ Committee issued a

consultative paper that addresses,

among other items, proposals to include

certain risks into the framework of the

Basle Accord. These include interest

rate risk arising from imbalances

between the maturity of debt

instruments held as assets and issued as

liabilities and market risk associated

with holdings of traded debt and equity

securities. One important reason for

addressing these risks on an

international level is to develop

supervisory approaches that do not

undermine the competitiveness of U.S.

banking organizations.

Aside from this initial international

effort, the OTS capital standards for

some time have taken into account

interest rate risk, and, in August, 1992,

the FRB, OCC, and FDIC sought public

comment on a proposed framework for

incorporating into their capital

standards interest rate risk, as required

under section 305 of FDICIA. In

response to concerns raised and

recommendations made by commenters,

on September 14, 1993, the three

banking agencies issued for public

comment a substantially modified

proposal on interest rate risk.

Throughout 1994, the agencies have

been meeting to review the public

comments and consider the alternative

approaches offered by the commenters.

It is anticipated that the banking

agencies will issue a revised notice of

proposed rulemaking in early 1995 that

will provide certain modifications and

enhancements to the proposal to

address concerns expressed by public

commenters. The approach ultimately

adopted by the banking agencies could

differ from that already taken by the

OTS.

Section 305 of FDICIA also requires

the banking agencies to amend their

risk-based capital rules to take into

account concentrations of credit risk

and nontraditional activities. The

agencies proposed an amendment

implementing this requirement in

February, 1994. On August 3, 1994, the

Federal Reserve approved an

amendment to its risk-based capital

guidelines to identify explicitly

concentrations of credit risk and an

institution’s ability to manage them as

important factors in assessing an

institution’s overall capital adequacy.

The amendments also indicate that an

institution’s ability to adequately

manage the risks posed by

nontraditional activities affects its risk

exposure.

Recent Interagency Efforts

In addition to coordinating efforts to

incorporate noncredit risks, the agencies

worked together during 1994 to issue

proposals for public comment that

would amend the agencies’ respective

risk-based capital standards with

respect to: (1) The sale of assets with

recourse; (2) the recognition of bilateral

netting arrangements for derivative

contracts; (3) higher capital charges for

long-dated derivative contracts and

reduced capital charges for the potential

future exposure of contracts that are

affected by netting arrangements; and

(4) the definition of the OECD-based

group of countries for the purpose of

specifying country transfer risk. The

agencies also coordinated efforts to

make modifications in their capital

guidelines in light of recent changes in

accounting standards.

Recourse

The agencies issued a joint proposal

on May 24, 1994, that would amend

their respective risk-based capital

guidelines with regard to assets sold

with recourse and direct credit

substitutes. This publication, which

included a notice and an advanced

notice of proposed rulemakings, was a

culmination of several attempts by the

agencies to resolve important

differences on this issue. The notice of

proposed rulemaking is intended to

allow banking organizations to maintain

lower amounts of capital against lowlevel recourse transactions. The

advanced notice of proposed

rulemaking is a preliminary proposal to

use credit ratings to match the riskbased capital assessment more closely to

an institution’s relative risk of loss in

certain asset securitizations. The

comment period for these proposals
3230 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices

4The OECD-based group of countries currently

includes members of the Organization of Economic

Cooperation and Development and countries that

have concluded special lending arrangements with

the International Monetary Fund (IMF) associated

with the Fund’s General Arrangements to Borrow.

Saudi Arabia is the only non-OECD country that has

concluded such arrangements.

ended on July 25, 1994. The agencies

are reviewing the comments received.

Bilateral Netting Arrangements

In response to industry

recommendations, and pursuant to the

consultative paper the Basle

Supervisors’ Committee issued in April,

1993, the staffs of the four agencies in

1994 made uniform proposals to amend

their risk-based capital standards to

recognize bilateral netting arrangements

associated with interest and exchange

rate contracts. To qualify for netting

treatment, netting arrangements would

have to genuinely reduce credit risk and

be legally enforceable in all relevant

jurisdictions as evidenced by wellfounded and reasoned legal opinions. A

final rule on this matter was adopted by

the Board on December 2, 1994, and the

other agencies are expected to issue

final rules in the near future.

Derivative Contracts and Recognizing

the Effects of Netting on Potential

Future Exposure

The agencies worked together on

proposing amendments to their

respective risk-based capital guidelines

that are based on proposed revisions to

the Basle Accord that the Basle

Supervisors’ Committee initiated in July

1994. The Board issued for public

comment, on August 22, 1994, a

proposed rulemaking that would: (1)

increase the capital charge for the

potential future counterparty exposure

of interest and exchange rate contracts

that are over five years in remaining

maturity, as well as of equity, precious

metals, and other commodity-related

contracts; and (2) recognize the effects

of bilateral netting arrangements in

calculating the potential future exposure

for contracts subject to qualifying

netting arrangements. The agencies have

been coordinating their efforts to review

the public comments and to draft final

rules on these proposals. The final

amendments to the agencies’ risk-based

capital standards are contingent upon

an endorsement by the G–10 Governors

of a final revision to the Basle Accord.

Country Transfer Risk

In July 1994, the G–10 Governors

announced their intention to modify the

Basle Accord in 1995 with regard to

country transfer risk. Specifically, it was

agreed to revise the definition of the

OECD-based group of countries 4 that

are accorded a preferential risk weight.

The revision would retain the OECDbased group of countries as the

principle criterion for preferential risk

weight status, but exclude for five years

any country that reschedules its external

sovereign debt. The Board and the OCC

issued a joint notice of proposed

rulemaking on October 14, 1994, that

seeks public comment on an

amendment to their respective riskbased capital guidelines. The FDIC and

OTS expect to issue similar proposals in

1995.

Capital Impact of Recent Changes to

Accounting Standards

Recently, FASB issued

pronouncements concerning new and

modified financial accounting

standards. The adoption of some of

these standards for regulatory reporting

purposes had the potential of affecting

the definition and calculation of

regulatory capital. Accordingly, the

staffs of the agencies worked together to

propose uniform regulatory capital

responses to such accounting changes.

Over this past year, the agencies dealt

with the accounting issues, described

below.

FAS 115, ‘‘Accounting for Certain

Investments in Debt and Equity

Securities.’’

The staffs of the four agencies met this

year to discuss the public comments

received in response to proposed

amendments, issued in 1993 and early

1994, to their respective risk-based

capital standards that would include in

Tier 1 capital the net unrealized changes

in value of securities available for sale

for purposes of calculating the riskbased and leverage capital ratios of

banking organizations. The proposals,

which were in response to the recently

adopted FAS 115, also requested

comment on several alternative

approaches, one of which was to not

adopt FAS 115 for capital purposes. On

November 10, 1994, the FFIEC

recommended to the agencies that they

not adopt FAS 115 for capital purposes.

Acting on this recommendation, the

Board, on November 30, 1994, adopted

a final rule effective December 31, 1994.

Under the final rule, institutions are

generally directed not to include in Tier

1 capital the component of common

stockholders’ equity, net unrealized

holding gains and losses on securities

available for sale that was created by

FAS 115. The other agencies are

expected to issue similar rules in the

near future.

FAS 109, ‘‘Accounting for Income

Taxes.’’

The agencies issued in 1993 proposals

to limit the amount of deferred tax

assets includable in calculating Tier 1

capital. Under the proposals, certain

deferred tax assets are limited to the

lesser of 10 percent of Tier 1 capital or

the amount of such assets the institution

expects to realize in the subsequent

year. On November 18, 1994, the FFIEC

recommended that the agencies finalize

these proposals. The agencies are

preparing to issue final rules that will be

made effective early in 1995.

FAS 114, ‘‘Accounting by Creditors

for Impairment of a Loan.’’

On May 17, 1994, the agencies issued

a joint request for comment regarding

certain implementation issues arising

from the agencies’ recent adoption for

regulatory reporting purposes of FAS

114. FAS 114 presents a methodology

for calculating the loan loss reserve for

certain loans that is based on present

value considerations. Through the

FFIEC, the agencies, on November 18,

1994, announced a decision that the

current reporting of nonaccrual loans

would be maintained and the

allowances calculated under FAS 114

are to be reported as part of the general

allowance.

Specific Capital Differences

Differences among the risk-based

capital standards of the OTS and the

three banking agencies are discussed

below.

Certain collateralized transactions

On December 23, 1992, the Federal

Reserve Board issued an amendment to

its risk-based and leverage capital

guidelines that lowers from 20 to 0

percent the risk category for

collateralized transactions meeting

certain criteria. This preferential

treatment is only available for claims

collateralized by cash on deposit in the

bank or by securities issued or

guaranteed by OECD central

governments or U.S. government

agencies. In addition, 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.

As reported in last year’s report, the

OCC, on August 18, 1993, issued a

proposal for public comment that would

also lower the risk weight for certain

collateralized transactions. At the time

of this report, a final rule has not been

approved. The FDIC and OTS are

considering similar proposals.

Equity Investments

In general, commercial banks that are

members of the Federal Reserve System
Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices 3231

are not permitted to invest in equity

securities, nor are they generally

permitted to engage in real estate

investment or development activities.

To the extent that commercial banks are

permitted to hold equity securities (for

example, in connection with debts

previously contracted), the three

banking agencies generally assign such

investments to the 100 percent risk

category for risk-based capital purposes.

Under the three banking agencies’

rules, the agencies may, on a case-bycase basis, deduct equity investments

from the parent bank’s capital or make

other adjustments, if necessary, to assess

an appropriate capital charge above the

minimum requirement. The banking

agencies’ treatment of investments in

subsidiaries is discussed below.

The OTS risk-based capital standards

require that thrift institutions deduct

certain equity investments from capital

over a phase-in period, which ended on

July 1, 1994, as explained more fully

below in the section on subsidiaries.

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.

Repossessed assets and assets more

than 90 days past due

The three banking agencies require

that foreclosed real estate be written

down to fair value (see Section Two of

this report, ‘‘Specific Valuation

Allowances for, and Charge-Offs of,

Troubled Real Estate Loans not in

Foreclosure’’ for further details) with

the resulting asset assigned to the 100

percent risk category. The write-down

effectively results in a reduction of

capital. Assets 90 days or more past due,

including 1- to 4-family residential

mortgages, are assigned to the 100

percent risk category. If and when such

assets are eventually charged off, capital

is effectively adjusted for any resulting

loss.

Consistent with the Basle Accord, the

100 percent risk category is the highest

risk category under the risk-based

capital guidelines of the three banking

agencies. As noted above, however, the

bank risk-based capital standards

represent minimum ratios.

Organizations with high levels of risk,

including a significant volume of

nonperforming or past due assets, are

expected to maintain capital ratios

above minimum levels. Thus, the riskbased capital framework of the banking

agencies provides the flexibility to

require higher levels of capital against

assets of this type.

The OTS risk-based capital framework

assigns a 200 percent risk weight to

repossessed assets (generally referred to

as real estate owned or REO) and assets

more than 90 days past due. An

exception exists for 1- to 4-family

residential mortgages more than 90 days

past due, which are assigned to the 100

percent risk category. The OTS intends

to change the risk weight for all REO to

100 percent in conjunction with recent

changes in the accounting for REO.

Limitation on subordinated debt and

limited-life preferred stock

Consistent with the Basle Accord, the

three banking agencies limit the amount

of subordinated debt and limited-life

preferred stock that may be included in

Tier 2 capital. This limit, in effect, states

that these components together may not

exceed 50 percent of Tier 1 capital. In

addition, maturing capital instruments

must be discounted by 20 percent in

each of the last five years prior to

maturity.

Neither subordinated debt nor

limited-life preferred stock is a

permanent source of funds, and

subordinated debt cannot absorb losses

while the bank continues to operate as

a going-concern. On the other hand,

both capital components can provide a

cushion of protection to the FDIC

insurance fund. Thus, the 50 percent

limitation permits the inclusion of some

subordinated debt in capital, while

assuring that permanent stockholders’

equity capital remains the predominant

element in bank regulatory capital.

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

thrifts 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—the approach required by the

banking agencies; 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 risks

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
3232 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices

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 that are

permissible for national banks and

subsidiaries that are engaged in

‘‘impermissible’’ activities for national

banks. Subsidiaries of thrift institutions

that engage only in permissible

activities are consolidated on a line-byline basis if majority-owned and on a

pro rata basis if ownership is between

5 percent 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. However, investments,

including loans, outstanding as of April

12, 1989, to subsidiaries that were

engaged in impermissible activities

prior to that date are grandfathered and

were phased-out of capital over a

transition period that expired on July 1,

1994. During this transition period,

investments in subsidiaries engaged in

impermissible activities that have not

been phased-out of capital were

consolidated on a pro rata basis.

Nonresidential Construction and Land

Loans

The three banking agencies assign

loans for real estate development and

construction purposes to the 100

percent risk category. Reserves or

charge-offs are required, in accordance

with examiner judgment, when

weaknesses or losses develop in such

loans. The banking agencies have no

requirement for an automatic charge-off

when the amount of a loan exceeds the

fair value of the property pledged as

collateral for the loan.

The OTS generally assigns these loans

to the 100 percent risk category.

However, if the amount of the loan

exceeds 80 percent of the fair value of

the property, that excess portion must

be deducted from capital in accordance

with a phase-in arrangement, which

ended on July 1, 1994.

Mortgage-Backed Securities (MBS)

The three banking agencies, in

general, place privately-issued MBSs 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 MBSs where the direct

underlying assets are mortgages, this

treatment generally results in a risk

weight of 50 percent or 100 percent.

Privately-issued MBSs 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 MBSs with

AA or better investment ratings.

At the same time, both the banking

and thrift agencies automatically assign

to the 100 percent risk weight category

certain MBSs, including interest-only

strips, residuals, and similar

instruments that can absorb more than

their pro rata share of loss. The Federal

Reserve, in conjunction with the other

banking agencies and the OTS, issued,

on January 10, 1992, more specific

guidance as to the types of ‘‘high risk’’

MBSs that will qualify for a 100 percent

risk weight.

Assets Sold With Recourse

In general, recourse arrangements

allow the purchaser of an asset to ‘‘put’’

the asset back to the originating

institution under certain circumstances,

for example if the asset ceases to

perform satisfactorily. This, in turn, can

expose the originating institution to any

loss associated with the asset. As a

general rule, the three banking agencies

require that sales of assets involving any

recourse be reported as financings and

that the assets be retained on the

balance sheet. This effectively requires

a full leverage and risk-based capital

charge whenever assets are sold with

recourse, including limited recourse.

The Federal Reserve generally applies a

capital charge to any off-balance sheet

recourse arrangement that is the

equivalent of a guarantee, regardless of

the nature of the transaction that gives

rise to the recourse obligation.

An exception to this general rule for

the three banking organizations involves

pools of 1- to 4-family residential

mortgages and to certain farm mortgage

loans. Certain recourse transactions

involving these assets are reported in

the bank Call Report as sales, and, thus,

are not included in the asset base used

in calculating the Tier 1 leverage ratio.

For risk-based capital purposes,

however, the amount of such mortgages

sold with recourse is generally treated

as an off-balance sheet guarantee, and

assessed a capital charge.

In general, the OTS also requires a full

risk-based capital charge against assets

sold with recourse. However, in the case

of assets sold with recourse, the OTS

limits the capital charge to the lesser of

the amount of recourse or the actual

amount of capital that would otherwise

be required against that asset, that is, the

normal full capital charge.

Some securitized asset arrangements

involve the issuance of senior and

subordinated classes of securities

against pools of assets. When a bank

originates such a transaction by placing

loans that it owns in a trust and

retaining any portion of the

subordinated securities, the banking

agencies require that capital be

maintained against the entire amount of

the asset pool. When a bank acquires a

subordinated security in a pool of assets

that it did not originate, the banking

agencies assign the investment in the

subordinated piece to the 100 percent

risk-weight category. The Federal

Reserve carefully reviews these

instruments to determine if additional

reserves, asset write-downs, or capital

are necessary to protect the bank.

The OTS requires that risk-based

capital be maintained against the entire

amount of the asset pool in both of the

situations described in the preceding

paragraph. Additionally, the OTS

applies a capital charge to the full

amount of assets being serviced when

the servicer is required to absorb credit

losses on the assets being serviced.

On May 25, 1994, the three banking

agencies and the OTS, under the

auspices of the FFIEC, sought public

comment on various aspects of the

capital treatment of recourse

transactions by publishing a Notice of

Proposed Rulemaking (NPR) and an

Advance Notice of Proposed

Rulemaking (ANPR), which is a more

preliminary step in the formal

rulemaking process. The comment

period ended July 25, 1994.

The NPR proposed to amend the

banking agencies’ risk-based capital

guidelines by:

(1) Reducing the risk-based capital

charge for ‘‘low level’’ recourse

arrangements to an amount equal to the

maximum contractual recourse

obligation;

(2) Requiring equivalent capital

treatment of recourse arrangements and

direct credit substitutes that provide

first dollar loss protection. This would

increase the capital assessment for first

loss standby letters of credit and

purchased subordinated interests that
Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices 3233

only provide partial credit

enhancement; and

(3) Defining ‘‘recourse’’ and

associated terms such as ‘‘standard

representations and warranties.’’

The ANPR proposed incorporating

into the risk-based capital guidelines a

framework based on formal credit

ratings for assessing capital against

exposures with different levels of risk in

certain asset securitizations. Thus, the

more risky a particular risk position

with a securitized transaction, the

higher the capital charge.

Staffs of the agencies are reviewing

public comments, particularly in light of

the Reigle Community Development and

Regulatory Improvement Act of 1994

(Act), which was signed into law on

September 23, 1994. Section 350 of the

Act requires the banking agencies, by

the end of March 1995, to promulgate

regulations that better reflect the

exposure of an insured depository

institution to credit risk from transfers

of assets with recourse. At a minimum,

these regulations must limit the amount

of required capital to be held against

assets sold with recourse to the

maximum amount of recourse for which

the ‘‘selling’’ institution is contractually

liable. The staffs of the agencies are

working to issue by the end of March

1994 a final rule incorporating the

proposed ‘‘low level’’ recourse

treatment in order to meet the legislative

requirements of section 350. Staffs of

the agencies are also continuing their

work on developing proposals to make

the capital requirements for recourse

transactions more commensurate with

the actual risk inherent in the

transactions.

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

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.

Thrifts 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 Properties

In some cases, a banking organization

may make two loans on a single

residential property, one loan 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 loan, provided there are no

intervening liens. This could result in

assigning the total amount of these

transactions to the 100 percent risk

weight category, if, in the aggregate, the

two loans exceeded a prudent loan-tovalue ratio and, therefore, did not

qualify for the 50 percent risk weight.

This approach is intended to avoid

possible circumvention of the capital

requirements and capture the risks

associated with the combined

transactions.

The FDIC, OCC, and the OTS

generally assign the loan secured by the

first lien to the 50 percent risk-weight

category and the loan secured by the

second lien to the 100 percent riskweight category.

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 three banking

agencies’ capital guidelines.

Mutual Funds

The three banking agencies generally

assign all of a bank’s holdings 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

purpose of this is to take into account

the maximum degree of risk to which a

bank may be exposed when investing in

a mutual fund in view of the fact that

the future composition and risk

characteristics of the fund’s holding

cannot be known in advance.

The OTS applies a capital charge

appropriate to the riskiest asset that a

mutual fund is actually holding at a

particular time. In addition, both the

OTS and the OCC guidelines also

permit, on a case-by-case basis,

investments in mutual funds to be

allocated on a pro rata basis in a manner

consistent with the actual composition

of the mutual fund.

Section Two

Differences in Accounting Standards

Among Federal Banking and Thrift

Supervisory Agencies

Under the auspices of the FFIEC, the

three banking agencies have developed

uniform reporting requirements for

commercial banks to be used in the

preparation of the Call Report. The FDIC

has also applied these uniform reporting

requirements to savings banks under its

supervision. The income statement and

balance sheet accounts presented in the

Call Report are used by the bank

supervisory agencies for determining

the capital adequacy of banks. The data

collected in this report also are used for

other regulatory, supervisory, analytical,

and statistical purposes, and provide

information to the Federal Reserve for

the conduct of monetary policy.

Section 121 of FDICIA states that

‘‘accounting principles applicable to

reports or statements required to be filed

by all insured depository institutions

with federal banking agencies shall be

uniform and consistent with generally

accepted accounting principles

(GAAP).’’ Under section 121, the

objectives of accounting principles

applicable to such reports and

statements are to:

1. Result in financial statements and

reports of condition that accurately

reflect the institution’s capital;

2. Facilitate effective supervision of

depository institutions; and

3. Facilitate prompt corrective action

at least cost to the insurance funds.

Section 121 further states that a

federal banking agency may ‘‘prescribe

an accounting principle . . . which is

no less stringent than GAAP’’ when the

agency determines that ‘‘the application

of any generally accepted accounting

principle is inconsistent with the

objectives’’ of accounting principles

noted above.

Section 121 of FDICIA thus requires

the Federal Reserve and the other

federal banking agencies to set forth

reporting requirements in the Call

Report that are consistent with, or no

less stringent than, GAAP. The reporting

requirements for the Call Report are

substantially consistent with GAAP as

applied by commercial banks, aside

from a few limited exceptions. As a

matter of long-standing policy, the

reporting requirements for Call Reports

depart from GAAP only in those

instances where statutory requirements

or overriding supervisory concerns

warrant a departure from GAAP.

Furthermore, in those cases where the

reporting requirements for bank Call

Reports are different from GAAP, they

are more conservative than GAAP.
3234 Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices

Thus, bank regulatory reporting

requirements are consistent with the

objectives and mandate of FDICIA

Section 121.

The agencies have been working to

limit the number of differences between

regulatory reporting requirements and

GAAP. In some cases, however,

differences will exist when there is a

need to address supervisory concerns.

In addition, the agencies have been

working closely to coordinate any new

accounting and reporting policies, to

ensure consistency among the agencies

and to reduce or eliminate differences

with GAAP.

The OTS has developed and

maintains a separate reporting system

for the thrift institutions under its

supervision. The financial report for

thrifts, or TFR, is based on GAAP as

applied by thrifts.

A summary of the primary differences

in regulatory reporting requirements

between the three bank agencies and the

OTS is set forth below. The information

is based on a study developed on an

interagency basis.

Futures and Forward Contracts

The banking agencies, as a general

rule, do not permit the deferral of losses

by banks on futures and forwards

regardless of whether they are used for

hedging purposes. All changes in

market value of futures and forward

contracts are reported in current period

income. The banking agencies adopted

this reporting requirement as a

supervisory policy prior to the adoption

of FASB Statement No. 80, which

allows hedge or loss deferral

accounting, under certain

circumstances. Hedge accounting in

accordance with FASB Statement No. 80

is permitted by the banking agencies

only in the case of futures and forward

contracts used in mortgage banking

operations.

The OTS practice is to follow FASB

Statement No. 80 for futures contracts.

In accordance with this statement, when

hedging criteria are satisfied, the

accounting for the futures contract is

related to the accounting treatment for

the hedged item. Changes in the market

value of the futures contract are

recognized in income when the effects

of related changes in the price or

interest rate of the hedged item are

recognized. Such reporting can result in

deferred losses, which would be

reflected as assets on the thrift’s balance

sheet in accordance with GAAP.

The Federal Reserve is closely

reviewing hedge accounting issues with

the other federal banking agencies, with

the objective of encouraging the FASB

to develop a comprehensive hedge

accounting framework that results in

consistent accounting treatment for all

derivative instruments of financial and

nonfinancial companies.

Excess Servicing Fees

As a general rule, the three banking

agencies do not follow GAAP for excess

servicing fees, but require a more

conservative treatment. Excess servicing

results when loans are sold with

servicing retained and the stated

servicing fee rate is greater than the

normal servicing fee rate. With the

exception of sales of pools of first lien

one- to four-family residential mortgages

for which the banking agencies’

approach is consistent with FASB

Statement No. 65, excess servicing fee

income in banks must be reported as

realized over the life of the transferred

asset, not recognized up front as

required by FASB Statement No. 65.

The OTS allows the present value of

the future excess servicing fee to be

treated as an adjustment to the sales

price for purposes of recognizing gain or

loss on the sale. This approach is

consistent with FASB Statement No. 65.

In-Substance Defeasance of Debt

The banking agencies do not permit

banks to report defeasance of their debt

obligations in accordance with FASB

Statement No. 76. Defeasance involves a

debtor irrevocably placing risk-free

monetary assets in a trust solely for

satisfying the debt. Under FASB

Statement No. 76, the assets in the trust

and the defeased debt are removed from

the balance sheet and a gain or loss for

the current period can be recognized.

However, for Call Report purposes,

banks may not remove assets or

defeased liabilities from their balance

sheets or recognize resulting gains or

losses. The banking agencies have not

adopted FASB Statement No. 76

because of uncertainty regarding the

irrevocable trusts established for

defeasance purposes. Furthermore,

defeasance would not relieve the bank

of its contractual obligation to pay

depositors or other creditors.

OTS practice is to follow FASB

Statement No. 76.

Sales of Assets With Recourse

In accordance with FASB Statement

No. 77, a transfer of receivables with

recourse is recognized as a sale if: (1)

The transferor surrenders control of the

future economic benefits; (2) the

transferor’s obligation under the

recourse provisions can be reasonably

estimated; and (3) the transferee cannot

require repurchase of the receivables

except pursuant to the recourse

provisions.

The practice of the three banking

agencies is generally to permit

commercial banks to report transfers of

receivables with recourse as sales only

when the transferring institution (1)

retains no risk of loss from the assets

transferred and (2) has no obligation for

the payment of principal or interest on

the assets transferred. As a result,

virtually no transfers of assets with

recourse can be reported as sales.

However, this rule does not apply to the

transfer of first lien 1- to 4-family

residential or agricultural mortgage

loans under certain governmentsponsored programs (including the

Federal National Mortgage Association

and the Federal Home Loan Mortgage

Corporation). Transfers of mortgages

under these programs are generally

treated as sales for Call Report purposes.

Furthermore, private transfers of first

lien 1- to four-family residential

mortgages are also reported as sales if

the transferring institution retains only

an insignificant risk of loss on the assets

transferred. However, the seller’s

obligation under recourse provisions

related to sales of mortgage loans under

the government programs is viewed as

an off-balance sheet exposure. Thus, for

risk-based capital purposes, capital is

generally expected to be held for

recourse obligations associated with

such transactions.

The OTS policy is to follow FASB

Statement No. 77. However, in the

calculation of risk-based capital under

the OTS guidelines, off-balance sheet

recourse obligations generally are

converted at 100 percent. This

effectively negates the sale treatment

recognized on a GAAP basis for riskbased capital purposes, but not for

leverage capital purposes. Thus, by

making this adjustment in the risk-based

capital calculation, the differences

between the OTS and the banking

agencies for capital adequacy

measurement purposes are substantially

reduced.

Over the past few years, the FFIEC has

studied transfers of assets with recourse

(often referred to as the ‘‘recourse

study’’). In this respect, the staff of the

Federal Reserve has reviewed the

capital and regulatory reporting

treatment for sales of assets with

recourse and on May 25, 1994, issued,

under the auspices of the FFIEC, a

proposal for public comment which

addresses these issues. If finalized, the

proposal could reduce the differences

between regulatory reporting

requirements and GAAP in this area by

allowing a larger portion of transfers of

assets with recourse to be treated as

sales. In addition, the staff of the

Federal Reserve has been working with
Federal Register / Vol. 60, No. 9 / Friday, January 13, 1995 / Notices 3235

the other agencies to implement section

350 of the Riegle Community

Development and Regulatory

Improvement Act of 1994, which deals

with the regulatory reporting and capital

treatment of certain recourse

transactions, as discussed in greater

detail on page 28 of Section One of this

report.

Push-Down Accounting

When a depository institution is

acquired in a purchase transaction, but

retains its separate corporate existence,

the institution is required to revalue all

of the assets and liabilities at fair value

at the time of acquisition. When pushdown accounting is applied, the same

revaluation made by the parent holding

company is made at the depository

institution level.

The three banking agencies require

push-down accounting when there is at

least a 95 percent change in ownership.

This approach is generally consistent

with interpretations of the Securities

and Exchange Commission.

The OTS requires push-down

accounting when there is at least a 90

percent change in ownership.

Negative Goodwill

The three banking agencies require

that negative goodwill be reported as a

liability, and not be netted against

goodwill assets. Such a policy ensures

that all goodwill assets are deducted in

regulatory capital calculations,

consistent with the Basle Accord.

The OTS permits negative goodwill to

offset goodwill assets reported in the

financial statements.

Offsetting

The three banking agencies generally

prohibit netting of assets and liabilities

in the Call Report. However, FASB

Interpretation No. 39 (FIN 39) netting

requirements have been adopted for Call

Report purposes solely for assets and

liabilities that arise from off-balancesheet instruments. For example, under

FIN 39, the assets and liabilities arising

from these contracts may be netted

when there is a legally enforceable

bilateral master netting agreement.

The OTS policy on netting for all

assets and liabilities is consistent with

GAAP, as set forth in FIN 39. FIN 39

allows institutions to offset assets and

liabilities (e.g., loans and deposits)

when four conditions are met.

Moreover, the OTS permits netting for

off-balance sheet conditional and

exchange contracts to the same extent as

the banking agencies.

By order of the Board of Governors of the

Federal Reserve System, January 9, 1995.

William W. Wiles,

Secretary of the Board.

[FR Doc. 95–900 Filed 1–12–95; 8:45 am]

BILLING CODE 6210–10–P

National Westminster Bank PLC.;

Acquisitions of Companies Engaged in

Permissible Nonbanking Activities

The organizations listed in this notice

have applied under § 225.23(a)(2) or (f)

of the Board’s Regulation Y (12 CFR

225.23(a)(2) or (f)) for the Board’s

approval under section 4(c)(8) of the

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

1843(c)(8)) and § 225.21(a) of Regulation

Y (12 CFR 225.21(a)) to acquire or

control voting securities or assets of a

company engaged in a nonbanking

activity that is listed in § 225.25 of

Regulation Y as closely related to

banking and permissible for bank

holding companies. Unless otherwise

noted, such activities will be conducted

throughout the United States.

Each application is available for

immediate inspection at the Federal

Reserve Bank indicated. Once the

application has been accepted for

processing, it will also be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing on the

question whether consummation of the

proposal can ‘‘reasonably be expected to

produce benefits to the public, such as

greater convenience, increased

competition, or gains in efficiency, that

outweigh possible adverse effects, such

as undue concentration of resources,

decreased or unfair competition,

conflicts of interests, or unsound

banking practices.’’ Any request for a

hearing on this question must be

accompanied by a statement of the

reasons a written presentation would

not suffice in lieu of a hearing,

identifying specifically any questions of

fact that are in dispute, summarizing the

evidence that would be presented at a

hearing, and indicating how the party

commenting would be aggrieved by

approval of the proposal.

Unless otherwise noted, comments

regarding each of these applications

must be received at the Reserve Bank

indicated for the application or the

offices of the Board of Governors not

later than January 27, 1995.

A. Federal Reserve Bank of New

York (William L. Rutledge, Senior Vice

President) 33 Liberty Street, New York,

New York 10045:

1. National Westminster Bank PLC,

London, England, and NatWest

Holdings, New York, New York; to

acquire BRS Capital Management, Inc.,

Boston, Massachusetts, and thereby

engage in investment advisory activities,

pursuant to § 225.25(b)(4) of the Board’s

Regulation Y.

A. Federal Reserve Bank of Kansas

City (John E. Yorke, Senior Vice

President) 925 Grand Avenue, Kansas

City, Missouri 64198:

1. First National of Nebraska, Inc.,

Omaha, Nebraska; to acquire Platte

Valley Finance Company, North Platte,

Nebraska, and thereby engage in

consumer finance lending, pursuant to §

225.25(b)(1) of the Board’s Regulation Y,

and credit insurance activities pursuant

to § 225.25(25(b)(8)(i) of the Board’s

Regulation Y.

Board of Governors of the Federal Reserve

System, January 9, 1995.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 95–901 Filed 1–12–95; 8:45 am]

BILLING CODE 6210–01–F

James A. Redding, et al.; Change in

Bank Control Notices; Acquisitions of

Shares of Banks or Bank Holding

Companies

The notificants listed below have

applied under the Change in Bank

Control Act (12 U.S.C. 1817(j)) and §

225.41 of the Board’s Regulation Y (12

CFR 225.41) to acquire a bank or bank

holding company. The factors that are

considered in acting on the notices are

set forth in paragraph 7 of the Act (12

U.S.C. 1817(j)(7)).

The notices are available for

immediate inspection at the Federal

Reserve Bank indicated. Once the

notices have been accepted for

processing, they will also be available

for inspection at the offices of the Board

of Governors. Interested persons may

express their views in writing to the

Reserve Bank indicated for that notice

or to the offices of the Board of

Governors. Comments must be received

not later than January 27, 1995,

A. Federal Reserve Bank of

Minneapolis (James M. Lyon, Vice

President) 250 Marquette Avenue,

Minneapolis, Minnesota 55480:

1. James A. Redding and Mary G.

Clark, both of Windom, Minnesota; each

to acquire 25.51 percent of the voting

shares of Windom State Investment

Company, Windom, Minnesota, and

thereby indirectly acquire Southwest

State Bank, Windom, Minnesota.

B. Federal Reserve Bank of Kansas

City (John E. Yorke, Senior Vice

President) 925 Grand Avenue, Kansas

City, Missouri 64198:

1. Gary D. Grable, Kansas City,

Missouri; to acquire 8.81 percent; John