[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Proposed Rules]
[Pages 56756-56763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22741]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2008-0014]
RIN 1557-AD13

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1329]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD32

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[Docket No. OTS-2008-0010]
RIN 1550-AC22


Minimum Capital Ratios; Capital Adequacy Guidelines; Capital 
Maintenance; Capital: Deduction of Goodwill Net of Associated Deferred 
Tax Liability

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

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of Thrift Supervision 
(OTS) (collectively, the Agencies) are proposing to permit banks, bank 
holding companies, and savings associations (collectively, banking 
organizations) to reduce the amount of goodwill that a banking 
organization must deduct from tier 1 capital by the amount of any 
deferred tax liability associated with that goodwill. The proposed 
change would effectively reduce the amount of goodwill that a banking 
organization must deduct from tier 1 capital and would reflect a 
banking organization's maximum exposure to loss in the event that such 
goodwill is impaired or derecognized for financial reporting purposes.

DATES: Comments must be received on or before October 30, 2008.

ADDRESSES: Comments should be directed to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
the Federal eRulemaking Portal or e-mail, if possible. Please use the 
title ``Capital Adequacy Guidelines; Deduction of Goodwill Net of 
Associated Deferred Tax Liability'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
    <bullet> Federal eRulemaking Portal--``Regulations.gov'': Go to 
http://www.regulations.gov, under the ``More Search Options'' tab click 
next to the ``Advanced Docket Search'' option where indicated, select 
``Comptroller of the Currency'' from the agency drop-down menu, then 
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2008-0014'' 
to submit or view public comments and to view supporting and related 
materials for this notice of proposed rulemaking. The ``How to Use This 
Site'' link on the Regulations.gov

[[Page 56757]]

home page provides information on using Regulations.gov, including 
instructions for submitting or viewing public comments, viewing other 
supporting and related materials, and viewing the docket after the 
close of the comment period.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#aedccbc9dd80cdc1c3c3cbc0daddeec1cdcd80dadccbcfdd80c9c1d8"><span class="__cf_email__" data-cfemail="1a687f7d6934797577777f746e695a757979346e687f7b69347d756c">[email protected]</span></a>.
    <bullet> Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
    <bullet> Fax: (202) 874-4448.
    <bullet> Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket Number OCC-2008-0014'' in your comment. In general, OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address 
information, e-mail addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this notice of proposed rulemaking by any of the following methods:
    <bullet> Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next 
to the ``Advanced Document Search'' option where indicated, select 
``Comptroller of the Currency'' from the agency drop-down menu, then 
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2008-0014'' 
to view public comments for this rulemaking action.
    <bullet> Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. For security reasons, the OCC requires 
that visitors make an appointment to inspect comments. You may do so by 
calling (202) 874-5043. Upon arrival, visitors will be required to 
present valid government-issued photo identification and submit to 
security screening in order to inspect and photocopy comments.
    <bullet> Docket: You may also view or request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. R-1329, by 
any of the following methods:
    <bullet> Agency Web Site: http://www.Federalreserve.gov. Follow the 
instructions for submitting comments at http://www.Federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#fc8e999b8fd29f9391919992888fbcba9998998e9d908e998f998e8a99d29b938a"><span class="__cf_email__" data-cfemail="a9dbccceda87cac6c4c4ccc7dddae9efcccdccdbc8c5dbccdaccdbdfcc87cec6df">[email protected]</span></a>. Include docket 
number in the subject line of the message.
    <bullet> Fax: (202) 452-3819 or (202) 452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.

All public comments are available from the Board's Web site at http://www.Federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons. Accordingly, your comments will 
not be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets, NW., 
Washington, DC) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Agency Web Site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
    <bullet> Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street) on business days 
between 7 a.m. and 5 p.m.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#b4d7dbd9d9d1dac0c7f4f2f0fdf79ad3dbc2"><span class="__cf_email__" data-cfemail="98fbf7f5f5fdf6ecebd8dedcd1dbb6fff7ee">[email protected]</span></a>.
    Instructions: Comments submitted must include ``FDIC'' and ``RIN 
<greek-i> 3064-AD32.'' Comments received will be posted generally 
without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any personal information provided.
    OTS: You may submit comments, identified by OTS-2008-0010 by any of 
the following methods:
    <bullet> Federal eRulemaking Portal--``Regulations.gov'': Go to 
http://www.regulations.gov, under the ``More Search Options'' tab click 
next to the ``Advanced Docket Search'' option where indicated, select 
``Office of Thrift Supervision'' from the agency drop-down menu, then 
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0010'' 
to submit or view public comments and to view supporting and related 
materials for this notice of proposed rulemaking. The ``How to Use This 
Site'' link on the Regulations.gov home page provides information on 
using Regulations.gov, including instructions for submitting or viewing 
public comments, viewing other supporting and related materials, and 
viewing the docket after the close of the comment period.
    <bullet> E-mail address: <a href="/cdn-cgi/l/email-protection#e290878591cc818d8f8f878c9691a28d9691cc9690878391cc858d94"><span class="__cf_email__" data-cfemail="05776062762b666a6868606b7176456a71762b71776064762b626a73">[email protected]</span></a>. Please 
include OTS-2008-0010 in the subject line of the message and include 
your name and telephone number in the message.
    <bullet> Fax: (202) 906-6518.
    <bullet> Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2008-0010.
    <bullet> Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: 
Regulation Comments, Chief Counsel's Office, OTS-2008-0010.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted without change to the 
OTS Internet Site at http://www.ots.treas.gov/Supervision&Legal.Laws&Regulations, including any personal information 
provided. Comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that could be considered confidential or 
inappropriate for public disclosure.
    <bullet> Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next 
to the ``Advanced Document Search'' option where indicated, select 
``Office of Thrift Supervision'' from the agency drop-down menu and 
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0010'' 
to view public comments for this rulemaking action.
    <bullet> Viewing Comments On-Site: You may inspect comments at the 
Public Reading Room, 1700 G Street, NW., by appointment. To make an 
appointment call (202) 906-5922, send an e-mail to 
<a href="/cdn-cgi/l/email-protection#576b36773f2532316a" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, or send a facsimile transmission to (202) 
906-6518. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) We schedule

[[Page 56758]]

appointments on business days between 10 a.m. and 4 p.m. In most cases, 
appointments will be available the next business day following the date 
we receive a request.

FOR FURTHER INFORMATION CONTACT: OCC: Paul Podgorski, Risk Expert, 
Capital Policy (202-874-4755); or Jean Campbell, Senior Attorney, or 
Ron Shimabukuro, Special Counsel, Legislative and Regulatory Activities 
Division (202-874-5090).
    Board: Barbara Bouchard, Associate Director (202-452-3072 or 
<a href="/cdn-cgi/l/email-protection#12707360707360733c707d67717a736076527460703c757d64"><span class="__cf_email__" data-cfemail="1c7e7d6e7e7d6e7d327e73697f747d6e785c7a6e7e327b736a">[email protected]</span></a>), Mary Frances Monroe, Manager (202-452-5231 
or <a href="/cdn-cgi/l/email-protection#7a171b0803541c5417151408151f3a1c0818541d150c"><span class="__cf_email__" data-cfemail="f49995868dda92da999b9a869b91b4928696da939b82">[email protected]</span></a>), David Snyder, Supervisory Financial Analyst 
(202-728-5893 or <a href="/cdn-cgi/l/email-protection#0d696c7b6469237e637469687f4d6b7f6f236a627b"><span class="__cf_email__" data-cfemail="0f6b6e79666b217c61766b6a7d4f697d6d21686079">[email protected]</span></a>), Division of Banking Supervision 
and Regulation; or Mark Van Der Weide, Assistant General Counsel (202-
452-2263 or <a href="/cdn-cgi/l/email-protection#a6cbc7d4cd88d0c7c8c2c3d4d1c3cfc2c3e6c0d4c488c1c9d0"><span class="__cf_email__" data-cfemail="771a16051c5901161913120500121e13123711051559101801">[email protected]</span></a>) or Dinah Knight, Senior Attorney 
(202-452-3838 or <a href="/cdn-cgi/l/email-protection#3e5a57505f56104c1055505759564a7e584c5c10595148"><span class="__cf_email__" data-cfemail="26424f48474e0854084d484f414e526640544408414950">[email protected]</span></a>), Legal Division. For users of 
Telecommunications Device for the Deaf (``TDD'') only, contact 202-263-
4869.
    FDIC: Christine M. Bouvier, Senior Policy Analyst (Bank Accounting) 
(202-898-7289), Accounting and Securities Disclosure Section, Division 
of Supervision and Consumer Protection; Nancy Hunt, Senior Policy 
Analyst (202-898-6643), Capital Markets Branch, Division of Supervision 
and Consumer Protection; Mark Handzlik, Senior Attorney (202-898-3990), 
or Michael Phillips, Counsel (202-898-3581), Supervision Branch, Legal 
Division.
    OTS: Christine A. Smith, Project Manager, Capital Policy (202-906-
5740); Marvin Shaw, Senior Attorney, Regulations and Legislation (202-
906-6639); Patricia M. Hildebrand, Senior Policy Accountant, Accounting 
(202-906-7048); or Craig Phillips, Senior Policy Accounting Fellow, 
Accounting (202-906-5628).

SUPPLEMENTARY INFORMATION:

Proposed Capital Treatment for Goodwill Arising From a Taxable Business 
Combination

    Under the Agencies' existing regulatory capital rules, a banking 
organization \1\ must deduct certain assets from tier 1 capital.\2\ A 
banking organization is permitted to net any associated deferred tax 
liability against some of those assets prior to deduction from tier 1 
capital. Included among those assets are certain intangible assets 
arising from a nontaxable business combination. Such netting generally 
is not permitted for goodwill and other intangible assets arising from 
a taxable business combination. In these cases, the full or gross 
carrying amount of the asset is deducted.
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    \1\ Unless otherwise indicated, the term ``banking 
organization'' includes banks, savings associations, and bank 
holding companies (BHCs). The terms ``bank holding company'' and 
``BHC'' refer only to bank holding companies regulated by the Board.
    \2\ See the Agencies' capital rules for more detail on what 
assets are required to be deducted from regulatory capital and how 
these deductions are calculated. See 12 CFR part 3 (national banks); 
12 CFR part 208 (state member banks); 12 CFR part 225 (bank holding 
companies); 12 CFR part 325 (state nonmember banks); and 12 CFR part 
567 (savings associations). This proposal is focused on the 
deduction of goodwill from tier 1 capital.
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    Statement of Financial Accounting Standards No. 141, Business 
Combinations (FAS 141), requires that all business combinations be 
accounted for using the purchase method of accounting for financial 
reporting purposes under generally accepted accounting principles 
(GAAP).\3\ FAS 141 also requires that the acquiring entity assign the 
cost of the acquired entity to each identifiable asset acquired and 
liability assumed. The amounts assigned are based generally upon the 
fair values of such assets and liabilities at the acquisition date. If 
the cost of the acquired entity exceeds the net of the amounts so 
assigned, the acquiring entity must recognize the excess amount as 
goodwill.
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    \3\ Under FAS 141, application of the purchase method to 
combinations between mutual institutions was deferred, pending the 
issuance of interpretive guidance. A revised statement issued in 
December 2007, FAS 141(R), supersedes FAS 141 for financial 
reporting years starting after December 15, 2008. The revisions to 
FAS 141 incorporated in FAS 141(R) do not conflict with this 
proposal. FAS 141(R) retains the fundamental requirements in FAS 141 
that the acquisition method of accounting (which FAS 141 called the 
``purchase method'') be used for all business combinations and 
extends these requirements to combinations between two or more 
mutual institutions. This proposal uses the term ``purchase method'' 
in order to be consistent with the current terminology under GAAP.
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    Statement of Financial Accounting Standards No. 142, Goodwill and 
Other Intangible Assets (FAS 142), prohibits the amortization of 
goodwill for financial reporting purposes under GAAP and requires 
periodic testing of the carrying amount of goodwill for impairment. 
However, a banking organization generally amortizes goodwill for tax 
purposes. This difference in treatment generally results in the 
recognition of a deferred tax liability under GAAP. The deferred tax 
liability increases over time and is reflected in corresponding 
reductions in earnings for financial reporting purposes until the 
goodwill has been fully amortized for tax purposes. The deferred tax 
liability generally is not reduced or reversed for financial reporting 
purposes unless the associated goodwill is written down upon a finding 
of impairment, or is otherwise derecognized.
    The Agencies have received requests from several banking 
organizations to permit the amount of goodwill arising from a taxable 
business combination that must be deducted from tier 1 capital to be 
reduced by any associated deferred tax liability. The Agencies believe 
that this treatment would appropriately reflect a banking 
organization's maximum exposure to loss if the goodwill becomes 
impaired or is derecognized under GAAP.
    Accordingly, the Agencies are proposing to amend their respective 
capital rules to permit a banking organization to reduce the amount of 
goodwill it must deduct from tier 1 capital by the amount of any 
deferred tax liability associated with that goodwill. However, a 
banking organization that reduces the amount of goodwill deducted from 
tier 1 capital by the amount of the associated deferred tax liability 
would not be permitted to net this deferred tax liability against 
deferred tax assets when determining regulatory capital limitations on 
deferred tax assets. The proposed change would permit a banking 
organization to effectively reduce its regulatory capital deduction for 
goodwill to an amount equal to the maximum regulatory capital reduction 
that could occur as a result of the goodwill becoming completely 
impaired or derecognized. This would increase a banking organization's 
tier 1 capital, which is used to determine the banking organization's 
leverage ratio and risk-based capital ratios.
    For example, assume that goodwill in the amount of $9,000 arises 
from a taxable business combination. For income tax purposes, this 
goodwill is amortized over 15 years at a rate of $600 per year ($9,000/
15 years). However, the banking organization cannot recognize the $600 
annual tax deduction for goodwill amortization in current income for 
financial reporting purposes. Assuming an income tax rate of 30 
percent, each year the banking organization would have an income tax 
reduction of $180 ($600 x 30%) and would recognize this amount as a 
deferred tax liability. Under GAAP, at the end of the first year, the 
banking organization would report a deferred tax liability of $180. At 
the end of the 15-year tax amortization period, it would report a 
cumulative deferred tax liability of $2,700 ($180 x 15 years).\4\
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    \4\ This example assumes that, throughout the tax amortization 
period, there is no impairment or derecognition of the goodwill and 
there is no change in the income tax rate.

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[[Page 56759]]

    Under the Agencies' existing regulatory capital rules, the full 
carrying amount of goodwill ($9,000) is deducted from tier 1 capital. 
However, since the amortization of this asset for income tax purposes 
reduces income taxes by $2,700 over the 15-year period, the maximum 
amount of reduction in tier 1 capital that the banking organization 
could experience in the event of total impairment of the goodwill at 
the end of the 15-year period is $6,300 ($9,000 minus $2,700), not 
$9,000. Under this proposed rule, the total deduction from tier 1 
capital at the end of the first year would be $8,820 ($9,000 minus 
$180) and, at the end of the fifteenth year, the deduction from tier 1 
capital would be $6,300.
    The Agencies request comment on all aspects of this proposal. 
Specifically, the Agencies request comment on the impact that the 
proposed treatment could have on a banking organization's regulatory 
capital ratios.
    The Agencies are considering for purposes of any final rule whether 
they should extend the treatment proposed for goodwill to other 
intangible assets acquired in a taxable business combination that 
currently are not deductible from tier 1 capital net of associated 
deferred tax liabilities.\5\ Accordingly, the Agencies request comment 
on whether they should permit any additional intangible assets to be 
deducted from tier 1 capital net of associated deferred tax 
liabilities. For such assets, the Agencies request information 
regarding the type of intangible asset and an estimate of the potential 
impact on banking organizations' capital ratios from extending this 
proposal to cover those assets, as well as any other relevant data or 
pertinent information.
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    \5\ As discussed above, under the Agencies' existing regulatory 
capital rules, the full amount of any intangible asset acquired in a 
taxable business combination generally is deducted from tier 1 
capital, without netting of any associated deferred tax liability.
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Other Revisions

    The OCC is proposing to consolidate the various provisions 
permitting a bank to deduct assets from tier 1 capital on a basis net 
of any associated deferred tax liability together in one section of the 
regulatory text to make it easier to locate. In addition, the current 
regulatory text's special treatment of intangible assets acquired due 
to a nontaxable purchase business combination exempts purchased 
mortgage servicing rights and purchased credit card relationships but 
does not make clear whether those assets may be netted, and also does 
not make clear whether intangible assets acquired in a taxable purchase 
business combination may be netted.
    The OCC is clarifying the appropriate treatment of disallowed 
servicing assets and purchased credit card relationships to be as 
follows: (1) Disallowed servicing assets may be deducted net of any 
associated deferred tax liability, regardless of the method by which 
the bank acquired such assets; and (2) servicing assets that are 
includable in tier 1 capital and purchased credit card relationships 
may not be deducted net of any associated deferred tax liability, 
regardless of the method by which the bank acquired such assets. The 
OCC is proposing these changes for the following reasons. The term 
``purchased mortgage servicing rights'' is obsolete under GAAP. The OCC 
is replacing this term with the broader term ``servicing assets'' and 
making other clarifying changes to more accurately reflect the OCC's 
existing interpretation of the current regulatory text.
    The OCC also is proposing technical changes to its regulatory 
capital rules. The OCC is proposing to amend the definition of goodwill 
to conform to FAS 141 and FAS 142. These changes are non-substantive 
and are being made because portions of the existing regulatory text 
became obsolete when FAS 141 made application of the purchase method of 
accounting for business combinations mandatory. In addition, the OCC is 
proposing technical amendments to revise cross references and other 
miscellaneous changes.
    The Board also is proposing technical changes to conform the 
definition of goodwill in its regulatory capital rules to GAAP, in 
particular, to the terminology used in FAS 141 and FAS 142.\6\ These 
changes are non-substantive and are being made because parts of the 
existing regulatory text became obsolete when FAS 141 made application 
of the purchase method of accounting for business combinations 
mandatory. Further, the Board is proposing to amend Appendix A to 12 
CFR part 225 to remove obsolete text that relates to goodwill 
recognized by a BHC prior to December 31, 1992.
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    \6\ The FDIC's and OTS's regulatory capital rules do not include 
a definition of goodwill. Therefore, this aspect of the proposal 
would not affect the FDIC's or OTS's regulations.
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    The OTS is proposing four changes to its capital regulations. 
First, OTS is proposing a change to amend its definition of 
``intangible assets'' in 12 CFR 567.1 to delete obsolete text that 
excluded servicing assets from the definition of intangible assets, and 
to add regulatory text to the definition to include servicing assets as 
intangible assets. Second, OTS is proposing a change to its definition 
of ``intangible assets'' in 12 CFR 567.9 that would reference servicing 
assets as intangible assets according to 12 CFR 567.1. Third, OTS is 
proposing a change to conform its regulatory text to that of the other 
Agencies by adding regulatory text that provides for netting a deferred 
tax liability specifically related to an intangible asset (other than 
disallowed servicing assets that are already permitted to be deducted 
on a basis net of associated deferred tax liabilities, and purchased 
credit card relationships that may not be deducted on a basis net of 
associated deferred tax liabilities) arising from a nontaxable business 
combination against that intangible asset. Fourth, OTS is proposing 
other regulatory rule text changes that will conform its regulatory 
text to that of the other Agencies by adding language to its rules 
addressing the regulatory capital limitation on deferred tax assets.

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
that is issuing a proposed rule to prepare and make available for 
public comment an initial regulatory flexibility analysis that 
describes the impact of the proposed rule on small entities.\7\ The RFA 
provides that an agency is not required to prepare and publish an 
initial regulatory flexibility analysis if the agency certifies that 
the proposed rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities.\8 \
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    \7\ See 5 U.S.C. 603(a).
    \8\ See 5 U.S.C. 605(b).
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    Under regulations issued by the Small Business Administration,\9\ a 
small entity includes a bank holding company, commercial bank, or 
savings association with assets of $175 million or less (collectively, 
small banking organizations).\10\ The proposed rule would permit a 
banking organization to compute its deduction from regulatory capital 
of goodwill net of any associated deferred tax liability. The Agencies 
believe that this proposed rule will not have a significant economic 
impact on a substantial number of small entities because the proposed 
rule is elective and, thus, does not require a bank to

[[Page 56760]]

compute its deduction from regulatory capital of goodwill net of any 
associated deferred tax liability. Each agency certifies that the 
proposed rule will not, if promulgated in final form, have a 
significant economic impact on a substantial number of small entities.
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    \9\ See 13 CFR 121.201.
    \10\ As of December 31, 2007, there were approximately 2,785 
small bank holding companies, 932 small national banks, 467 small 
state member banks, 3,274 small state nonmember banks, and 428 small 
savings associations.
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Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the 
Agencies reviewed the proposed rule regarding the deduction of goodwill 
net of associated deferred tax liability as required by the Office of 
Management and Budget.\11\ No collections of information pursuant to 
the Paperwork Reduction Act are contained in the proposed rule. 
However, implementation of this proposed rule would necessitate 
clarifications to the Agencies' quarterly regulatory reports \12\ to 
reflect the proposed change in a banking organization's tier 1 capital.
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    \11\ See 44 U.S.C. 3506; 5 CFR 1320 Appendix A.1.
    \12\ Consolidated Reports of Condition and Income (Call Report) 
(OMB Nos. 7100-0036, 3064-0052, 1557-0081), Thrift Financial Report 
(TFR) (OMB No. 1550-0023), Consolidated Financial Statements for 
Bank Holding Companies (FR Y-9C) (OMB No. 7100-0128).
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Plain Language
    Section 722 of the Gramm-Leach-Bliley Act requires the Agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. In light of this requirement, the Agencies have sought 
to present the proposed rule in a simple and straightforward manner. 
The Agencies invite comment on whether the Agencies could take 
additional steps to make the proposed rule easier to understand.

OCC and OTS Executive Order 12866 Determinations

    Executive Order 12866 requires Federal agencies to prepare a 
regulatory impact analysis for agency actions that are found to be 
significant regulatory actions. Significant regulatory actions include, 
among other things, rulemakings that have an annual effect on the 
economy of $100 million or more or adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or state, local, or tribal 
governments or communities. The OCC and OTS each have determined that 
its portion of the proposed rule is not a significant regulatory 
action.

OCC and OTS Executive Order 13132 Determinations

    The OCC and OTS each determined that its portion of the proposed 
rulemaking does not have any federalism implications for purposes of 
Executive Order 13132.

OCC and OTS Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (UMRA) requires that an agency prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in the expenditure by state, local, and tribal 
governments, in the aggregate, or by the private sector of $100 million 
or more (adjusted annually for inflation) in any one year. If a 
budgetary impact statement is required, section 205 of the UMRA also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule. The OCC and OTS 
each have determined that its proposed rule will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $133 million or more. Accordingly, neither OCC nor OTS has 
prepared a budgetary impact statement or specifically addressed the 
regulatory alternatives considered.

List of Subjects

12 CFR Part 3

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, National banks, Reporting and recordkeeping requirements, 
Risk.

12 CFR Part 208

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, Reporting and recordkeeping requirements, Risk.

12 CFR Part 225

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, Federal Reserve System, Reporting and recordkeeping 
requirements, Risk.

12 CFR Part 325

    Accounting, Banks, Banking, Administrative practice and procedure, 
Capital, Reporting and recordkeeping requirements, Risk.

12 CFR Part 567

    Capital, Reporting and recordkeeping requirements, Risk, Savings 
associations.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the common preamble, part 3 of chapter 
I of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

    1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907 and 3909.

    2. In appendix A to part 3, Section 1 is amended by:
    a. Removing, in paragraph (c)(1), the third sentence, the phrase 
``section 1(c)(8)'' and by adding in lieu thereof the phrase ``section 
1(c)(10)''; and
    b. Revising paragraph (c)(17) to read as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

    Section 1. Purpose, Applicability of Guidelines, and 
Definitions.
* * * * *
    (c) * * *
    (17) Goodwill is an intangible asset that represents the excess 
of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed.
* * * * *
    3. In appendix A to part 3, Section 2 is amended by:
    a. Removing, in paragraphs (c) introductory text and (c)(1) 
introductory text, the word ``items'', and by adding in lieu thereof 
the word ``assets'';
    b. Removing, in paragraph (c)(1)(iii), the phrase ``section 
2(c)(3)'' and by adding in lieu thereof the phrase ``sections 2(c)(3) 
and (2)(c)(6)'';
    c. Removing, in paragraph (c)(1)(iv), the phrase ``section 
4(a)(3)'' and by adding in lieu thereof the phrase ``section 4(a)(2)'';
    d. Removing, in footnote 6, the phrase ``section 1(c)(14)'' and by 
adding in lieu thereof the phrase ``section 1(c)(18)'', and removing 
the phrase ``section 4(a)(3)'' and by adding in lieu thereof the phase 
``section 4(a)(2)'';
    e. Removing paragraph (c)(2)(iv);
    f. Adding a heading to paragraph (c)(3)(i);
    g. Removing paragraph (c)(3)(iii) and redesignating paragraph 
(c)(3)(iv) as paragraph (c)(3)(iii);
    h. Removing paragraph (c)(4)(iii);

[[Page 56761]]

    i. Redesignating paragraph (c)(6) as paragraph (c)(7) and adding a 
new paragraph (c)(6) to read as follows; and
    j. Revising the introductory text of newly designated paragraph 
(c)(7) by removing the word ``items'' and adding in lieu thereof the 
word ``assets''.
    The revision and addition are set forth below.

    Section 2. Components of Capital.
* * * * *
    (c) * * *
    (3) * * * (i) Net unrealized gains and losses on available-for-
sale securities. * * *
* * * * *
    (6) Netting of Deferred Tax Liability. (i) Banks may elect to 
deduct the following assets from Tier 1 capital on a basis that is 
net of any associated deferred tax liability:
    (A) Goodwill;
    (B) Intangible assets acquired due to a nontaxable purchase 
business combination, except banks may not elect to deduct from Tier 
1 capital on a basis that is net of any associated deferred tax 
liability, regardless of the method by which they were acquired:
    (1) Purchased credit card relationships; and
    (2) Servicing assets that are includable in Tier 1 capital;
    (C) Disallowed servicing assets;
    (D) Disallowed credit-enhancing interest-only strips; and
    (E) Nonfinancial equity investments, as defined in section 
1(c)(1) of this appendix A.
    (ii) Deferred tax liabilities netted in this manner cannot also 
be netted against deferred tax assets when determining the amount of 
deferred tax assets that are dependent upon future taxable income as 
calculated under section 2(c)(1)(iii) of this appendix A.
* * * * *

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the common preamble, the Board of 
Governors of the Federal Reserve System proposes to amend parts 208 and 
225 of chapter II of title 12 of the Code of Federal Regulations as 
follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

    1. The authority citation for part 208 continues to read as 
follows:

    Authority: 12 U.S.C. 24, 92(a), 248(a), 248(c), 321-328a, 371d, 
461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835(a), 1882, 
2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 
781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-1, and 78w, 1681s, 
1681w, 6801 and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 
4106, and 4128.
    2. In appendix A to part 208, amend section II.B. by revising 
paragraphs 1.a., 1.e.iii., and 1.f. to read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *
    II. * * *
    B. * * *
    1. * * *
    a. Goodwill. Goodwill is an intangible asset that represents the 
excess of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed. Goodwill is 
deducted from the sum of core capital elements in determining Tier 1 
capital.
* * * * *
    e. * * *
    iii. Banks may elect to deduct goodwill, disallowed mortgage 
servicing assets, disallowed nonmortgage servicing assets, and 
disallowed credit-enhancing I/Os (both purchased and retained) on a 
basis that is net of any associated deferred tax liability. Deferred 
tax liabilities netted in this manner cannot also be netted against 
deferred tax assets when determining the amount of deferred tax 
assets that are dependent upon future taxable income.
    f. Valuation. Banks must review the book value of goodwill and 
other intangible assets at least quarterly and make adjustments to 
these values as necessary. The fair value of mortgage servicing 
assets, nonmortgage servicing assets, purchased credit card 
relationships, and credit-enhancing I/Os also must be determined at 
least quarterly. This determination shall include adjustments for 
any significant changes in original valuation assumptions, including 
changes in prepayment estimates or account attrition rates. 
Examiners will review both the book value and the fair value 
assigned to these assets, together with supporting documentation, 
during the examination process. In addition, the Federal Reserve may 
require, on a case-by-case basis, an independent valuation of a 
bank's goodwill, other intangible assets, or credit-enhancing I/Os.
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

    3. The authority citation for part 225 continues to read as 
follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

    4. In appendix A to part 225, amend section II.B. by revising 
paragraphs 1.a., 1.e.iii, and 1.f. to read as follows:

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Risk-Based Measure

* * * * *
    II. * * *
    B. * * *
    1. * * *
    a. Goodwill. Goodwill is an intangible asset that represents the 
excess of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed. Goodwill is 
deducted from the sum of core capital elements in determining tier 1 
capital.
* * * * *
    e. * * *
    iii. Bank holding companies may elect to deduct goodwill, 
disallowed mortgage servicing assets, disallowed nonmortgage 
servicing assets, and disallowed credit-enhancing I/Os (both 
purchased and retained) on a basis that is net of any associated 
deferred tax liability. Deferred tax liabilities netted in this 
manner cannot also be netted against deferred tax assets when 
determining the amount of deferred tax assets that are dependent 
upon future taxable income.
    f. Valuation. Bank holding companies must review the book value 
of goodwill and other intangible assets at least quarterly and make 
adjustments to these values as necessary. The fair value of mortgage 
servicing assets, nonmortgage servicing assets, purchased credit 
card relationships, and credit-enhancing I/Os also must be 
determined at least quarterly. This determination shall include 
adjustments for any significant changes in original valuation 
assumptions, including changes in prepayment estimates or account 
attrition rates. Examiners will review both the book value and the 
fair value assigned to these assets, together with supporting 
documentation, during the inspection process. In addition, the 
Federal Reserve may require, on a case-by-case basis, an independent 
valuation of a bank holding company's goodwill, other intangible 
assets, or credit-enhancing I/Os.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the common preamble, part 325 of 
chapter III of title 12 of the Code of Federal Regulations is proposed 
to be amended as follows:

PART 325--CAPITAL MAINTENANCE

    1. The authority citation for part 325 continues to read as 
follows:

    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 
U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended 
by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).


[[Page 56762]]


    2. Section 325.5 is amended by revising paragraph (g)(5) to read as 
follows:


Sec.  325.5  Miscellaneous.

* * * * *
    (g) * * *
    (5) Goodwill and other intangible assets. This paragraph (g)(5) 
provides the capital treatment for intangible assets acquired in a 
nontaxable business combination, and goodwill acquired in a taxable 
business combination.
    (i) Intangible assets acquired in nontaxable purchase business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than mortgage servicing assets, nonmortgage 
servicing assets, and purchased credit card relationships) acquired in 
a nontaxable purchase business combination may be netted against this 
intangible asset. Only the net amount of this intangible asset must be 
deducted from Tier 1 capital.
    (ii) Goodwill acquired in a taxable purchase business combination. 
A deferred tax liability that is specifically related to goodwill 
acquired in a taxable purchase business combination may be netted 
against this goodwill. Only the net amount of this goodwill must be 
deducted from Tier 1 capital.
    (iii) Treatment of a netted deferred tax liability. When a deferred 
tax liability is netted in accordance with paragraph (g)(5)(i) or (ii) 
of this section, the taxable temporary difference that gives rise to 
this deferred tax liability must be excluded from existing taxable 
temporary differences when determining the amount of deferred tax 
assets that are dependent upon future taxable income and calculating 
the maximum allowable amount of such assets.
    (iv) Valuation. The FDIC in its discretion may require independent 
fair value estimates for goodwill and other intangible assets on a 
case-by-case basis where it is deemed appropriate for safety and 
soundness purposes.

Office of Thrift Supervision

12 CFR Chapter V

    For the reasons set forth in the common preamble, part 567 of 
chapter V of title 12 of the Code of Federal Regulations is proposed to 
be amended as follows:

PART 567--CAPITAL

    1. The authority citation for part 567 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 
(note).

    2. Section 567.1 is amended by revising the definition for 
intangible assets to read as follows:


Sec.  567.1  Definitions.

* * * * *
    Intangible assets. The term intangible assets means assets 
considered to be intangible assets under generally accepted accounting 
principles. These assets include, but are not limited to, goodwill, 
core deposit premiums, purchased credit card relationships, favorable 
leaseholds, and servicing assets (mortgage and non-mortgage). Interest-
only strips receivable and other nonsecurity financial instruments are 
not intangible assets under this definition.
* * * * *
    3. Section 567.5 is amended by adding new paragraph (a)(2)(vii) to 
read as follows:


Sec.  567.5  Components of capital.

* * * * *
    (a) * * *
    (2) * * *
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec.  567.12 of this part are deducted from assets and 
capital in computing core capital.
* * * * *
    4. Section 567.9 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  567.9  Tangible capital requirements.

* * * * *
    (c) * * *
    (1) Intangible assets (as defined in Sec.  567.1) and credit 
enhancing interest-only strips not includable in tangible capital under 
Sec.  567.12.
* * * * *
    5. Section 567.12 is amended by:
    a. Revising the heading and paragraphs (a) and (b)(3);
    b. Adding paragraph (b)(5);
    c. Revising paragraph (e)(3); and
    d. Adding paragraph (h) to read as follows:


Sec.  567.12  Purchased credit card relationships, servicing assets, 
intangible assets (other than purchased credit card relationships and 
servicing assets), credit-enhancing interest-only strips, and deferred 
tax assets.

    (a) Scope. This section prescribes the maximum amount of purchased 
credit card relationships, serving assets, intangible assets (other 
than purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that savings 
associations may include in calculating tangible and core capital.
    (b) * * *
    (3) Intangible assets, as defined in Sec.  567.1 of this part, 
other than purchased credit card relationships described in paragraph 
(b)(1) of this section, servicing assets described in paragraph (b)(2) 
of this section, and core deposit intangibles described in paragraph 
(g)(3) of this section, are deducted in computing tangible and core 
capital, subject to paragraph (e)(3)(ii) of this section.
* * * * *
    (5) Deferred tax assets may be included (that is not deducted) in 
computing core capital subject to the restrictions of paragraph (h) of 
this section, and may be included in tangible capital in the same 
amount.
* * * * *
    (e) * * *
    (3) * * *
    (i) For purposes of computing the limits and sublimits in 
paragraphs (e) and (h) of this section, core capital is computed before 
the deduction of disallowed servicing assets, disallowed purchased 
credit card relationships, disallowed credit-enhancing interest-only 
strips (purchased and retained), and disallowed deferred tax assets.
    (ii) A savings association may elect to deduct the following items 
on a basis net of deferred tax liabilities:
    (A) Disallowed servicing assets;
    (B) Goodwill such that only the net amount must be deducted from 
Tier 1 capital;
    (C) Disallowed credit-enhancing interest only strips (both 
purchased and retained); and
    (D) Other intangible assets arising from non-taxable business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than purchased credit card relationships) 
arising from a nontaxable business combination may be netted against 
this intangible asset. The net amount of the intangible asset must be 
deducted from Tier 1 capital.
    (iii) Deferred tax liabilities that are netted in accordance with 
paragraph (e)(3)(ii) of this section cannot also be netted against 
deferred tax assets when determining the amount of deferred tax assets 
that are dependent upon future taxable income.
* * * * *
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this part (but not for financial statement 
purposes) deferred tax assets are subject to the conditions, 
limitations, and restrictions described in this section.
    (1) Deferred tax assets that are dependent upon future taxable 
income. These assets are:

[[Page 56763]]

    (i) Deferred tax assets arising from deductible temporary 
differences that exceed the amount of taxes previously paid that could 
be recovered through loss carrybacks if existing temporary differences 
(both deductible and taxable and regardless of where the related 
deferred tax effects are reported on the balance sheet) fully reverse 
at the calendar quarter-end date; and
    (ii) Deferred tax assets arising from operating loss and tax credit 
carryforwards.
    (2) Tier 1 capital limitations. (i) The maximum allowable amount of 
deferred tax assets that are dependent upon future taxable income, net 
of any valuation allowance for deferred tax assets, will be limited to 
the lesser of:
    (A) The amount of deferred tax assets that are dependent upon 
future taxable income that is expected to be realized within one year 
of the calendar quarter-end date, based on a projected future taxable 
income for that year; or
    (B) Ten percent of the amount of Tier 1 capital that exists before 
the deduction of any disallowed servicing assets, any disallowed 
purchased credit card relationships, any disallowed credit-enhancing 
interest-only strips, and any disallowed deferred tax assets.
    (ii) For purposes of this limitation, all existing temporary 
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are dependent 
upon future taxable income, net of any valuation allowance for deferred 
tax assets, in excess of this limitation will be deducted from assets 
and from equity capital for purposes of determining Tier 1 capital 
under this part. The amount of deferred tax assets that can be realized 
from taxes paid in prior carryback years and from the reversal of 
existing taxable temporary differences generally would not be deducted 
from assets and from equity capital.
    (iii) Notwithstanding paragraph (h)(2)(B)(ii) of this section, the 
amount of carryback potential that may be considered in calculating the 
amount of deferred tax assets that a savings association that is part 
of a consolidated group (for tax purposes) may include in Tier 1 
capital may not exceed the amount which the association could 
reasonably expect to have refunded by its parent.
    (3) Projected future taxable income. Projected future taxable 
income should not include net operating loss carryforwards to be used 
within one year of the most recent calendar quarter-end date or the 
amount of existing temporary differences expected to reverse within 
that year. Projected future taxable income should include the estimated 
effect of tax planning strategies that are expected to be implemented 
to realize tax carryforwards that will otherwise expire during that 
year. Future taxable income projections for the current fiscal year 
(adjusted for any significant changes that have occurred or are 
expected to occur) may be used when applying the capital limit at an 
interim calendar quarter-end date rather than preparing a new 
projection each quarter.
    (4) Unrealized holding gains and losses on available-for-sale debt 
securities. The deferred tax effects of any unrealized holding gains 
and losses on available-for-sale debt securities may be excluded from 
the determination of the amount of deferred tax assets that are 
dependent upon future taxable income and the calculation of the maximum 
allowable amount of such assets. If these deferred tax effects are 
excluded, this treatment must be followed consistently over time.

    Dated: September 18, 2008.
John C. Dugan,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, September 23, 2008.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 18th day of September 2008.

    By order of the Board of Directors.
Federal Deposit Insurance Corporation. 
Robert E. Feldman,
Executive Secretary.
    Dated: September 23, 2008.

    By the Office of Thrift Supervision.
John Reich,
Director.
[FR Doc. E8-22741 Filed 9-29-08; 8:45 am]
BILLING CODE 4810-33-P (25%), 6210-01-P (25%), 6714-01-P (25%), 6720-
01-P (25%)


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