83_FR_3885 83 FR 3867 - Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2017; Report to Congressional Committees

83 FR 3867 - Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2017; Report to Congressional Committees

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION

Federal Register Volume 83, Issue 18 (January 26, 2018)

Page Range3867-3869
FR Document2018-01434

The OCC, the Board, and the FDIC (collectively, the agencies) have prepared this report pursuant to section 37(c) of the Federal Deposit Insurance Act. Section 37(c) requires the agencies to jointly submit an annual report to the Committee on Financial Services of the U.S. House of Representatives and to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate describing differences among the accounting and capital standards used by the agencies. Section 37(c) requires that this report be published in the Federal Register.

Federal Register, Volume 83 Issue 18 (Friday, January 26, 2018) 
[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3867-3869]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-01434]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Joint Report: Differences in Accounting and Capital Standards 
Among the Federal Banking Agencies as of September 30, 2017; Report to 
Congressional Committees

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

ACTION: Report to Congressional Committees.

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SUMMARY: The OCC, the Board, and the FDIC (collectively, the agencies) 
have prepared this report pursuant to section 37(c) of the Federal 
Deposit Insurance Act. Section 37(c) requires the agencies to jointly 
submit an annual report to the Committee on Financial Services of the 
U.S. House of Representatives and to the Committee on Banking, Housing, 
and Urban Affairs of the U.S. Senate describing differences among the 
accounting and capital standards used by the agencies. Section 37(c) 
requires that this report be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Benjamin Pegg, Risk Expert, Capital Policy, (202) 649-7146, 
Office of the Comptroller of the Currency, 400 7th Street SW, 
Washington, DC 20219.
    Board: Elizabeth MacDonald, Manager, Capital and Regulatory Policy, 
(202) 475-6316, Division of Supervision and Regulation, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, (202) 898-
6853, Division of Risk Management Supervision, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The text of the report follows:

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

Introduction

    Under section 37(c) of the Federal Deposit Insurance Act (section 
37(c)), the Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) must 
jointly submit an annual report to the Committee on Financial Services 
of the U.S. House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the U.S. Senate that describes any 
differences among the accounting and capital standards established by 
the agencies for insured depository institutions (institutions).\1\
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    \1\ See 12 U.S.C. 1831n(c). This report must be published in the 
Federal Register. See 12 U.S.C. 1831n(c)(3).
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    In accordance with section 37(c), the agencies are submitting this 
joint report, which covers differences among their accounting or 
capital standards existing as of September 30, 2017, applicable to 
institutions. In recent years, the agencies have acted together to 
harmonize their accounting and capital standards and eliminate as many

[[Page 3868]]

differences as possible. As of September 30, 2017, the agencies have 
not identified any material differences among themselves in the 
accounting standards applicable to institutions.
    In 2013, the agencies revised the risk-based and leverage capital 
rules for institutions (capital rules),\2\ which harmonized the 
agencies' capital rules in a comprehensive manner.\3\ Only a few 
differences remain, which are statutorily mandated for certain 
categories of institutions or which reflect certain technical, 
generally nonmaterial differences among the agencies' capital rules.
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    \2\ See 78 FR 62018 (October 11, 2013) (final rule issued by the 
OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final 
rule issued by the FDIC). The FDIC later issued its final rule in 79 
FR 20754 (April 14, 2014). The agencies' respective capital rules 
are at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 
324 (FDIC). These capital rules apply to institutions, as well as to 
certain bank holding companies, and savings and loan holding 
companies. 12 CFR 217.1(c).
    \3\ The capital rules reflect the scope of each agency's 
regulatory jurisdiction. For example, the Board's capital rule 
includes requirements related to bank holding companies, savings and 
loan holding companies, and state member banks, while the FDIC's 
capital rule includes provisions for state nonmember banks and state 
savings associations, and the OCC's capital rule includes provisions 
for national banks and federal savings associations.
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    As revised in 2013, the agencies' capital rules generally have 
increased the quantity and quality of regulatory capital. For example, 
these revised capital rules include a minimum common equity tier 1 
capital ratio of 4.5 percent, raise the minimum tier 1 capital ratio 
from 4 percent to 6 percent, and establish additional capital buffer 
amounts for institutions: The capital conservation buffer, and, for 
advanced approaches institutions,\4\ the countercyclical capital 
buffer. These revised capital rules also require all institutions to 
meet a 4 percent minimum leverage ratio measured as an institution's 
tier 1 capital to average total consolidated assets (generally 
applicable leverage ratio) and require advanced approaches institutions 
to meet a 3 percent minimum supplementary leverage ratio, measured as 
an institution's tier 1 capital to the sum of on- and off-balance sheet 
exposures (supplementary leverage ratio).\5\
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    \4\ Generally, these are institutions, bank holding companies, 
and savings and loan holding companies that are subject to the 
capital rules with total consolidated assets of $250 billion or more 
or total consolidated on-balance sheet foreign exposures of at least 
$10 billion.
    \5\ Under the auspices of the Federal Financial Institutions 
Examination Council, the agencies have developed the Consolidated 
Reports of Condition and Income, or ``Call Report,'' where 
institutions report their respective capital and leverage ratios.
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Differences in Capital Standards Among the Federal Banking Agencies

    Below are summaries of the technical differences remaining among 
the capital standards of the agencies' capital rules.\6\
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    \6\ Certain minor differences, such as terminology specific to 
each agency for the institutions that they supervise, are not 
included in this report.
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Definitions
    The agencies' capital rules largely contain the same 
definitions.\7\ The differences that exist generally serve to 
accommodate the different scope of jurisdiction of each agency. Set 
forth below are two definitional differences among the agencies. Each 
agency's definitional provisions provide that a ``corporate exposure is 
an exposure to a company that is not'' one of 11 separate other types 
of exposures.\8\ The Board's capital rule provides that two additional 
items are not corporate exposures: a policy loan and a separate 
account.\9\ Unlike the OCC's and FDIC's capital rules, the Board's 
capital rule covers bank holding companies and savings and loan holding 
companies, which may engage in insurance underwriting activities \10\ 
in which institutions cannot engage,\11\ and these additional items in 
the Board's capital rule are relevant for insurance underwriting 
activities. Thus, these additional items are only relevant to bank 
holding companies and savings and loan holding companies under the 
terms of the Board's capital rule.
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    \7\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 
(FDIC).
    \8\ Id.
    \9\ 12 CFR 217.2. The Board's rule separately defines policy 
loan and separate account. Id.
    \10\ 78 FR 62127 (October 11, 2013).
    \11\ See 12 U.S.C. 1831a.
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    The agencies' capital rules also have differing definitions of a 
pre-sold construction loan. All three agencies provide that a pre-sold 
construction loan means any ``one-to-four family residential 
construction loan to a builder that meets the requirements of section 
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in 
addition to other criteria, the purchaser has not terminated the 
contract.'' \12\ The Board's definition provides further clarification 
that, if a purchaser has terminated the contract, the institution must 
immediately apply a 100 percent risk weight to the loan and report the 
revised risk weight in the next quarterly Call Report.\13\ Similarly, 
if the purchaser has terminated the contract, the OCC and FDIC capital 
rules would immediately disqualify the loan from receiving a 50 percent 
risk weight, and would apply a 100 percent risk weight to the loan. The 
change in risk weight would be reflected in the next quarterly Call 
Report. Thus, the minor wording difference between the agencies should 
have no practical consequence.
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    \12\ 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), 12 CFR 324.2 
(FDIC).
    \13\ 12 CFR 217.2.
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Capital Components and Eligibility Criteria for Regulatory Capital 
Instruments
    While the capital rules generally provide uniform eligibility 
criteria for regulatory capital instruments, there are two textual 
differences among the agencies' capital rules. First, the OCC's and 
FDIC's capital rules require that additional tier 1 capital instruments 
not be subject to a ``limit'' imposed by the contractual terms 
governing the instrument, while the Board's capital rule does not 
include this requirement.\14\ Second, only the Board's capital rule 
states that ``[s]tate member banks are subject to certain other legal 
restrictions on reductions in capital resulting from cash dividends, 
including out of the capital surplus account, under 12 U.S.C. 324 and 
12 CFR 208.5.'' \15\ The Board's capital rule also includes similar 
language relating to distributions on additional tier 1 capital 
instruments.\16\ However, the agencies apply the criteria for 
determining eligibility of regulatory capital instruments to ensure 
consistent outcomes.
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    \14\ 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 
(FDIC).
    \15\ 12 CFR 217.20.
    \16\ Id.
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Capital Deductions
    There is a technical difference between the FDIC's capital rule and 
the OCC's and Board's capital rules with regard to an explicit 
requirement for deduction of examiner-identified losses. The agencies 
require their examiners to determine whether their respective 
supervised institutions have appropriately identified losses. The 
FDIC's capital rule, however, explicitly requires FDIC-supervised 
institutions to deduct identified losses from common equity tier 1 
capital elements, to the extent that the institution's common equity 
tier 1 capital would have been reduced if the appropriate accounting 
entries had been recorded.\17\ Generally, identified losses are those 
items that an examiner determines to be chargeable against income, 
capital, or general valuation allowances.
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    \17\ 12 CFR 324.22(a)(9).
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    For example, identified losses may include, among other items, 
assets

[[Page 3869]]

classified as loss, off-balance-sheet items classified as loss, any 
expenses that are necessary for the institution to record in order to 
replenish its general valuation allowances to an adequate level, and 
estimated losses on contingent liabilities. The Board and the OCC 
expect their supervised institutions to promptly recognize examiner-
identified losses, but the requirement is not explicit under their 
capital rules. Instead, the Board and the OCC apply their supervisory 
authorities to ensure that their supervised institutions charge off any 
identified losses.
Subsidiaries of Savings Associations
    There are special statutory requirements for the agencies' capital 
treatment of a savings association's investment in or credit to its 
subsidiaries as compared with the capital treatment of such 
transactions between other types of institutions and their 
subsidiaries. Specifically, the Home Owners' Loan Act (HOLA) 
distinguishes between subsidiaries of savings associations engaged in 
activities that are permissible for national banks and those engaged in 
activities that are not permissible for national banks.\18\ When 
subsidiaries of a savings association are engaged in activities that 
are not permissible for national banks,\19\ the parent savings 
association generally must deduct the parent's investment in and 
extensions of credit to these subsidiaries from the capital of the 
parent savings association. If a subsidiary of a savings association 
engages solely in activities permissible for national banks, no 
deduction is required and investments in and loans to that organization 
may be assigned the risk weight appropriate for the activity.\20\ As 
the appropriate federal banking agencies for federal and state savings 
associations, respectively, the OCC and the FDIC apply this capital 
treatment to those types of institutions. The Board's regulatory 
capital framework does not apply to savings associations and therefore 
does not include this requirement.
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    \18\ See 12 U.S.C. 1464(t)(5).
    \19\ Subsidiaries engaged in activities not permissible for 
national banks are considered non-includable subsidiaries.
    \20\ A deduction from capital is only required to the extent 
that the savings association's investment exceeds the generally 
applicable thresholds for deduction of investments in the capital of 
an unconsolidated financial institution.
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Tangible Capital Requirement
    Federal statutory law subjects savings associations to a specific 
tangible capital requirement but does not similarly do so with respect 
to banks. Under section 5(t)(2)(B) of HOLA, savings associations are 
required to maintain tangible capital in an amount not less than 1.5 
percent of total assets.\21\ The capital rules of the OCC and the FDIC 
include a requirement that covered savings associations maintain a 
tangible capital ratio of 1.5 percent.\22\ This statutory requirement 
does not apply to banks and, thus, there is no comparable regulatory 
provision for banks. The distinction is of little practical 
consequence, however, because under the Prompt Corrective Action (PCA) 
framework, all institutions are considered critically undercapitalized 
if their tangible equity falls below 2 percent of total assets.\23\ 
Generally speaking, the appropriate federal banking agency must appoint 
a receiver within 90 days after an institution becomes critically 
undercapitalized.\24\
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    \21\ See 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
    \22\ See 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(6) (FDIC). 
The Board's regulatory capital framework does not apply to savings 
associations and, therefore, does not include this requirement.
    \23\ See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 (OCC); 12 
CFR 208.45 (Board); 12 CFR 324.403 (FDIC).
    \24\ 12 U.S.C. 1831o(h)(3)(A).
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Enhanced Supplementary Leverage Ratio
    The agencies adopted enhanced supplementary leverage ratio 
standards that take effect beginning on January 1, 2018.\25\ These 
standards require certain bank holding companies to exceed a 5 percent 
supplementary leverage ratio to avoid limitations on distributions and 
certain discretionary bonus payments and also require the subsidiary 
institutions of these bank holding companies to meet a 6 percent 
supplementary leverage ratio to be considered ``well capitalized'' 
under the PCA framework.\26\ The rule text establishing the scope of 
application for the enhanced supplementary leverage ratio differs among 
the agencies. However, the distinction is of little practical 
consequence at this time because the rules of each agency apply the 
enhanced supplementary leverage ratio to the same set of bank holding 
companies. The Board applies the enhanced supplementary leverage ratio 
standards to bank holding companies identified as global systemically 
important bank holding companies as defined in 12 CFR 217.2 and those 
bank holding companies' Board-supervised, institution subsidiaries.\27\ 
The OCC and the FDIC apply enhanced supplementary leverage ratio 
standards to the institution subsidiaries under their supervisory 
jurisdiction of a top-tier bank holding company that has more than $700 
billion in total assets or more than $10 trillion in assets under 
custody.\28\
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    \25\ See 79 FR 24528 (May 1, 2014).
    \26\ See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 
208.43(b)(1)(iv)(B) (Board); 12 CFR 324.403(b)(1)(v) (FDIC).
    \27\ See 80 FR 49082 (August 14, 2015).
    \28\ See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 324.403(b)(1)(v) 
(FDIC).

    Dated: January 11, 2018.
Grace E. Dailey,
Senior Deputy Comptroller and Chief, National Bank Examiner, Office of 
the Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, January 11, 2018.
Ann E. Misback,
Secretary of the Board.

    Dated at Washington, DC, this 19th day of January 2018.

    By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-01434 Filed 1-25-18; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P

Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices 3867 comments, without edit, including any knowledge of the advantages and U.S. House of Representatives and to the personal information the commenter disadvantages of the different types of Committee on Banking, Housing, and provides, to www.regulations.gov as in-line inspection technology and Urban Affairs of the U.S. Senate described in the system of records methodologies; describing differences among the notice (DOT/ALL– 14 FDMS), which (d) Options to create a secure system accounting and capital standards used can be reviewed at www.dot.gov/ that protects proprietary data while by the agencies. Section 37(c) requires privacy. encouraging the exchange of pipeline that this report be published in the Services for Individuals with inspection information and the Federal Register. Disabilities: The public meeting will be development of advanced pipeline FOR FURTHER INFORMATION CONTACT: physically accessible to people with inspection technologies and enhanced OCC: Benjamin Pegg, Risk Expert, disabilities. Individuals requiring risk analysis; Capital Policy, (202) 649–7146, Office of accommodations, such as sign language (e) Means and best practices for the the Comptroller of the Currency, 400 7th interpretation or other ancillary aids, are protection of safety and security- Street SW, Washington, DC 20219. asked to notify Cheryl Whetsel at sensitive information and proprietary Board: Elizabeth MacDonald, cheryl.whetsel@dot.gov. information; and Manager, Capital and Regulatory Policy, FOR FURTHER INFORMATION CONTACT: For (f) Regulatory, funding, and legal (202) 475–6316, Division of Supervision information about the meeting, contact barriers to sharing the information and Regulation, Board of Governors of Cheryl Whetsel by phone at 202–366– described in paragraphs (a) through (d). the Federal Reserve System, 20th Street The Secretary will publish the VIS and Constitution Avenue NW, 4431 or by email at cheryl.whetsel@ Working Group’s recommendations on a Washington, DC 20551. dot.gov. publicly available DOT website and in FDIC: Benedetto Bosco, Chief, Capital SUPPLEMENTARY INFORMATION: the docket. The VIS Working Group will Policy Section, (202) 898–6853, Division I. Background fulfill its purpose once its of Risk Management Supervision, recommendations are published online. Federal Deposit Insurance Corporation, The VIS Working Group is a recently PHMSA will publish the agenda on the created advisory committee established 550 17th Street NW, Washington, DC PHMSA meeting page https:// 20429. in accordance with Section 10 of the primis.phmsa.dot.gov/meetings/ Protecting our Infrastructure of MtgHome.mtg?mtg=130, once it is SUPPLEMENTARY INFORMATION: The text of Pipelines and Enhancing Safety Act of finalized. the report follows: 2016 (Pub. L. 114–183), the Federal Issued in Washington, DC, on January 23, Report to the Committee on Financial Advisory Committee Act of 1972 (5 2018, under authority delegated in 49 CFR Services of the U.S. House of U.S.C., App. 2, as amended), and 41 1.97. Representatives and to the Committee CFR 102–3.50(a). Alan K. Mayberry, on Banking, Housing, and Urban II. Meeting Details and Agenda Associate Administrator for Pipeline Safety. Affairs of the U.S. Senate Regarding The VIS Working Group agenda will [FR Doc. 2018–01476 Filed 1–25–18; 8:45 am] Differences in Accounting and Capital include briefings on topics such as BILLING CODE 4910–60–P Standards Among the Federal Banking mandate requirements, integrity Agencies management, data types and tools, in- Introduction line inspection repair and other direct DEPARTMENT OF THE TREASURY Under section 37(c) of the Federal assessment methods, geographic Deposit Insurance Act (section 37(c)), information system implementation, Office of the Comptroller of the Currency the Office of the Comptroller of the subcommittee considerations, lessons Currency (OCC), the Board of Governors learned, examples of existing of the Federal Reserve System (Board), information-sharing systems, safety FEDERAL RESERVE SYSTEM and the Federal Deposit Insurance management systems, and more. As part Corporation (FDIC) (collectively, the of its work, the committee will FEDERAL DEPOSIT INSURANCE CORPORATION agencies) must jointly submit an annual ultimately provide recommendations to report to the Committee on Financial the Secretary, as required and Services of the U.S. House of specifically outlined in Section 10 of Joint Report: Differences in Accounting and Capital Standards Representatives and the Committee on Public Law 114–183, addressing: Banking, Housing, and Urban Affairs of (a) The need for, and the Among the Federal Banking Agencies as of September 30, 2017; Report to the U.S. Senate that describes any identification of, a system to ensure that Congressional Committees differences among the accounting and dig verification data are shared with in- capital standards established by the line inspection operators to the extent AGENCY: Office of the Comptroller of the agencies for insured depository consistent with the need to maintain Currency (OCC), Treasury; Board of institutions (institutions).1 proprietary and security-sensitive data Governors of the Federal Reserve In accordance with section 37(c), the in a confidential manner to improve System (Board); and Federal Deposit agencies are submitting this joint report, pipeline safety and inspection Insurance Corporation (FDIC). which covers differences among their technology; ACTION: Report to Congressional accounting or capital standards existing (b) Ways to encourage the exchange of Committees. as of September 30, 2017, applicable to pipeline inspection information and the institutions. In recent years, the daltland on DSKBBV9HB2PROD with NOTICES development of advanced pipeline SUMMARY: The OCC, the Board, and the agencies have acted together to inspection technologies and enhanced FDIC (collectively, the agencies) have harmonize their accounting and capital risk analysis; prepared this report pursuant to section standards and eliminate as many (c) Opportunities to share data, 37(c) of the Federal Deposit Insurance including dig verification data between Act. Section 37(c) requires the agencies 1 See 12 U.S.C. 1831n(c). This report must be operators of pipeline facilities and in- to jointly submit an annual report to the published in the Federal Register. See 12 U.S.C. line inspector vendors to expand Committee on Financial Services of the 1831n(c)(3). VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 PO 00000 Frm 00195 Fmt 4703 Sfmt 4703 E:\FR\FM\26JAN1.SGM 26JAN1

3868 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices differences as possible. As of September Differences in Capital Standards Among disqualify the loan from receiving a 50 30, 2017, the agencies have not the Federal Banking Agencies percent risk weight, and would apply a identified any material differences Below are summaries of the technical 100 percent risk weight to the loan. The among themselves in the accounting differences remaining among the capital change in risk weight would be reflected standards applicable to institutions. standards of the agencies’ capital rules.6 in the next quarterly Call Report. Thus, In 2013, the agencies revised the risk- the minor wording difference between Definitions the agencies should have no practical based and leverage capital rules for institutions (capital rules),2 which The agencies’ capital rules largely consequence. harmonized the agencies’ capital rules contain the same definitions.7 The Capital Components and Eligibility in a comprehensive manner.3 Only a differences that exist generally serve to Criteria for Regulatory Capital few differences remain, which are accommodate the different scope of Instruments statutorily mandated for certain jurisdiction of each agency. Set forth categories of institutions or which below are two definitional differences While the capital rules generally reflect certain technical, generally among the agencies. Each agency’s provide uniform eligibility criteria for nonmaterial differences among the definitional provisions provide that a regulatory capital instruments, there are agencies’ capital rules. ‘‘corporate exposure is an exposure to a two textual differences among the company that is not’’ one of 11 separate agencies’ capital rules. First, the OCC’s As revised in 2013, the agencies’ other types of exposures.8 The Board’s and FDIC’s capital rules require that capital rules generally have increased capital rule provides that two additional additional tier 1 capital instruments not the quantity and quality of regulatory items are not corporate exposures: a be subject to a ‘‘limit’’ imposed by the capital. For example, these revised policy loan and a separate account.9 contractual terms governing the capital rules include a minimum Unlike the OCC’s and FDIC’s capital instrument, while the Board’s capital common equity tier 1 capital ratio of 4.5 rules, the Board’s capital rule covers rule does not include this percent, raise the minimum tier 1 bank holding companies and savings requirement.14 Second, only the Board’s capital ratio from 4 percent to 6 percent, and loan holding companies, which capital rule states that ‘‘[s]tate member and establish additional capital buffer may engage in insurance underwriting banks are subject to certain other legal amounts for institutions: The capital activities 10 in which institutions cannot restrictions on reductions in capital conservation buffer, and, for advanced engage,11 and these additional items in resulting from cash dividends, approaches institutions,4 the the Board’s capital rule are relevant for including out of the capital surplus countercyclical capital buffer. These insurance underwriting activities. Thus, account, under 12 U.S.C. 324 and 12 revised capital rules also require all these additional items are only relevant CFR 208.5.’’ 15 The Board’s capital rule institutions to meet a 4 percent to bank holding companies and savings also includes similar language relating minimum leverage ratio measured as an and loan holding companies under the to distributions on additional tier 1 institution’s tier 1 capital to average terms of the Board’s capital rule. capital instruments.16 However, the total consolidated assets (generally The agencies’ capital rules also have agencies apply the criteria for applicable leverage ratio) and require differing definitions of a pre-sold determining eligibility of regulatory advanced approaches institutions to construction loan. All three agencies capital instruments to ensure consistent meet a 3 percent minimum provide that a pre-sold construction outcomes. supplementary leverage ratio, measured loan means any ‘‘one-to-four family as an institution’s tier 1 capital to the Capital Deductions residential construction loan to a sum of on- and off-balance sheet builder that meets the requirements of There is a technical difference exposures (supplementary leverage section 618(a)(1) or (2) of the Resolution between the FDIC’s capital rule and the ratio).5 Trust Corporation Refinancing, OCC’s and Board’s capital rules with Restructuring, and Improvement Act of regard to an explicit requirement for 2 See 78 FR 62018 (October 11, 2013) (final rule 1991 (12 U.S.C. 1831n), and, in addition deduction of examiner-identified losses. issued by the OCC and the Board); 78 FR 55340 The agencies require their examiners to (September 10, 2013) (interim final rule issued by to other criteria, the purchaser has not the FDIC). The FDIC later issued its final rule in 79 terminated the contract.’’ 12 The Board’s determine whether their respective FR 20754 (April 14, 2014). The agencies’ respective definition provides further clarification supervised institutions have capital rules are at 12 CFR part 3 (OCC), 12 CFR that, if a purchaser has terminated the appropriately identified losses. The part 217 (Board), and 12 CFR part 324 (FDIC). These FDIC’s capital rule, however, explicitly capital rules apply to institutions, as well as to contract, the institution must certain bank holding companies, and savings and immediately apply a 100 percent risk requires FDIC-supervised institutions to loan holding companies. 12 CFR 217.1(c). weight to the loan and report the revised deduct identified losses from common 3 The capital rules reflect the scope of each risk weight in the next quarterly Call equity tier 1 capital elements, to the agency’s regulatory jurisdiction. For example, the extent that the institution’s common Board’s capital rule includes requirements related Report.13 Similarly, if the purchaser has to bank holding companies, savings and loan terminated the contract, the OCC and equity tier 1 capital would have been holding companies, and state member banks, while FDIC capital rules would immediately reduced if the appropriate accounting the FDIC’s capital rule includes provisions for state entries had been recorded.17 Generally, nonmember banks and state savings associations, 6 Certain minor differences, such as terminology identified losses are those items that an and the OCC’s capital rule includes provisions for national banks and federal savings associations. specific to each agency for the institutions that they examiner determines to be chargeable supervise, are not included in this report. against income, capital, or general 4 Generally, these are institutions, bank holding 7 See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 companies, and savings and loan holding CFR 324.2 (FDIC). valuation allowances. daltland on DSKBBV9HB2PROD with NOTICES companies that are subject to the capital rules with 8 Id. For example, identified losses may total consolidated assets of $250 billion or more or 9 12 CFR 217.2. The Board’s rule separately include, among other items, assets total consolidated on-balance sheet foreign exposures of at least $10 billion. defines policy loan and separate account. Id. 10 78 FR 62127 (October 11, 2013). 14 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 5 Under the auspices of the Federal Financial Institutions Examination Council, the agencies have 11 See 12 U.S.C. 1831a. CFR 324.20 (FDIC). 12 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), 12 15 12 CFR 217.20. developed the Consolidated Reports of Condition and Income, or ‘‘Call Report,’’ where institutions CFR 324.2 (FDIC). 16 Id. report their respective capital and leverage ratios. 13 12 CFR 217.2. 17 12 CFR 324.22(a)(9). VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 PO 00000 Frm 00196 Fmt 4703 Sfmt 4703 E:\FR\FM\26JAN1.SGM 26JAN1

Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices 3869 classified as loss, off-balance-sheet 5(t)(2)(B) of HOLA, savings associations supplementary leverage ratio standards items classified as loss, any expenses are required to maintain tangible capital to the institution subsidiaries under that are necessary for the institution to in an amount not less than 1.5 percent their supervisory jurisdiction of a top- record in order to replenish its general of total assets.21 The capital rules of the tier bank holding company that has valuation allowances to an adequate OCC and the FDIC include a more than $700 billion in total assets or level, and estimated losses on requirement that covered savings more than $10 trillion in assets under contingent liabilities. The Board and the associations maintain a tangible capital custody.28 OCC expect their supervised institutions ratio of 1.5 percent.22 This statutory Dated: January 11, 2018. to promptly recognize examiner- requirement does not apply to banks Grace E. Dailey, identified losses, but the requirement is and, thus, there is no comparable Senior Deputy Comptroller and Chief, not explicit under their capital rules. regulatory provision for banks. The National Bank Examiner, Office of the Instead, the Board and the OCC apply distinction is of little practical Comptroller of the Currency. their supervisory authorities to ensure consequence, however, because under the Prompt Corrective Action (PCA) By order of the Board of Governors of the that their supervised institutions charge Federal Reserve System, January 11, 2018. off any identified losses. framework, all institutions are considered critically undercapitalized if Ann E. Misback, Subsidiaries of Savings Associations their tangible equity falls below 2 Secretary of the Board. There are special statutory percent of total assets.23 Generally Dated at Washington, DC, this 19th day of requirements for the agencies’ capital speaking, the appropriate federal January 2018. treatment of a savings association’s banking agency must appoint a receiver By order of the Board of Directors. investment in or credit to its within 90 days after an institution Federal Deposit Insurance Corporation. subsidiaries as compared with the becomes critically undercapitalized.24 Robert E. Feldman, capital treatment of such transactions Executive Secretary. Enhanced Supplementary Leverage between other types of institutions and Ratio [FR Doc. 2018–01434 Filed 1–25–18; 8:45 am] their subsidiaries. Specifically, the BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P Home Owners’ Loan Act (HOLA) The agencies adopted enhanced distinguishes between subsidiaries of supplementary leverage ratio standards savings associations engaged in that take effect beginning on January 1, 2018.25 These standards require certain UNITED STATES SENTENCING activities that are permissible for COMMISSION national banks and those engaged in bank holding companies to exceed a 5 activities that are not permissible for percent supplementary leverage ratio to Sentencing Guidelines for United national banks.18 When subsidiaries of a avoid limitations on distributions and States Courts savings association are engaged in certain discretionary bonus payments activities that are not permissible for and also require the subsidiary AGENCY: United States Sentencing national banks,19 the parent savings institutions of these bank holding Commission. association generally must deduct the companies to meet a 6 percent ACTION: Notice of proposed amendments parent’s investment in and extensions of supplementary leverage ratio to be to sentencing guidelines, policy credit to these subsidiaries from the considered ‘‘well capitalized’’ under the statements, and commentary. Request capital of the parent savings association. PCA framework.26 The rule text for public comment, including public If a subsidiary of a savings association establishing the scope of application for comment regarding retroactive engages solely in activities permissible the enhanced supplementary leverage application of any of the proposed for national banks, no deduction is ratio differs among the agencies. amendments. Notice of public hearing. required and investments in and loans However, the distinction is of little practical consequence at this time SUMMARY: Pursuant to section 994(a), to that organization may be assigned the because the rules of each agency apply (o), and (p) of title 28, United States risk weight appropriate for the the enhanced supplementary leverage Code, the United States Sentencing activity.20 As the appropriate federal ratio to the same set of bank holding Commission is considering banking agencies for federal and state companies. The Board applies the promulgating amendments to the savings associations, respectively, the enhanced supplementary leverage ratio sentencing guidelines, policy OCC and the FDIC apply this capital standards to bank holding companies statements, and commentary. This treatment to those types of institutions. identified as global systemically notice sets forth the proposed The Board’s regulatory capital important bank holding companies as amendments and, for each proposed framework does not apply to savings defined in 12 CFR 217.2 and those bank amendment, a synopsis of the issues associations and therefore does not holding companies’ Board-supervised, addressed by that amendment. This include this requirement. institution subsidiaries.27 The OCC and notice also sets forth several issues for Tangible Capital Requirement the FDIC apply enhanced comment, some of which are set forth Federal statutory law subjects savings together with the proposed associations to a specific tangible capital 21 See 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B). amendments, and one of which 22 See 12 CFR 3.10(a)(6) (OCC); 12 CFR requirement but does not similarly do so (regarding retroactive application of 324.10(a)(6) (FDIC). The Board’s regulatory capital with respect to banks. Under section framework does not apply to savings associations proposed amendments) is set forth in and, therefore, does not include this requirement. the SUPPLEMENTARY INFORMATION section 23 See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 of this notice. daltland on DSKBBV9HB2PROD with NOTICES 18 See 12 U.S.C. 1464(t)(5). 19 Subsidiaries engaged in activities not (OCC); 12 CFR 208.45 (Board); 12 CFR 324.403 DATES: (1) Written Public Comment.— permissible for national banks are considered non- (FDIC). 24 12 U.S.C. 1831o(h)(3)(A). Written public comment regarding the includable subsidiaries. 20 A deduction from capital is only required to the 25 See 79 FR 24528 (May 1, 2014). proposed amendments and issues for extent that the savings association’s investment 26 See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR comment set forth in this notice, exceeds the generally applicable thresholds for 208.43(b)(1)(iv)(B) (Board); 12 CFR 324.403(b)(1)(v) deduction of investments in the capital of an (FDIC). 28 See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR unconsolidated financial institution. 27 See 80 FR 49082 (August 14, 2015). 324.403(b)(1)(v) (FDIC). VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 PO 00000 Frm 00197 Fmt 4703 Sfmt 4703 E:\FR\FM\26JAN1.SGM 26JAN1


Document Created: 2018-10-26 10:05:22
Document Modified: 2018-10-26 10:05:22
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
ActionReport to Congressional Committees.
ContactOCC: Benjamin Pegg, Risk Expert, Capital Policy, (202) 649-7146, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
FR Citation83 FR 3867 
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