Notice2021-25159
Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2021; Report to Congressional Committees
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 18, 2021
Issuing agencies
Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance Corporation
Abstract
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) have prepared this report pursuant to section 37(c) of the Federal Deposit Insurance Act. Section 37(c) requires the agencies to jointly submit an annual report to the Committee on Financial Services of the U.S. House of Representatives and to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate describing differences among the accounting and capital standards used by the agencies for insured depository institutions (institutions).\1\ Section 37(c) requires that this report be published in the Federal Register. The agencies have not identified any material differences among the agencies' accounting and capital standards applicable to the insured depository institutions they regulate and supervise. ---------------------------------------------------------------------------
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 220 (Thursday, November 18, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 220 (Thursday, November 18, 2021)]
[Notices]
[Pages 64475-64477]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25159]
=======================================================================
-----------------------------------------------------------------------
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, 2021; 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.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies) have
prepared this report pursuant to section 37(c) of the Federal Deposit
Insurance Act. Section 37(c) requires the agencies to jointly submit an
annual report to the Committee on Financial Services of the U.S. House
of Representatives and to the Committee on Banking, Housing, and Urban
Affairs of the U.S. Senate describing differences among the accounting
and capital standards used by the agencies for insured depository
institutions (institutions).\1\ Section 37(c) requires that this report
be published in the Federal Register. The agencies have not identified
any material differences among the agencies' accounting and capital
standards applicable to the insured depository institutions they
regulate and supervise.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1831n(c)(1) and 12 U.S.C. 1831n(c)(3).
FOR FURTHER INFORMATION CONTACT:
OCC: Andrew Tschirhart, Risk Expert, Capital and Regulatory Policy,
(202) 649-6370, Rima Kundnani, Counsel, Chief Counsel's Office, (202)
649-5490, Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Andrew Willis, Manager, (202) 912-4323, Jennifer McClean,
Senior Financial Institution Policy Analyst II, (202) 785-6033,
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, (703) 245-
0778, Richard Smith, Capital Policy Analyst, Capital Policy Section,
(703) 254-0782, 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
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, 2021, applicable to
institutions.\2\ In recent years, the agencies have acted together to
harmonize their accounting and capital standards and eliminate as many
differences as possible. As of September 30, 2021, the agencies have
not identified any material differences among the agencies' accounting
standards applicable to institutions.
---------------------------------------------------------------------------
\2\ Although not required under section 37(c), this report
includes descriptions of certain of the Board's capital standards
applicable to depository institution holding companies where such
descriptions are relevant to the discussion of capital standards
applicable to institutions.
---------------------------------------------------------------------------
In 2013, the agencies revised the risk-based and leverage capital
rule for institutions (capital rule),\3\ which harmonized the agencies'
capital rule in
[[Page 64476]]
a comprehensive manner.\4\ Since 2013, the agencies have revised the
capital rule on several occasions, further reducing the number of
differences in the agencies' capital rule.\5\ Today, only a few
differences remain, which are statutorily mandated for certain
categories of institutions or which reflect certain technical,
generally nonmaterial differences among the agencies' capital rule. No
new material differences were identified in the capital standards
applicable to institutions in this report compared to the previous
report submitted by the agencies pursuant to section 37(c).
---------------------------------------------------------------------------
\3\ See 78 FR 62018 (October 11, 2013) (final rule issued by the
OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final
rule issued by the FDIC). The FDIC later issued its final rule in 79
FR 20754 (April 14, 2014). The agencies' respective capital rule is
at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 324
(FDIC). The capital rule applies to institutions, as well as to
certain bank holding companies and savings and loan holding
companies. See 12 CFR 217.1(c).
\4\ The capital rule reflects the scope of each agency's
regulatory jurisdiction. For example, the Board's capital rule
includes requirements related to 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.
\5\ See e.g., 84 FR 35234 (July 22, 2019). The OCC and FDIC
revised their capital rule to conform with language in the Board's
capital rule related to the qualification criteria for additional
tier 1 capital instruments and the definition of corporate
exposures. As a result, these differences, which were included in
previous reports submitted by the agencies pursuant to section
37(c), have been eliminated.
---------------------------------------------------------------------------
Differences in the Standards Among the Federal Banking Agencies
Differences in Accounting Standards
As of September 30, 2021, the agencies have not identified any
material differences among themselves in the accounting standards
applicable to institutions.
Differences in Capital Standards
The following are the remaining technical differences among the
capital standards of the agencies' capital rule.\6\
---------------------------------------------------------------------------
\6\ Certain minor differences, such as terminology specific to
each agency for the institutions that it supervises, are not
included in this report.
---------------------------------------------------------------------------
Definitions
The agencies' capital rule largely contains the same
definitions.\7\ The differences that exist generally serve to
accommodate the different needs of the institutions that each agency
charters, regulates, and/or supervises.
---------------------------------------------------------------------------
\7\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2
(FDIC).
---------------------------------------------------------------------------
The agencies' capital rule has differing definitions of a pre-sold
construction loan. The capital rule of all three agencies provides that
a pre-sold construction loan means any ``one-to-four family residential
construction loan to a builder that meets the requirements of section
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in
addition to other criteria, the purchaser has not terminated the
contract.'' \8\ The Board's definition provides further clarification
that, if a purchaser has terminated the contract, the institution must
immediately apply a 100 percent risk weight to the loan and report the
revised risk weight in the next quarterly Consolidated Reports of
Condition and Income (Call Report).\9\ Similarly, if the purchaser has
terminated the contract, the OCC and FDIC capital rule would
immediately disqualify the loan from receiving a 50 percent risk
weight, and would apply a 100 percent risk weight to the loan. The
change in risk weight would be reflected in the next quarterly Call
Report. Thus, the minor wording difference between the agencies should
have no practical consequence.
---------------------------------------------------------------------------
\8\ 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC).
\9\ 12 CFR 217.2.
---------------------------------------------------------------------------
Capital Components and Eligibility Criteria for Regulatory Capital
Instruments
While the capital rule generally provides uniform eligibility
criteria for regulatory capital instruments, there are some textual
differences among the agencies' capital rule. The capital rule of each
of the three agencies requires that, for an instrument to qualify as
common equity tier 1 or additional tier 1 capital, cash dividend
payments be paid out of net income and retained earnings, but the
Board's capital rule also allows cash dividend payments to be paid out
of related surplus.\10\ In addition, both the Board's capital rule and
the FDIC's capital rule include an additional sentence noting that
institutions regulated by each agency are subject to restrictions
independent of the capital rule on paying dividends out of surplus and/
or that would result in a reduction of capital stock.\11\ These
additional sentences do not create differences in substance between the
agencies' capital standards, but rather note that restrictions apply
under separate regulations.
---------------------------------------------------------------------------
\10\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board).
\11\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board); 12
CFR 324.20(b)(1)(v) and 324.20(c)(1)(viii) (FDIC). Although not
referenced in the capital rule, the OCC has similar restrictions on
dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain restrictions on the
payment of dividends that apply under separate regulations, and
therefore not discussed in this report, are different among the
agencies. Compare 12 CFR 208.5 (Board) and 12 CFR 5.64 (OCC) with 12
CFR 303.241 (FDIC).
---------------------------------------------------------------------------
The provision in the Board's capital rule that allows dividends to
be paid out of related surplus is a difference in substance among the
agencies' capital rule. However, due to the restrictions on
institutions regulated by the Board in separate regulations, this
additional language in the Board's rule has a practical impact only on
bank holding companies and savings and loan holding companies and is
not a difference as applied to institutions. The agencies apply the
criteria for determining eligibility of regulatory capital instruments
in a manner that ensures consistent outcomes for institutions.
In addition, the Board's capital rule includes a requirement that a
Board-regulated institution \12\ must obtain prior approval before
redeeming regulatory capital instruments.\13\ This requirement
effectively applies only to a bank holding company or a savings and
loan holding company and is, therefore, not included in the OCC and
FDIC capital rule. All three agencies require institutions to obtain
prior approval before redeeming regulatory capital instruments in other
regulations.\14\ The additional provision in the Board's capital rule,
therefore, only has a practical impact on bank holding companies and
savings and loan holding companies and is not a difference as applied
to institutions.
---------------------------------------------------------------------------
\12\ Board-regulated institution means a state member bank, bank
holding company, or savings and loan holding company. See 12 CFR
217.2.
\13\ 12 CFR 217.20(f); see also 12 CFR 217.20(b)(1)(iii).
\14\ See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5
(Board); 12 CFR 303.241 (FDIC).
---------------------------------------------------------------------------
Capital Deductions
There is a technical difference between the FDIC's capital rule and
the OCC's and Board's capital rule with regards to an explicit
requirement for deduction of examiner-identified losses. The agencies
require their examiners to determine whether their respective
supervised institutions have appropriately identified losses. The
FDIC's capital rule, however, explicitly requires FDIC-supervised
institutions to deduct identified losses from common equity tier 1
capital elements, to the extent that the institutions' common equity
tier 1 capital would have been reduced if the appropriate accounting
entries had been recorded.\15\ Generally, identified losses are those
items that an examiner determines to be chargeable against income,
capital, or general valuation allowances.
---------------------------------------------------------------------------
\15\ 12 CFR 324.22(a)(9).
---------------------------------------------------------------------------
For example, identified losses may include, among other items,
assets classified as loss, off-balance-sheet items classified as loss,
any expenses that are necessary for the institution to record in order
to replenish its general
[[Page 64477]]
valuation allowances to an adequate level, and estimated losses on
contingent liabilities. The Board and the OCC expect their supervised
institutions to promptly recognize examiner-identified losses, but the
requirement is not explicit under their capital rule. Instead, the
Board and the OCC apply their supervisory authorities to ensure that
their supervised institutions charge off any identified losses.
Subsidiaries of Savings Associations
There are special statutory requirements for the agencies' capital
treatment of a savings association's investment in or credit to its
subsidiaries as compared with the capital treatment of such
transactions between other types of institutions and their
subsidiaries. Specifically, the Home Owners' Loan Act (HOLA)
distinguishes between subsidiaries of savings associations engaged in
activities that are permissible for national banks and those engaged in
activities that are not permissible for national banks.\16\
---------------------------------------------------------------------------
\16\ 12 U.S.C. 1464(t)(5).
---------------------------------------------------------------------------
When subsidiaries of a savings association are engaged in
activities that are not permissible for national banks,\17\ 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.\18\ 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.
---------------------------------------------------------------------------
\17\ Subsidiaries engaged in activities not permissible for
national banks are considered non-includable subsidiaries.
\18\ A deduction from capital is only required to the extent
that the savings association's investment exceeds the generally
applicable thresholds for deduction of investments in the capital of
an unconsolidated financial institution.
---------------------------------------------------------------------------
Tangible Capital Requirement
Federal 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.\19\ The capital rule of the OCC and the FDIC
includes a requirement that savings associations maintain a tangible
capital ratio of 1.5 percent.\20\ 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.\21\ Generally
speaking, the appropriate federal banking agency must appoint a
receiver within 90 days after an institution becomes critically
undercapitalized.\22\
---------------------------------------------------------------------------
\19\ 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
\20\ 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.
\21\ 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).
\22\ 12 U.S.C. 1831o(h)(3)(A).
---------------------------------------------------------------------------
Enhanced Supplementary Leverage Ratio
The agencies adopted enhanced supplementary leverage ratio
standards that took effect beginning on January 1, 2018.\23\ 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.\24\ The rule text establishing the scope of
application for the enhanced supplementary leverage ratio differs among
the agencies. The Board and the FDIC apply the enhanced supplementary
leverage ratio standards for institutions based on parent bank holding
companies being identified as global systemically important bank
holding companies as defined in 12 CFR 217.2.\25\ The OCC applies
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.\26\
---------------------------------------------------------------------------
\23\ See 79 FR 24528 (May 1, 2014).
\24\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 208.43(b)(1)(iv)(B)
(Board); 12 CFR 324.403(b)(1)(v) (FDIC).
\25\ 12 CFR 208.43(b)(1)(iv)(B) (Board); 12 CFR
324.403(b)(1)(ii) (FDIC).
\26\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC).
Michael J. Hsu,
Acting Comptroller of the Currency.
Board of Governors of the Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on November 8, 2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021-25159 Filed 11-17-21; 8:45 am]
BILLING CODE P
</pre></body>
</html>Indexed from Federal Register on November 18, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.