[Federal Register Volume 85, Number 134 (Monday, July 13, 2020)]
[Notices]
[Pages 42069-42071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14991]
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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 December 31, 2019; 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 for insured
depository institutions. Section 37(c) requires that this report be
published in the Federal Register. The agencies have not identified any
material differences among the agencies' accounting and capital
standards applicable to the insured depository institutions they
regulate and supervise.
FOR FURTHER INFORMATION CONTACT:
OCC: Andrew Tschirhart, Risk Expert, Capital Policy, (202) 649-
6370, Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Juan Climent, Manager, Capital and Regulatory Policy, (202)
872-7526, and Donald Gabbai, Lead Financial Institution Policy Analyst,
(202) 452-3358, 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, Richard Smith, Capital Policy Analyst, Capital Policy Section,
(202) 898-6931, 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)(1). 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 December 31, 2019, applicable to
institutions.\2\ In recent years, the
[[Page 42070]]
agencies have acted together to harmonize their accounting and capital
standards and eliminate as many differences as possible. As of December
31, 2019, the agencies have not identified any material differences
among the agencies' accounting standards applicable to institutions.
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\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.
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In 2013, the agencies revised the risk-based and leverage capital
rules for institutions (capital rules),\3\ which harmonized the
agencies' capital rules in a comprehensive manner.\4\ Since 2013, the
agencies have revised the capital rules on several occasions, further
reducing the number of differences in the agencies' capital rules.\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 rules. 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).
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\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 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. See 12 CFR 217.1(c).
\4\ 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.
\5\ See e.g., 84 FR 35234 (July 22, 2019). The OCC and FDIC
revised their capital rules 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
the previous report submitted by the agencies pursuant to section
37(c), have been eliminated.
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Differences in Accounting Standards Among the Federal Banking Agencies
As of December 31, 2019, the agencies have not identified any
material differences among themselves in the accounting standards
applicable to institutions.
Differences in Capital Standards Among the Federal Banking Agencies
The following are the remaining technical differences 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 it supervises, 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 needs of the institutions that each agency
charters, regulates, and/or supervises.
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\7\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2
(FDIC).
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The agencies' capital rules have differing definitions of a pre-
sold construction loan. The capital rules of 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.'' \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 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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\8\ 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC).
\9\ 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 some textual
differences among the agencies' capital rules. All three agencies'
capital rules require 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. 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 rules. 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.
As a result, the agencies apply the criteria for determining
eligibility of regulatory capital instruments in a manner that ensures
consistent outcomes for institutions.
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\10\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board).
\11\ See 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; see 12 CFR 5.55 and 12 CFR 5.63.
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In addition, the Board's capital rule includes a requirement that a
bank holding company or a savings and loan holding company must obtain
prior approval before redeeming regulatory capital instruments.\12\
This requirement 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 rules. However, all three agencies require institutions to
obtain prior approval before redeeming regulatory capital
instruments.\13\ The additional provision in the Board's 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.
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\12\ 12 CFR 217.20(f).
\13\ See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5
(Board); 12 CFR 303.241 and 12 CFR 390.345 (incorporated into 12 CFR
303.241, effective Feb. 20, 2020 (85 FR 3232 (Jan. 21, 2020)))
(FDIC).
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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.
[[Page 42071]]
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.\14\ Generally, identified losses
are those items that an examiner determines to be chargeable against
income, capital, or general valuation allowances.
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\14\ 12 CFR 324.22(a)(9).
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For example, identified losses may include, among other items,
assets classified as loss, off-balance-sheet items classified as loss,
any expenses that are necessary for the institution to record in order
to replenish its general valuation allowances to an adequate level, and
estimated losses on contingent liabilities. The Board and the OCC
expect their supervised institutions to promptly recognize examiner-
identified losses, but the requirement is not explicit under their
capital 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.\15\ When
subsidiaries of a savings association are engaged in activities that
are not permissible for national banks,\16\ 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.\17\ 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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\15\ See 12 U.S.C. 1464(t)(5).
\16\ Subsidiaries engaged in activities not permissible for
national banks are considered non-includable subsidiaries.
\17\ 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.\18\ The capital rules of the OCC and the FDIC
include a requirement that savings associations maintain a tangible
capital ratio of 1.5 percent.\19\ 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.\20\ Generally
speaking, the appropriate federal banking agency must appoint a
receiver within 90 days after an institution becomes critically
undercapitalized.\21\
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\18\ See 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
\19\ 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.
\20\ 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).
\21\ 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 took effect beginning on January 1, 2018.\22\ 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.\23\ The rule text establishing the scope of
application for the enhanced supplementary leverage ratio differs among
the agencies. 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.\24\ 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.\25\ The distinction is of little practical
consequence at this time because the set of bank holding companies
identified by each agency's regulations is the same.
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\22\ See 79 FR 24528 (May 1, 2014).
\23\ 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).
\24\ See 80 FR 49082 (August 14, 2015).
\25\ See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 324.403(b)(1)(v)
(FDIC).
Brian P. Brooks,
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 or about July 2, 2020.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2020-14991 Filed 7-10-20; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P