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Financial Institution Letters



[Federal Register: October 1, 2003 (Volume 68, Number 190)]
[Rules and Regulations]               
[Page 56530-56537]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc03-4]                         

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. 03-21]
RIN 1557-AC76

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1156]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AC74

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[No. 2003-48]
RIN 1550-AB79

 
Risk-Based Capital Guidelines; Capital Adequacy Guidelines; 
Capital Maintenance: Interim Capital Treatment of Consolidated Asset-
Backed Commercial Paper Program Assets

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: Interim final rule with a request for comments.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of 
Governors of the Federal Reserve System (Board), Federal Deposit 
Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS) 
(collectively, the agencies) are amending their risk-based capital 
standards by providing an interim capital treatment for assets in 
asset-backed commercial paper (ABCP) programs that are consolidated 
onto the balance sheets of sponsoring banks, bank holding companies, 
and thrifts (collectively, sponsoring banking organizations) as a 
result of a recently issued accounting interpretation, Financial 
Accounting Standards Board Interpretation No. 46, Consolidation of 
Variable Interest Entities (FIN 46). The interim capital treatment 
allows sponsoring banking organizations to remove the

[[Page 56531]]

consolidated ABCP program assets from their risk-weighted asset bases 
for the purpose of calculating their risk-based capital ratios. 
Sponsoring banking organizations must continue to hold risk-based 
capital against all other risk exposures arising in connection with 
ABCP programs, including direct credit substitutes, recourse 
obligations, residual interests, long-term liquidity facilities, and 
loans, in accordance with each agency's existing risk-based capital 
standards. In addition, any minority interests in ABCP programs that 
are consolidated as a result of FIN 46 are to be excluded from 
sponsoring banking organizations' minority interest component of tier 1 
capital and, hence, from total risk-based capital.
    This interim capital treatment will be applicable only for the 
regulatory reporting periods ending September 30 and December 31, 2003, 
and March 31, 2004. In addition, this interim capital treatment does 
not alter the accounting rules for balance sheet consolidation nor does 
it affect the denominator of the tier 1 leverage capital ratio 
calculation, which continues to be based primarily on on-balance sheet 
assets as reported under generally accepted accounting principles 
(GAAP). Thus, as a result of FIN 46, banking organizations must include 
all assets of consolidated ABCP programs in on-balance sheet assets for 
purposes of calculating the tier 1 leverage capital ratio.
    The agencies also have issued a related notice of proposed 
rulemaking published elsewhere in today's Federal Register, in which 
the agencies are soliciting comments on a permanent risk-based capital 
treatment for the risks arising from ABCP programs.

DATES: This interim final rule is effective October 1, 2003. Comments 
on the interim final rule must be received by November 17, 2003.

ADDRESSES: Comments should be directed to:
    OCC: You should send comments to the Public Information Room, 
Office of the Comptroller of the Currency, Mailstop 1-5, Attention: 
Docket No. 03-21, 250 E Street, SW., Washington, DC 20219. Due to 
delays in the delivery of paper mail in the Washington area and at the 
OCC, commenters are encouraged to submit comments by fax or e-mail. 
Comments may be sent by fax to (202) 874-4448, or by e-mail to regs.comments@occ.treas.gov. 
You can make an appointment to inspect and photocopy the comments by calling the 
Public Information Room at (202) 874-5043.
    Board: Comments should refer to Docket No. R-1156 and may be mailed 
to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th and Constitution Avenue, NW., Washington, 
DC 20551. However, because paper mail in the Washington area and at the 
Board of Governors is subject to delay, please consider submitting your comments by
e-mail to regs.comments@federalreserve.gov, or faxing them 
to the Office of the Secretary at 202/452-3819 or 202/452-3102. Members 
of the public may inspect comments in Room MP-500 of the Martin 
Building between 9 a.m. and 5 p.m. weekdays pursuant to Sec.  261.12, 
except as provided in Sec.  261.14, of the Board's Rules Regarding 
Availability of Information, 12 CFR 261.12 and 261.14.
    FDIC: Written comments should be addressed to Robert E. Feldman, 
Executive Secretary, Attention: Comments, Federal Deposit Insurance 
Corporation, 550 17th Street, NW., Washington, DC 20429. Comments also 
may be hand delivered to 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. Comments may be inspected and photocopied in the FDIC Public 
Information Center, Room 100, 801 17th Street, NW., Washington, DC, 
between 9 a.m. and 4:30 p.m. on business days.
    OTS: Send comments to Regulation Comments, Chief Counsel's Office, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: No. 2003-48.
    Delivery: Hand deliver comments to the 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, Attention: No. 
2003-48.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention: No. 2003-48.    E-Mail: Send e-mails to regs.comments@ots.treas.gov, 
Attention: No. 2003-48 and include your name and telephone number. Due to temporary 
disruptions in mail service in the Washington, DC area, commenters are 
encouraged to send comments by fax or e-mail, if possible.
    Availability of comments: OTS will post comments and the related 
index on the OTS Internet Site at 
http://www.ots.treas.gov. 
In addition, you may inspect comments at the Public Reading Room, 1700 G 
Street, NW., by appointment. To make an appointment for access, call (202) 906-5922, send 
an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906-7755. (Please identify the 
materials you would like to inspect to assist us in serving you.) We 
schedule appointments on business days between 10 a.m. and 4 p.m. In 
most cases, appointments will be available the business day after the 
date we receive a request.

FOR FURTHER INFORMATION CONTACT:
    OCC: Amrit Sekhon, Risk Expert, Capital Policy Division, (202) 874-
5211; Mauricio Claver-Carone, Attorney, or Ron Shimabukuro, Special 
Counsel, Legislative and Regulatory Activities Division, (202) 874-
5090, Office of the Comptroller of the Currency, 250 E Street, SW., 
Washington, DC 20219.
    Board: Thomas R. Boemio, Senior Supervisory Financial Analyst, 
(202) 452-2982, David Kerns, Supervisory Financial Analyst, (202) 452-
2428, Barbara Bouchard, Assistant Director, (202) 452-3072, Division of 
Banking Supervision and Regulation; or Mark E. Van Der Weide, Counsel, 
(202) 452-2263, Legal Division. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
    FDIC: Jason C. Cave, Chief, Policy Section, Capital Markets Branch, 
(202) 898-3548, Robert F. Storch, Chief Accountant, Division of 
Supervision and Consumer Protection, (202) 898-8906; Michael B. 
Phillips, Counsel, Supervision and Legislation Branch, Legal Division, 
(202) 898-3581, Federal Deposit Insurance Corporation, 550 17th Street, 
NW., Washington, DC 20429.
    OTS: Michael D. Solomon, Senior Program Manager for Capital Policy, 
(202) 906-5654, David W. Riley, Project Manager, Supervision Policy, 
(202) 906-6669; or Teresa A. Scott, Counsel (Banking and Finance), 
(202) 906-6478, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    An asset-backed commercial paper (ABCP) program typically is a 
program through which a banking organization provides funding to its 
corporate customers by sponsoring and administering a bankruptcy-remote 
special purpose entity that purchases asset pools from, or extends 
loans to, those customers. The asset pools in an ABCP program may 
include, for example, trade receivables, consumer loans, or asset-
backed securities. The ABCP program raises cash to provide funding to 
the banking organization's customers through the issuance of commercial 
paper into the market. Typically, the sponsoring banking organization 
provides liquidity and credit enhancements to the ABCP program, which 
aids the program in obtaining high quality credit ratings that

[[Page 56532]]

facilitate the issuance of the commercial paper.\1\
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    \1\ For the purposes of this rulemaking, a banking organization 
is considered the sponsor of an ABCP program if it establishes the 
program, approves the sellers permitted to participate in the 
program; approves the asset pools to be purchased by the program; or 
administers the ABCP program by monitoring the assets, arranging for 
debt placement, compiling monthly reports, or ensuring compliance 
with the program documents and with the program's credit and 
investment policy.
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    In January 2003, the Financial Accounting Standards Board (FASB) 
issued interpretation No. 46, "Consolidation of Variable Interest 
Entities" (FIN 46), requiring the consolidation of variable interest 
entities (VIEs) onto the balance sheets of companies deemed to be the 
primary beneficiaries of those entities.\2\ FIN 46 may result in the 
consolidation of many ABCP programs onto the balance sheets of banking 
organizations beginning in the third quarter of 2003. In contrast, 
under pre-FIN 46 accounting standards, banking organizations normally 
have not been required to consolidate the assets of these programs. 
Banking organizations that are required to consolidate ABCP program 
assets will have to include all of these program assets (mostly 
receivables and securities) and liabilities (mainly commercial paper) 
on their September 30, 2003 balance sheets for purposes of the bank 
Reports of Condition and Income (Call Report), the Thrift Financial 
Report (TFR), and the bank holding company financial statements (FR Y-
9C Report). If no changes were made to regulatory capital standards, 
the resulting increase in the asset base would lower both the tier 1 
leverage and risk-based capital ratios of banking organizations that 
must consolidate the assets held in ABCP programs.
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    \2\ Under FIN 46, the FASB broadened the criteria for 
determining when one entity is deemed to have a controlling 
financial interest in another entity and, therefore, when an entity 
must consolidate another entity in its financial statements. An 
entity generally does not need to be analyzed under FIN 46 if it is 
designed to have "adequate capital" as described in FIN 46 and its 
shareholders control the entity with their share votes and are 
allocated its profits and losses. If the entity fails these 
criteria, it typically is deemed a VIE and each stakeholder in the 
entity (a group that can include, but is not limited to, legal-form 
equity holders, creditors, sponsors, guarantors, and servicers) must 
access whether it is the entity's "primary beneficiary" using the 
FIN 46 criteria. This analysis considers whether effective control 
exists by evaluating the entity's risks and rewards. The stakeholder 
who holds the majority of the entity's risks or rewards is the 
primary beneficiary and must consolidate the VIE.
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    The agencies believe that the consolidation of ABCP program assets 
onto the balance sheets of sponsoring banking organizations could 
result in risk-based capital requirements that do not appropriately 
reflect the risks faced by banking organizations that sponsor these 
programs. The agencies believe that sponsoring banking organizations 
generally face limited risk exposure to ABCP programs, which generally 
is confined to the credit enhancements and liquidity facility 
arrangements that they provide to these programs. In addition, 
operational controls and structural provisions, along with 
overcollateralization or other credit enhancements provided by the 
companies that sell assets into ABCP programs can further mitigate the 
risk to which sponsoring banking organizations are exposed. Because of 
the limited risks, the agencies believe that it is appropriate to 
provide an interim risk-based capital treatment that permits sponsoring 
banking organizations to exclude from risk-weighted assets, on a 
temporary basis, assets held by ABCP programs that must be consolidated 
onto the balance sheets of sponsoring banking organizations as a result 
of FIN 46.
    The period during which the interim rule is in effect will provide 
the agencies with additional time to develop the appropriate risk-based 
capital requirements for banking organizations' sponsorship and other 
involvement with ABCP programs and to receive comments from the 
industry on a related proposal also published in today's Federal 
Register.

II. Interim Risk-Based Capital and Regulatory Reporting Treatment

    The agencies are amending their risk-based capital standards to 
permit sponsoring banking organizations to exclude the assets of ABCP 
programs that must be consolidated under FIN 46 from risk-weighted 
assets when they calculate their tier 1 and total risk-based capital 
ratios for the quarters ending September 30, 2003, December 31, 2003, 
and March 31, 2004. Sponsoring banking organizations must continue to 
assess risk-based capital against any credit enhancements or long-term 
liquidity facilities that they provide to such ABCP programs. For 
example, banking organizations that sponsor ABCP programs generally 
assign any investment-grade equivalent credit enhancements that they 
provide to these programs to the 100 percent risk weight category.\3\ 
Most liquidity facilities currently provided to ABCP programs are 
structured with a maturity of less than one year and, under the 
agencies' current risk-based capital rules, do not incur a capital 
charge.
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    \3\ Under the agencies' risk-based capital standards, banking 
organizations may, subject to supervisory approval, use their 
internal risk ratings system to assess the credit quality of non-
rated direct credit substitutes provided to ABCP programs in order 
to determine the appropriate risk-based capital charge. Direct 
credit substitutes provided to ABCP programs that are the equivalent 
of nono-investment grade are assigned to either the 200 percent risk 
weight category or effectively deducted from risk-based capital.
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    Under this interim rule, for the third and fourth quarters of 2003, 
as well as for the first quarter of 2004, when reporting items 34 
through 43 on Schedule RC-R (Regulatory Capital) of the Call Report and 
Schedule HC-R (Regulatory Capital) of the FR Y-9C, any consolidated 
ABCP program assets resulting from application of FIN 46 are to be 
reported in column A, "Totals (from Schedule RC)," as well as in 
column B, "Items not Subject to Risk-Weighting." With respect to the 
TFR, thrifts should not include the subject program assets in any of 
the lines for assets to risk weight on Schedule CCR that comprise the 
subtotal on line CCR64.
    Reporting in this manner will exclude the ABCP program assets from 
incorporation into the calculation of the risk-based capital ratios. 
Banking organizations should continue to report the notional amounts of 
any credit enhancements and liquidity facilities provided to ABCP 
programs in the risk-based capital schedule line items in which these 
exposures would be properly reported as of the June 30, 2003 reporting 
date. In addition, credit enhancements and liquidity facilities that 
sponsoring banking organizations provide to their ABCP programs are to 
be reported in Memorandum items 3.a.(1) and 3.b.(1) of Schedule RC-S 
(Servicing, Securitization, and Asset Sale Activities) of the Call 
Report and Schedule HC-S (Servicing, Securitization, and Asset Sale 
Activities) of the FR Y-9C consolidated reports, respectively. Thrifts 
should include any related credit enhancements on Schedule CC, lines 
CC455, CC465, or CC468, as appropriate.
    In addition, any minority interests in ABCP programs that are 
consolidated as a result of FIN 46 are to be excluded from sponsoring 
banking organizations' minority interest component of tier 1 capital 
and, hence, also from total risk-based capital. Exclusion from capital 
of any minority interests associated with consolidated ABCP programs is 
required when the programs' assets are not included in an 
organization's risk-weighted asset base and, thus, are not assessed a 
risk-based capital charge. When sponsoring banking organizations report 
item 6, "Qualifying minority interest in consolidated subsidiaries," 
of

[[Page 56533]]

Schedule RC-R of the Call Report and Schedule HC-R of the FR Y-9C, they 
should exclude the amount of minority interest associated with such 
consolidated ABCP programs. With respect to the TFR, when sponsoring 
savings associations report on line CCR125, "Minority Interest in 
Includable Consolidated Subsidiaries," of Schedule CCR, they should 
exclude the amount of minority interest associated with such 
consolidated ABCP programs.
    This interim risk-based capital (and the associated regulatory 
capital reporting) treatment will expire on April 1, 2004. If the 
agencies have not implemented an alternative risk-based capital 
approach for banking organizations that sponsor ABCP programs prior to 
the expiration of the interim treatment, then sponsoring banking 
organizations will be required to subject ABCP program assets that are 
consolidated under FIN 46 to the applicable risk-based capital 
treatment for on-balance sheet assets. The agencies reserve the 
authority to require sponsoring banking organizations to hold an 
alternative amount of risk-based capital against ABCP program assets at 
any time during the period this interim treatment is in effect in the 
event that an agency determines that the application of these risk-
based capital requirements does not adequately address the risks 
present in a sponsoring banking organization's involvement with an ABCP 
program.
    This interim risk-based capital treatment has no bearing on the 
accounting requirements as established by GAAP or the manner in which 
banking organizations report consolidated on-balance sheet assets. In 
addition, the interim capital treatment does not affect the denominator 
of the tier 1 leverage capital ratio calculation, which will continue 
to be based primarily on on-balance sheet assets as reported under 
GAAP. Thus, in accordance with FIN 46, banking organizations must 
include all assets of consolidated ABCP programs in on-balance sheet 
assets for purposes of calculating the tier 1 leverage capital ratio. 
In addition, in contrast to many other cases where minority interest in 
consolidated subsidiaries may be included as a component of tier 1 
capital and, hence, incorporated into the tier 1 leverage capital ratio 
calculation, minority interest related to sponsoring banking 
organizations' ABCP program assets consolidated as a result of FIN 46 
are not included in tier 1 capital. Thus, the reported tier 1 leverage 
capital ratio for a sponsoring banking organization will be lower than 
if only its ABCP program assets were consolidated. However, the 
agencies anticipate that the exclusion of minority interests related to 
consolidated ABCP program assets will not significantly affect the tier 
1 leverage capital ratio of sponsoring banking organizations because 
the equity in ABCP programs generally is small relative to the capital 
levels of sponsoring banking organizations.
    The agencies seek comment on all aspects of the interim rule. In a 
related notice of proposed rulemaking published elsewhere in today's 
Federal Register, the agencies are soliciting comments on the removal 
of the April 1, 2004 sunset provision contained in this interim final 
rule so that assets of ABCP programs consolidated under FIN 46 and any 
associated minority interest would continue to be excluded from risk-
weighted assets and tier 1 capital, respectively, of sponsoring banking 
organizations for purposes of calculating the risk-based capital 
ratios. The proposed elimination of the sunset provision is conditional 
upon the agencies implementing appropriate risk-based capital 
requirements for all risk exposures arising from ABCP programs.
    Thus, the agencies also have proposed that liquidity facilities 
with an original maturity of one year or less that banking 
organizations provide to ABCP programs be converted to on-balance sheet 
credit equivalent amounts using the 20 percent credit conversion factor 
(as opposed to the existing zero percent credit conversion factor) and 
assigned to the appropriate risk weight category according to the 
underlying assets or obligor, after consideration of any guarantees or 
collateral, or external credit ratings if the risk exposure is an 
asset-or mortgage-backed security. In general, this capital requirement 
on short-term liquidity facilities would be in addition to existing 
risk-based capital requirements for credit enhancements provided to 
ABCP programs.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
agencies have determined that this interim rule would not have a 
significant impact on a substantial number of small entities in 
accordance with the spirit and purposes of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory flexibility 
analysis is not required. In addition, the interim rule would reduce 
regulatory burden with respect to the agencies' risk-based capital 
standards.

Administrative Procedure Act

    Pursuant to section 553 of the Administrative Procedure Act, 5 
U.S.C. 553, the agencies find good cause for issuing this interim rule 
in advance of the receipt of comments from interested parties. The 
agencies believe that it is important to make this interim final rule 
effective before banking organizations must calculate their regulatory 
risk-based capital ratios at the end of the third quarter 2003. If ABCP 
program assets are consolidated under FIN 46, then the resulting 
capital requirement might not be commensurate with the risk inherent in 
sponsoring banking organizations' involvement with such programs. The 
agencies are seeking public comment on the interim final rule and, in a 
related notice of proposed rulemaking, are seeking comment on an 
alternative risk-based capital treatment for the risk exposures arising 
from this activity.
    In addition, under section 553(d)(3) of the Administrative 
Procedure Act, an agency may issue an interim rule or a final rule 
without delaying its effective date for 30 days from the date of 
publication if the agency finds good cause and publishes its finding 
with the rule. The agencies have determined that the issuance of this 
interim rule without delaying its effective date for 30 days from the 
date of publication will provide certainty for banking organizations in 
calculating their regulatory capital ratios for the third quarter 2003.

Paperwork Reduction Act

    The agencies have determined that this interim rule does not 
involve a collection of information pursuant to the provisions of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

Unfunded Mandates Reform Act of 1995

    OCC: Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. 
L. 104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. This interim rule is designed 
to temporarily offset the effect on risk-based capital ratios of FIN 46 
with

[[Page 56534]]

respect to ABCP programs. The OCC has determined that this interim rule 
will not result in expenditures by state, local, or tribal governments, 
or by the private sector, of $100 million or more in any one year. 
Accordingly, Section 202 of the Unfunded Mandates Act does not require 
the OCC to prepare a budgetary impact statement for this rule.
    OTS: Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. 
L. 104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. OTS has determined that this 
interim rule will not result in expenditures by state, local, or tribal 
governments, or by the private sector, of $100 million or more in any 
one year. Accordingly, section 202 of the Unfunded Mandates Act does 
not require the OTS to prepare a budgetary impact statement for this 
rule.

Plain Language

    Section 722 of the Gramm-Leach-Bliley (GLB) Act requires the 
Federal banking 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 interim final rule 
in a simple and straightforward manner. The agencies invite comments on 
whether there are additional steps the agencies could take to make the 
rule easier to understand.

List of Subjects

12 CFR Part 3

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

12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Crime, Currency, Federal Reserve System, Mortgages, 
Reporting and recordkeeping requirements, Securities.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 325

    Administrative practice and procedure, Bank deposit insurance, 
Banks, banking, Capital adequacy, Reporting and recordkeeping 
requirements, Savings associations, State non-member banks.

12 CFR Part 567

    Capital, Reporting and recordkeeping requirements, Savings 
associations.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter 1

Authority and Issuance

0
For the reasons set out in the joint preamble, part 3 of chapter I of 
title 12 of the Code of Federal Regulations is amended as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
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.

0
2. In Appendix A to part 3:
0
a. In section 1, paragraphs (c)(3) through (c)(35) are redesignated as 
paragraphs (c)(4) through (c)(36); newly redesignated paragraphs 
(c)(30) through (c)(36) are redesignated (c)(31) through (c)(37); and 
two new paragraphs (c)(3) and (c)(30) are added;
0
b. In section 2, paragraph (a)(3) is revised; and
0
c. In section 4, two new paragraphs (j) and (k) are added.

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

Section 1. Purpose, Applicability of Guidelines, and Definitions.

* * * * *
    (c) * * *
    (3) Asset-backed commercial paper program means a program that 
issues commercial paper backed by assets or other exposures held in 
a bankruptcy-remote special purpose entity.
* * * * *
    (30) Sponsor means a bank that:
    (i) Establishes an asset-backed commercial paper program;
    (ii) Approves the sellers permitted to participate in the asset-
backed commercial paper program;
    (iii) Approves the asset pools to be purchased by the asset-
backed commercial paper program; or
    (iv) Administers the asset-backed commercial paper program by 
monitoring the assets, arranging for debt placement, compiling 
monthly reports, or ensuring compliance with the program documents 
and with the program's credit and investment policy.
* * * * *

Section 2. Components of Capital.

* * * * *
    (a) * * *
    (3) Minority interests in the equity accounts of consolidated 
subsidiaries, except that the following are not included in Tier 1 
capital or total capital:
    (i) Minority interests in a small business investment company or 
investment fund that holds nonfinancial equity investments and 
minority interests in a subsidiary that is engaged in nonfinancial 
activities and is held under one of the legal authorities listed in 
section 1(c)(21) of this appendix A.
    (ii) Minority interests in consolidated asset-backed commercial 
paper programs sponsored by a bank if the consolidated assets are 
excluded from risk-weighted assets pursuant to section 4(j)(1) of 
this appendix A. This section 2(a)(3)(ii) of this appendix A is 
effective from July 1, 2003 to April 1, 2004.
* * * * *

Section 4. Recourse, Direct Credit Substitutes and Positions in 
Securitizations

* * * * *
    (j) Asset-backed commercial paper programs subject to 
consolidation. (1) A bank that qualifies as a primary beneficiary 
and must consolidate an asset-backed commercial paper program as a 
variable interest entity under generally accepted accounting 
principles may exclude the consolidated asset-backed commercial 
paper program assets from risk-weighted assets if the bank is the 
sponsor of the consolidated asset-backed commercial paper program.
    (2) If a bank excludes such consolidated asset-backed commercial 
paper program assets from risk-weighted assets, the bank must assess 
the appropriate risk-based capital charge against any risk exposures 
of the bank arising in connection with such asset-backed commercial 
paper programs, including direct credit substitutes, recourse 
obligations, residual interests, liquidity facilities, and loans, in 
accordance with sections 3 and 4(b) of this appendix A.
    (3) If a bank either elects not to exclude such consolidated 
asset-backed commercial paper program assets from its risk-weighted 
assets in accordance with section 4(j)(1) of this appendix A, or is 
not permitted to exclude consolidated asset-backed commercial paper 
program assets, the bank must assess risk-based capital charge based 
on the appropriate risk weight of the consolidated asset-backed 
commercial paper program assets in accordance with section 3(a) of 
this appendix A. In such case, direct credit substitutes and 
recourse obligations (including residual interests), and loans that 
sponsoring banks provide to such asset-backed commercial paper 
programs are not subject to any capital charge under section 4 of 
this appendix A.
    (4) This section (4)(j) of this appendix A is effective from 
July 1, 2003 until April 1, 2004.

[[Page 56535]]

    (k) Other variable interest entities subject to consolidation. 
(1) If a bank that is required to consolidated the assets of a 
variable interest entity under generally accepted accounting 
principles, the bank must assess risk-based capital charge based on 
the appropriate risk weight of the consolidated assets in accordance 
with section 3(a) of this appendix A. In such case, direct credit 
substitutes and recourse obligations (including residual interests), 
and loans that sponsoring banks provide to such asset-backed 
commercial paper programs are not subject to any capital charge 
under section 4 of this appendix A.
    (2) This section 4(k) of this appendix A is effective from July 
1, 2003 until April 1, 2004.
* * * * *

    Dated: September 4, 2003.
John D. Hawke, Jr.
Comptroller of the Currency.

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

0
For the reasons set forth in the joint preamble, the Board of Governors 
of the Federal Reserve System amends 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)

0
1. The authority citation for part 208 continues to read as follows:

    Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882, 
2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 
78l(b), 78l(g), 78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C. 
5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.


0
2. In Appendix A to part 208, the following amendments are made:
0
a. In section II.A.1.c., Minority interest in equity accounts of 
consolidated subsidiaries, two new sentences are added at the end of 
the paragraph.
0
b. In section III.B--
0
i. In paragraph 3.a., paragraphs xiv. and xv. are redesignated xv. and 
xvi.;
0
ii. In paragraph 3.a., a new paragraph xiv., Sponsor, is added; and
0
iii. A new paragraph 6 is added at the end of section II. B.

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

* * * * *
    II. * * *
    A. * * *
    1. * * *
    c. * * * In addition, minority interests in consolidated asset-
backed commercial paper programs (as defined in section III.B.6. of 
this appendix) that are sponsored by a bank are not to be included 
in the bank's Tier 1 or total capital base if the bank excludes the 
consolidated assets of such programs from risk-weighted assets 
pursuant to section III.B.6. of this appendix. This capital 
treatment for minority interests in consolidated asset-backed 
commercial paper programs will be effective from July 1, 2003 and 
will expire on April 1, 2004.
* * * * *
    III. * * *
    B. * * *
    3. * * *
    a. * * *
    xiv. Sponsor means a bank that establishes an asset-backed 
commercial paper program; approves the sellers permitted to 
participate in the program; approves the asset pools to be purchased 
by the program; or administers the asset-backed commercial paper 
program by monitoring the assets, arranging for debt placement, 
compiling monthly reports, or ensuring compliance with the program 
documents and with the program's credit and investment policy.
* * * * *
    6. Asset-backed commercial paper programs. a. An asset-backed 
commercial paper (ABCP) program typically is a program through which 
a bank provides funding to its corporate customers by sponsoring and 
administering a bankruptcy-remote special purpose entity that 
purchases asset pools from, or extends loans to, the bank's 
customers. The ABCP program raises the cash to provide the funding 
through the issuance of commercial paper in the market.
    b. A bank that qualifies as a primary beneficiary and must 
consolidate an ABCP program that is defined as a variable interest 
entity under GAAP may exclude the consolidated ABCP program assets 
from its risk-weighted assets provided that the bank is the sponsor 
of the consolidated ABCP program. If a bank excludes such 
consolidated ABCP program assets, the bank must apply the 
appropriate risk-based capital charge against any risk exposures of 
the bank arising in connection with such ABCP programs, including 
direct credit substitutes, recourse obligations, residual interests, 
liquidity facilities, and loans, in accordance with sections 
III.B.3., III.C. and III.D. of this appendix.
    c. This capital treatment for consolidated assets of certain 
ABCP programs will be effective from July 1, 2003 and will expire on 
April 1, 2004.
* * * * *

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

0
1. 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, 3907, 
and 3909; 15 U.S.C. 6801 and 6805.


0
2. In Appendix A to part 225, the following amendments are made:
0
a. In section II.A.1.c., Minority interest in equity accounts of 
consolidated subsidiaries, two new sentences are added at the end of 
the paragraph.
0
b. In section III.B.--
0
i. In paragraph 3.a., paragraphs xiv. and xv. are redesignated xv. and 
xvi.;
0
ii. In paragraph 3.a., a new paragraph xiv., Sponsor, is added; and
0
iii. A new paragraph 6 is added at the end of section III.B.

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

* * * * *
    II. * * *
    A. * * *
    1. * * *
    c. * * * In addition, minority interests in consolidated asset-
backed commercial paper programs (as defined in section III.B.6. of 
this appendix) that are sponsored by a banking organization are not 
to be included in the organization's Tier 1 or total capital base if 
the organization excludes the consolidated assets of such programs 
from risk-weighted assets pursuant to section III.B.6. of this 
appendix. This capital treatment for minority interests in 
consolidated asset-backed commercial paper programs will be 
effective from July 1, 2003 and will expire on April 1, 2004.
* * * * *
    III. * * *
    B. * * *
    3. * * *
    a. * * *
    xiv. Sponsor means a bank holding company that establishes an 
asset-backed commercial paper program; approves the sellers 
permitted to participate in the program; approves the asset pools to 
be purchased by the program; or administers the asset-backed 
commercial paper program by monitoring the assets, arranging for 
debt placement, compiling monthly reports, or ensuring compliance 
with the program documents and with the program's credit and 
investment policy.
* * * * *
    6. Asset-backed commercial paper programs. a. An asset-backed 
commercial paper (ABCP) program typically is a program through which 
a banking organization provides funding to its corporate customers 
by sponsoring and administering a bankruptcy-remote special purpose 
entity that purchases asset pools from, or extends loans to, the 
organization's customers. The ABCP program raises the cash to 
provide the funding through the issuance of commercial paper in the 
market.
    b. A banking organization that qualifies as a primary 
beneficiary and must consolidate an ABCP program that is defined as 
a variable interest entity under GAAP may exclude the consolidated 
ABCP program assets from its risk-weighted assets provided that the 
bank holding company is the sponsor of the consolidated ABCP 
program. If a banking organization excludes such ABCP

[[Page 56536]]

program assets, the banking organization must apply the appropriate 
risk-based capital charge against any risk exposures of the 
organization arising in connection with such ABCP programs, 
including direct credit substitutes, recourse obligations, residual 
interests, liquidity facilities, and loans, in accordance with 
sections III.B.3., III.C. and III.D. of this appendix.
    c. This capital treatment for consolidated assets of certain 
ABCP programs will be effective from July 1, 2003 and will expire on 
April 1, 2004.
* * * * *


    By order of the Board of Governors of the Federal Reserve 
System, September 12, 2003.

Jennifer J. Johnson,
Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

0
For the reasons set forth in the joint preamble, the Board of Directors 
of the Federal Deposit Insurance Corporation amends part 325 of chapter 
III of title 12 of the Code of Federal Regulations as follows:

PART 325--CAPITAL MAINTENANCE

0
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).


0
2. In Appendix A to part 325, the following amendments are made:
0
a. In section I.A.1.iii, the four undesignated paragraphs are 
designated (a), (b), (c), and (d), and a new paragraph (e) is added to 
that section.
0
b. In section II.B--
0
i. In paragraph 5.a., paragraphs (15) and (16) are redesignated (16) 
and (17);
0
ii. In paragraph 5.a., a new paragraph (15), Sponsor, is added; and
0
iii. A new paragraph 6 is added at the end of section II.B.

Appendix A to Part 325--Statement of Policy on Risk-Based Capital

* * * * *
    I. * * *
    A. * * *
    1. * * *
    iii. * * *
    (e) Minority interests in consolidated asset-backed commercial 
paper programs (as defined in section II.B.6. of this appendix) that 
are sponsored by a bank are not to be included in the bank's tier 1 
or total capital base if the bank excludes the consolidated assets 
of such programs from risk-weighted assets pursuant to section 
II.B.6. of this appendix. This capital treatment for minority 
interests in consolidated asset-backed commercial paper programs 
will be effective from July 1, 2003 and will expire on April 1, 
2004.
* * * * *
    II. * * *
    B. * * *
    5. * * *
    a. * * *
    (15) Sponsor means a bank that establishes an asset-backed 
commercial paper program; approves the sellers permitted to 
participate in the program; approves the asset pools to be purchased 
by the program; or administers the asset-backed commercial paper 
program by monitoring the assets, arranging for debt placement, 
compiling monthly reports, or ensuring compliance with the program 
documents and with the program's credit and investment policy.
* * * * *
    6. Asset-backed commercial paper programs. a. An asset-backed 
commercial paper (ABCP) program typically is a program through which 
a bank provides funding to its corporate customers by sponsoring and 
administering a bankruptcy-remote special purpose entity that 
purchases asset pools from, or extends loans to, the bank's 
customers. The ABCP program raises the cash to provide the funding 
through the issuance of commercial paper in the market.
    b. A bank that qualifies as a primary beneficiary and must 
consolidate an ABCP program that is defined as a variable interest 
entity under generally accepted accounting principles may exclude 
the consolidated ABCP program assets from risk-weighted assets 
provided that the bank is the sponsor of the consolidated ABCP 
program. If a bank excludes such consolidated ABCP program assets, 
the bank must assess the appropriate risk-based capital charge 
against any risk exposures of the bank arising in connection with 
such ABCP programs, including direct credit substitutes, recourse 
obligations, residual interests, liquidity facilities, and loans, in 
accordance with sections II.B.5., II.C., and II.D. of this appendix.
    c. This capital treatment for consolidated assets of certain 
ABCP programs will be effective from July 1, 2003 and will expire on 
April 1, 2004.
* * * * *

    By order of the Board of Directors.

Dated at Washington, DC, this 5th day of September 2003.

Federal Deposit Insurance Corporation.

Robert E. Feldman,
Executive Secretary.

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Chapter V

Authority and Issuance

0
For the reasons set out in the preamble, part 567 of chapter V of title 
12 of the Code of Federal Regulations is amended as follows:

PART 567--CAPITAL

0
1. The authority citation for part 567 continues to read as follows:

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


0
2. Section 567.1 is amended by adding a definition of "asset backed 
commercial paper program" to read as follows:


Sec.  567.1  Definitions

* * * * *
    Asset backed commercial paper program. The term asset backed 
commercial paper program (ABCP) means a program that issues commercial 
paper backed assets or exposures held in a bankruptcy-remote special 
purpose entity. The term sponsor of an ABCP means a savings association 
that either:
    (1) Establishes an ABCP program;
    (2) Approves the sellers permitted to participate in the program;
    (3) Approves the asset pools to be purchased by the program; or
    (4) Administers the ABCP by monitoring the assets, arranging for 
debt placement, compiling monthly reports, or ensuring compliance with 
the program documents and with the program's credit and investment 
policy.
* * * * *

0
3. Section 567.5 is amended by revising paragraph (a)(1)(iii) to read 
as follows:


Sec.  567.5  Components of capital.

    (a) * * *
    (1) * * *
    (iii) Minority interests in the equity accounts of subsidiaries 
that are fully consolidated. However, minority interests in 
consolidated ABCP programs sponsored by a savings association are 
excluded from the association's core capital or total capital base if 
the consolidated assets are excluded from risk-weighted assets pursuant 
to Sec.  567.6 (a)(3). This capital treatment for minority interests in 
consolidated ABCP programs will be effective from July 1, 2003 to April 
1, 2004.
* * * * *

0
4. Amend Sec.  567.6 by adding new paragraphs (a)(3) and (4) to read as 
follows:


Sec.  567.6  Risk-based capital credit risk-weight categories.

    (a) * * *
    (3) Asset-backed commercial paper programs. (i) A savings 
association that qualifies as a primary beneficiary and must 
consolidate an ABCP program that is defined as a variable interest 
entity

[[Page 56537]]

under generally accepted accounting principles may exclude the 
consolidated ABCP program assets from risk-weighted assets, provided 
that the savings association is the sponsor of the ABCP.
    (ii) If a savings association excludes such consolidated ABCP 
program assets from risk-weighted assets, the savings association must 
assess the appropriate risk-based capital requirement against any risk 
exposures of the institution arising in connection with such ABCP 
programs, including direct credit substitutes, recourse obligations, 
residual interests, liquidity facilities, and loans, in accordance with 
paragraphs (a)(1) and (2) and (b) of this section.
    (iii) If a savings association either elects not to exclude 
consolidated ABCP program assets from its risk-weighted assets in 
accordance with paragraph (a)(3)(i) of this section, or otherwise is 
not permitted to exclude consolidated ABCP program assets, the savings 
association must assess a risk-based capital charge based on the 
appropriate risk weight of the consolidated ABCP program assets in 
accordance with paragraph (a)(1) of this section. Direct credit 
substitutes and recourse obligations (including residual interests), 
and loans that sponsoring savings associations provide to ABCP programs 
are not subject to any capital charge under paragraphs (a)(2) and (b) 
of this section.
    (iv) This capital treatment for consolidated assets of certain ABCP 
programs will be effective from July 1, 2003 to April 1, 2004.
    (4) Other variable interest entities subject to consolidation. (i) 
A savings association that is required to consolidate the assets of a 
variable interest entity under generally accepted accounting principles 
must assess a risk-based capital charge based on the appropriate risk 
weight of the consolidated assets in accordance with paragraph (a)(1) 
of this section. Direct credit substitutes and recourse obligations 
(including residual interests), and loans that sponsoring savings 
associations provide to ABCP programs are not subject to any capital 
charge under paragraphs (a)(2) and (b) of this section.
    (ii) This capital treatment for other variable interest entities 
subject to consolidation will be effective from July 1, 2003 to April 
1, 2004.
* * * * *


    Dated: September 9, 2003.

    By the Office of Thrift Supervision.

James E. Gilleran,
Director.

[FR Doc. 03-23756 Filed 9-30-03; 8:45 am]

BILLING CODE 4810-33-P

Last Updated 10/25/2011 communications@fdic.gov