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Financial Institution Letters

[Federal Register: April 26, 2004 (Volume 69, Number 80)]
[Rules and Regulations]               
[Page 22382-22385]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ap04-3]                         

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket No. 04-10]
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. 2004-15]
RIN 1550-AB79

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

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; extension of applicability date.

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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 extending the applicability date in 
the interim final rule on the capital treatment of consolidated asset-
backed commercial paper (ABCP) programs that was issued on October 1, 
2003 (68 FR 56530)

[[Page 22383]]

(October 2003 interim final rule). The October 2003 interim final rule 
amended the agencies' risk-based capital standards by providing an 
interim capital treatment for assets in 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 Financial Accounting Standards Board Interpretation No. 
46, Consolidation of Variable Interest Entities (FIN 46). The interim 
capital treatment that is being extended allows a sponsoring banking 
organization to remove the consolidated ABCP program assets from risk-
weighted assets for the purpose of calculating its risk-based capital 
ratios. The October 2003 interim final rule indicated that the capital 
treatment is applicable only for the regulatory reporting periods 
ending September 30 and December 31, 2003, and March 31, 2004. This 
extension permits affected institutions to apply the designated capital 
treatment through July 1, 2004.

DATES: Effective Date: This interim final rule is effective April 26, 
2004.

FOR FURTHER INFORMATION CONTACT:
    OCC: Amrit Sekhon, Risk Expert, Capital Policy Division, (202) 874-
5211; Laura Goldman, Senior 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 Project Manager, Policy, (202) 452-
2982, David Kerns, Supervisory Financial Analyst, (202) 452-2428, 
Barbara Bouchard, Deputy Associate Director, (202) 452-3072, Division 
of Banking Supervision and Regulation; or Mark E. Van Der Weide, Senior 
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: Christine A. Smith, Project Manager, Supervision Policy, (202) 
906-5740; or Karen Osterloh, Special Counsel (202) 906-6639, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: In January 2003, the Financial Accounting 
Standards Board (FASB) issued interpretation No. 46, ``Consolidation of 
Variable Interest Entities'' (FIN 46), which requires the consolidation 
of variable interest entities (VIEs) onto the balance sheets of 
companies deemed to be the primary beneficiaries of those entities.\1\ 
On December 23, 2003, the FASB published interpretation 46-R (FIN 46-
R), which revised FIN 46 to clarify some of the provisions of FIN 46 
and to exempt certain entities from its requirements. FIN 46-R (and its 
predecessor FIN 46) resulted in the consolidation of many ABCP programs 
onto the balance sheets of sponsoring banking organizations beginning 
in the third quarter of 2003. In contrast, under pre-FIN 46 accounting 
standards, banking organizations normally were not required to 
consolidate the assets of these programs. Where a banking organization 
is required to consolidate ABCP program assets under FIN 46 it must 
include all of the program assets (mostly receivables and securities) 
and liabilities (mainly commercial paper) on its 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).
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    \1\ 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 
assess 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 a sponsoring banking organization could 
result in risk-based capital requirements that are excessive in light 
of the risks faced by that organization. Accordingly, the agencies 
published the October 2003 interim final rule providing temporary 
capital relief for sponsoring banking organizations with assets in ABCP 
programs that are consolidated onto the balance sheets of those 
organizations as a result of FIN 46. See 68 FR 56530 (October 1, 2003). 
The agencies requested public comment on the October 2003 interim final 
rule. The comment period closed November 17, 2003. The agencies' 
October 2003 interim final rule became effective on October 1, 2003, 
and the applicability of the capital treatment guidelines expired on 
April 1, 2004 (April 1st sunset date).
    In addition, the agencies received comments on a notice of proposed 
rulemaking (68 FR 56568) (proposed rule) issued concurrently with the 
October 2003 interim final rule. That rulemaking proposed capital 
charges on certain ABCP conduit exposures and indicated that the 
October 2003 interim final rule would not be finalized until the issues 
addressed in the proposed rule were resolved. The agencies are 
continuing to work on developing a more risk-sensitive approach to 
dealing with exposures to ABCP conduits, taking into account comments 
received on the proposed rule.
    Because the agencies have not yet fully resolved issues addressed 
in the proposed rule, especially those related to banking organization 
exposures to ABCP conduits, they are amending the October 2003 interim 
final rule to extend the April 1st sunset date to July 1, 2004. The 
agencies believe that an explicit extension of the April 1st sunset 
date is necessary in order to eliminate potential industry confusion 
and uncertainty with respect to the calculation of regulatory capital 
ratios pending the issuance of a final rule.

Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
agencies have determined that this interim final 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.). For purposes of the Regulatory Flexibility 
Act, ``small entities'' are banking organizations having assets of $150 
million or less. There are approximately 18 sponsoring banking 
organization for purposes of this interim final rule, and all of them 
are well over that asset size threshold. Accordingly, a regulatory 
flexibility analysis is not required. In addition, the interim final 
rule would reduce regulatory burden with respect to the agencies' risk-
based capital standards.

Administrative Procedure Act

    The Agencies find that there is good cause to dispense with prior 
notice and public comment on this interim final rule and with the 30-
day delay of effective date generally prescribed by the Administrative 
Procedure Act (APA). 5 U.S.C 553.
    Under section 553(b) of the APA, the agencies are not required to 
provide notice and an opportunity for public

[[Page 22384]]

comment on a rule if they find, for good cause, that notice and comment 
are ``impracticable, unnecessary or contrary to the public interest.'' 
The agencies find that notice and public comment are unnecessary 
because the agencies have given the public a prior opportunity to 
comment on the substance of the October 2003 interim final rule, which 
is to preserve the pre-existing non-consolidated risk-based capital 
treatment for sponsoring banking organizations pending the agencies' 
determination of the capital charge appropriate to certain ABCP conduit 
exposures. Most commenters favored this result. This extension of the 
effective date merely provides additional time for the agencies to 
complete that process. Further, the agencies find that further notice 
and public comment are not in the public interest because a failure to 
extend the April 1st sunset date could create confusion regarding the 
calculation of regulatory capital ratios pending the issuance of a 
final rule. The agencies also find that it is impracticable to provide 
an additional opportunity for comment before the April 1, 2004 
expiration date established by the October 2003 interim rule.
    Under section 553(d) of the APA, the agencies must generally 
provide a 30-day delayed effective date for final rules. The agencies 
may waive the 30-day delayed effective date requirement ``for good 
cause found and published with the rule.'' Similarly, section 302 of 
the Riegle Community Development and Regulatory Improvement Act of 1994 
(CDRI), requires a banking agency to make a rule effective on the first 
day of the calendar quarter that begins on or after the date on which 
the regulations are published in final form, unless the agency finds 
good cause for an earlier effective date. 12 U.S.C. 4802(b)(1). The 
agencies find that there is good cause to waive the two effective date 
requirements because a failure to extend the April 1st sunset date 
could create confusion and uncertainty regarding the calculation of 
regulatory capital ratios pending the issuance of a final rule. 
Further, the purpose of the APA and CDRI delayed effective date 
provisions is to afford affected persons a reasonable time to comply 
with rule changes. Because institutions have complied with the 
requirements since October 2003, it is not necessary to delay the 
effective date to achieve this purpose.

Paperwork Reduction Act

    The agencies have determined that this interim final 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 and 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. This interim final 
rule is designed to temporarily offset the effect on risk-based capital 
ratios of FIN 46 with respect to ABCP programs. The OCC and OTS have 
determined that this interim final 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 or OTS to prepare a 
budgetary impact statement for this interim final rule.

Executive Order 12866

    The Director of the OTS and the Comptroller of the OCC have 
determined that this interim final rule does not constitute a 
``significant regulatory action'' for the purposes of Executive Order 
12866.

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 I

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.

Appendix A to Part 3--[Amended]

0
2. In Appendix A to part 3:
0
a. In section 2, paragraph (a)(3)(ii), remove ``April 1'' and add 
``July 1'' in its place; and
0
b. In section 4, paragraphs (j)(4) and (k)(2), remove ``April 1'' and 
add ``July 1'' in its place.

    Dated: April 9, 2004.
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.

[[Page 22385]]

Appendix A to Part 208--[Amended]

0
2. In Appendix A to part 208, the following amendments are made:
0
a. In section II.A.1.c., remove ``April 1'' and add ``July 1'' in its 
place; and
0
b. In section III.B.6.c., remove ``April 1'' and add ``July 1'' in its 
place.

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.

Appendix A to Part 225--[Amended]

0
2. In Appendix A to part 225, the following amendments are made:
0
a. In section II.A.1.c., remove ``April 1'' and add ``July 1'' in its 
place; and
0
b. In section III.B.6.c., remove ``April 1'' and add ``July 1'' in its 
place.

    By order of the Board of Governors of the Federal Reserve 
System, April 16, 2004.
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).

Appendix A to Part 325--[Amended]

0
2. In Appendix A to part 325, the following amendments are made:
0
a. In section I.A.1.iii.e., remove ``April 1'' and add ``July 1'' in 
its place; and
0
b. In section II.B.6.c., remove ``April 1'' and add ``July 1'' in its 
place.

    By order of the Board of Directors.

    Dated at Washington, DC, this 6th day of April, 2004.

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).

567.5  [Amended]

0
2. In Sec.  567.5(a)(1)(iii), remove ``April 1'' and add ``July 1'' in 
its place.


567.6  [Amended]

0
3. In Sec.  567.6, paragraphs (a)(3)(iv) and (a)(4)(ii), remove ``April 
1'' and add ``July 1'' in its place.

    Dated: March 30, 2004.

    By the Office of Thrift Supervision.
Richard M. Riccobono,
Acting Director.
[FR Doc. 04-9361 Filed 4-23-04; 8:45 am]

BILLING CODE 4810-33-P


Last Updated 4/26/2004 communications@fdic.gov