[Federal Register Volume 60, Number 68 (Monday, April 10, 1995)]
[Rules and Regulations]
[Pages 17986-17987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8719]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket No. 95-07]
RIN 1557-AB14
Risk-Based Capital Requirements--Low Level Recourse
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
revising its risk-based capital standards as required by section 350 of
the Riegle Community Development and Regulatory Improvement Act of
1994. This final rule modifies the risk-based capital treatment of
recourse obligations to ensure that the amount of capital that a bank
must hold against a recourse obligation does not exceed the bank's
maximum contractual exposure. This corrects an anomaly in the existing
risk-based capital standards under which the capital requirement could
exceed a bank's maximum exposure.
EFFECTIVE DATE: May 10, 1995.
FOR FURTHER INFORMATION CONTACT: David Thede, Senior Attorney,
Securities and Corporate Practices Division (202/874-5210), Stephen
Jackson, National Bank Examiner, (202) 874-5070, Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION: The Office of the Comptroller of the
Currency (OCC) is revising its risk-based capital standards as required
by section 350 of the Riegle Community Development and Regulatory
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (the ``CDRI
Act''). Under the OCC's current risk-based capital standards, assets
transferred with recourse are reported on the balance sheet in
regulatory reports. These amounts are thus included in the calculation
of banks' risk-based capital and leverage capital ratios. Where a bank
holds a low level of recourse, the amount of capital required could
exceed the bank's maximum contractual liability under the recourse
agreement. This can occur in transactions in which a bank contractually
limits its recourse exposure to less than the full effective risk-based
capital requirement for the assets transferred--generally, 4 percent
for mortgage assets and 8 percent for other assets.
The OCC and the other Federal banking agencies (the Office of
Thrift Supervision, Federal Reserve Board, and Federal Deposit
Insurance Corporation) have long recognized this anomaly in the risk-
based capital standards. On May 25, 1994, the Federal banking agencies,
under the auspices of the Federal Financial Institutions Examination
Council (FFIEC), issued a notice of proposed rulemaking and advance
notice of proposed rulemaking (59 FR 27116) covering the capital
treatment of recourse obligations and direct credit substitutes. The
notice proposed, among other things, to amend the agencies' risk-based
capital guidelines to limit the capital charge in low level recourse
transactions to an institution's maximum contractual recourse
liability. For these types of transactions the proposal would
effectively result in a dollar capital charge for each dollar of low
level recourse exposure, up to the full effective risk-based capital
requirement on the underlying assets.
Of the 38 commenters that sent comments to the OCC in response to
the May 25 proposal, 13 commenters specifically addressed limiting the
capital requirement for low level recourse transactions to a bank's
maximum contractual exposure. All 13 supported the limit, although many
advocated additional changes to the OCC's capital standards for
recourse obligations.
On September 23, 1994, the CDRI Act was signed into law. The OCC is
issuing this final rule now in order to implement section 350.
Consequently, this final rule covers only the limitation of the capital
requirement to a bank's maximum contractual exposure and does not
address any of the other issues raised in the May 25, 1994, proposal.
The OCC and the other Federal banking agencies will continue to
consider those other issues. [[Page 17987]]
The OCC, in consultation with the other banking agencies, will
issue further guidance specifying how the modified capital standard
will be implemented for reporting purposes. Following issuance of this
additional guidance, the OCC intends to amend the rule to include a
specific description of the reporting treatment.
Regulatory Flexibility Act
It is hereby certified that this final rule will not have a
significant economic impact on a substantial number of small entities.
This final rule will increase somewhat the measured risk-based capital
ratios of banks of all sizes that sell assets with low levels of
recourse and will have a beneficial, but not material, effect on those
banks.
Executive Order 12866
The OCC has determined that this final rule is not a significant
regulatory action under Executive Order 12866.
List of Subjects in 12 CFR Part 3
Administrative practice and procedure, Capital risk, National
banks, Reporting and recordkeeping requirements.
Authority and Issuance
For the reasons set out in the 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
1. The authority citation for part 3 is revised to read as follows:
Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, and 3909.
2. In appendix A to part 3, section 3 is amended by adding a new
paragraph (c) to read as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
* * * * *
Section 3. Risk Categories/Weights for On-Balance Sheet Assets and
Off-Balance Sheet Items
* * * * *
(c) Recourse Obligations. Where the amount of recourse liability
retained by a bank is less than the capital requirement for credit-
risk exposure, the bank shall maintain capital for the recourse
liability equal to the amount of credit-risk exposure retained. Any
recourse liability that is subject to this section 3(c) is not
subject to any additional capital treatment under sections 3(a) or
3(b) of this appendix A.
* * * * *
Dated: March 17, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-8719 Filed 4-7-95; 8:45 am]
BILLING CODE 4810-33-P
