[Federal Register Volume 63, Number 65 (Monday, April 6, 1998)]
[Proposed Rules]
[Pages 16708-16709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8864]
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DEPARTMENT OF THE TREASURY
Comptroller of the Currency
12 CFR Part 28
[Docket No. 98-06]
RIN 1557-AB58
International Banking Activities
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to amend its regulation governing international lending, by
simplifying the discussion concerning the accounting for fees on
international loans to make the regulation consistent with generally
accepted accounting principles (GAAP). This proposal also makes other
changes to subpart C that are intended to clarify and simplify the
rule.
DATES: Comments must be received on or before June 5, 1998.
ADDRESSES: Written comments should be submitted to Docket No. 98-06,
Communications Division, Third Floor, Office of the Comptroller of the
Currency, 250 E Street, S.W., Washington, D.C. 20219. In addition,
comments may be sent by facsimile transmission to FAX number (202)-874-
5274, or by electronic mail to regs.comments@occ.treas.gov. Comments
will be available for inspection and photocopying at that address.
FOR FURTHER INFORMATION CONTACT: Tom Rees, Professional Accounting
Fellow, Bank Supervision Policy, (202) 874-5180; John Abbott, Deputy
Comptroller, International Banking & Finance, (202) 874-4730; Raija
Bettauer, Counselor for International Activities, (202) 874-0680; or
Saumya R. Bhavsar, Attorney, Legislative and Regulatory Activities,
(202) 874-5090.
SUPPLEMENTARY INFORMATION:
Background
The International Lending Supervision Act of 1983 (ILSA) , 12
U.S.C. 3901 et seq., requires each Federal banking agency to evaluate
the foreign country exposure and transfer risk of banks within its
jurisdiction for use in the examination and supervision of these banks.
To implement this provision, the Federal banking agencies, through the
Interagency Country Exposure Review Committee (ICERC), assess and
categorize countries based on economic, social, and political
conditions that may lead to increased transfer risk. ``Transfer risk''
arises from an obligor's inability to perform on its debt obligations
using the agreed-upon currency due to the actions of the government
that controls that currency. These actions include instances where a
country is unable or unwilling to provide the necessary foreign
exchange, because of, for example, a balance of trade deficit or
currency restrictions.
In addition, ILSA directs each Federal banking agency to require
banks to establish and maintain a special reserve whenever the agency
determines either that the quality of a bank's international assets
(i.e., those assets included on a bank's Country Exposure Report, form
FFIEC 009) has been impaired by the protracted inability of public or
private borrowers in a foreign country to make payments on their
external indebtedness, or that there are no definite prospects for the
orderly restoration of debt service. 12 U.S.C. 3904(a)(1). ILSA also
requires that these reserves be charged against current income and not
considered as part of capital and surplus or allowances for possible
loan losses. 12 U.S.C. 3904(a)(2).
Subpart C of 12 CFR part 28 implements ILSA and requires national
banks and District of Columbia banks to establish reserves, referred to
as allocated transfer risk reserves (ATRR), against potential losses on
banks' foreign loans due to certain countries' transfer risk. Subpart C
also sets forth the accounting treatment for various fees received by
banks when making international loans and contains explicit
requirements for the reporting and disclosure of international assets.
On July 5, 1995 (60 FR 34907), the OCC published proposed changes
to 12 CFR parts 20 and 28, which set out the OCC's rules governing the
international operations of domestic branches and Federal branches and
agencies of foreign banks. The proposed changes included substantive
modifications to part 28 and a consolidation of all the provisions
relating to international banking that were previously contained in
parts 20 and 28 into one CFR part, part 28. These proposed changes were
part of the OCC's Regulation Review Program to update and streamline
regulations and to eliminate requirements that impose inefficient and
costly regulatory burdens on national banks. At that time the OCC did
not propose changes to subpart C of part 28 but invited public comment
on subpart C in order to bring to the OCC's attention issues that could
warrant consideration in a subsequent rulemaking.
On May 2, 1996 (61 FR 19524), the OCC published a final rule on
part 28. In the preamble to the final rule, the OCC noted that it had
received one comment on subpart C of part 28 and that the commenter
recommended that the accounting provisions be amended to be uniform
among the Federal banking agencies and consistent with GAAP. In
response, the OCC stated in the preamble that it would address the
issue raised by the commenter after further review of the rules in
question.
For the reasons discussed below, the OCC is proposing to amend
subpart C consistent with the commenter's suggestion. This proposal
does not, however, amend the other two substantive provisions in
subpart C dealing with the ATRR and reporting and disclosure of
international assets. The OCC invites comment on any aspect of this
proposal.
Discussion of Proposal
Accounting Treatment for Fees on International Loans (Sec. 28.53)
Current Sec. 28.53 provides a lengthy discussion on the separate
accounting treatment for each type of fee charged by banks in
connection with their international lending. This proposal revises that
section by replacing the discussion of the accounting treatment with a
statement that banks are to account for fees on international loans in
accordance with GAAP.
ILSA requires the Federal banking agencies to issue regulations for
accounting for fees charged by banks in connection with international
loans. (12 U.S.C. 3905(a)(2)(A)). In order to avoid excessive debt
service burden on debtor countries, section 906(a) of ILSA (12 U.S.C.
3905(a)) prohibits a bank, in connection with restructuring an
international loan, from charging fees in an amount that exceeds the
administrative costs of restructuring the loan, unless the fee is
amortized over the life of the loan. Section 906(b) of ILSA (12 U.S.C.
3905(b)) requires the Federal banking agencies to issue regulations
prescribing the accounting treatment for agency, commitment,
management, and other fees in connection with international loans to
assure that the appropriate portion of such fees is accrued in income
over the effective life of each such loan.
When ILSA was enacted in 1983 and the Federal banking agencies'
final rule
[[Page 16709]]
on accounting for international loan fees was first published in 1984,
Congress and the Federal banking agencies considered that the
application of the broad fee accounting principles for banks contained
in GAAP did not ensure the desired uniformity in how banks account for
international loan fees. The preamble to the 1984 rule stated that the
Federal banking agencies would reexamine the need for a discussion of
accounting treatment if the Financial Accounting Standards Board (FASB)
were to issue a final pronouncement or standard on this subject. 49 FR
12192 (March 29, 1984).
Since that time, FASB has revised the GAAP rules for fee accounting
for international loans in a manner that accommodates the specific
requirements of section 906 of ILSA (12 U.S.C. 3905). In addition,
although there are some differences between Sec. 28.53 and the GAAP
standard (Financial Accounting Standard No. 91), they are relatively
minor. For instance, GAAP requires different accounting methods than
Sec. 28.53 in the recognition of fees and administrative costs of
originating, restructuring or syndicating international loans. However,
adoption of the GAAP standard would not impose additional burden on
banks, but would reduce burden in some instances.
Therefore, to reduce the regulatory burden of banks and simplify
the rule, the OCC is proposing to eliminate the detailed discussion
concerning the particular accounting method to be followed in
accounting for various fees on international loans. The OCC proposes to
require instead that national banks follow GAAP in accounting for such
fees, subject to the amortization requirement for fees charged in
connection with restructuring an international loan that exceed the
administrative cost of the restructuring.1 In the event that
FASB changes the GAAP rules on fee accounting for international loans,
the OCC will reexamine its rule in light of ILSA to assess the need for
further revision to the regulation.
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\1\ The proposed change in this rulemaking is substantively
identical to the change proposed by the Federal Deposit Insurance
Corporation. (See 62 FR 37748 (July 15, 1997).)
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This proposal does not affect, in any way, the standards by which a
bank recognizes loss on international assets affected by transfer risk,
nor does it change the accounting treatment of a bank's transfer risk
reserve. As discussed earlier, the proposal does, however, change the
accounting treatment of fees that banks collect on international loans
by adopting GAAP accounting requirements for fee income on loans.
The change summarized above removes the need for the definitions of
``international syndicated loan'' and ``loan agreement'' which are used
only in the discussion in current Sec. 28.53. Accordingly, the proposal
amends Sec. 28.51 by removing the definitions of ``international
syndicated loan'' and ``loan agreement'' from Secs. 28.51(e) and (f),
respectively, and redesignating the remaining definitions accordingly.
Regulatory Flexibility Act
It is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
As is explained in greater detail in the preamble to this proposal,
there is only one substantive change and this change would simplify the
regulation to make it consistent with generally accepted accounting
principles. The proposed rule will reduce the regulatory burden on
national banks, regardless of size. Accordingly, a regulatory
flexibility analysis is not required.
Executive Order 12866
The OCC has determined that this proposed rule is not a significant
regulatory action under Executive Order 12866.
Unfunded Mandates Act of 1995
The OCC has determined that the proposed rule will not result in
expenditures by State, local, and tribal governments, or by the private
sector, of more than $100 million in any one year. Accordingly,
consistent with section 202 of the Unfunded Mandates Act of 1995 (2
U.S.C. 1532), the OCC has not prepared a budgetary impact statement or
specifically addressed the regulatory alternatives considered. As
discussed in the preamble, the proposed rule simplifies the discussion
concerning the accounting for fees on international loans to make the
regulation consistent with generally accepted accounting principles.
The proposed rule also makes other nonsubstantive changes to subpart C
that are intended to clarify and simplify the rule.
List of Subjects in 12 CFR Part 28
Foreign banking, National banks, Reporting and recordkeeping
requirements.
Authority and Issuance
For the reasons set out in the preamble, the OCC proposes to amend
part 28 of chapter I of title 12 of the Code of Federal Regulations as
set forth below:
PART 28--INTERNATIONAL BANKING ACTIVITIES
1. The authority citation for part 28 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108,
and 3901 et seq.
Subpart C--International Lending Supervision
Sec. 28.51 [Amended]
2. Section 28.51 is amended by removing paragraphs (e) and (f), and
redesignating paragraphs (g) and (h) as paragraphs (e) and (f).
3. Section 28.53 is revised to read as follows:
Sec. 28.53 Accounting for fees on international loans.
(a) Restrictions on fees for restructured international loans. No
banking institution shall charge, in connection with the restructuring
of an international loan, any fee exceeding the administrative costs of
the restructuring unless it amortizes the amount of the fee exceeding
the administrative cost over the effective life of the loan.
(b) Accounting treatment. Subject to paragraph (a) of this section,
banking institutions shall account for fees in accordance with
generally accepted accounting principles.
Dated: March 30, 1998.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 98-8864 Filed 4-3-98; 8:45 am]
BILLING CODE 4810-33-P
