[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Proposed Rules]
[Pages 56756-56763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22741]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2008-0014]
RIN 1557-AD13
FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-1329]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AD32
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 567
[Docket No. OTS-2008-0010]
RIN 1550-AC22
Minimum Capital Ratios; Capital Adequacy Guidelines; Capital
Maintenance; Capital: Deduction of Goodwill Net of Associated Deferred
Tax Liability
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: Joint notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), the Federal Deposit
Insurance Corporation (FDIC), and the Office of Thrift Supervision
(OTS) (collectively, the Agencies) are proposing to permit banks, bank
holding companies, and savings associations (collectively, banking
organizations) to reduce the amount of goodwill that a banking
organization must deduct from tier 1 capital by the amount of any
deferred tax liability associated with that goodwill. The proposed
change would effectively reduce the amount of goodwill that a banking
organization must deduct from tier 1 capital and would reflect a
banking organization's maximum exposure to loss in the event that such
goodwill is impaired or derecognized for financial reporting purposes.
DATES: Comments must be received on or before October 30, 2008.
ADDRESSES: Comments should be directed to:
OCC: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
the Federal eRulemaking Portal or e-mail, if possible. Please use the
title ``Capital Adequacy Guidelines; Deduction of Goodwill Net of
Associated Deferred Tax Liability'' to facilitate the organization and
distribution of the comments. You may submit comments by any of the
following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
http://www.regulations.gov, under the ``More Search Options'' tab click
next to the ``Advanced Docket Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2008-0014''
to submit or view public comments and to view supporting and related
materials for this notice of proposed rulemaking. The ``How to Use This
Site'' link on the Regulations.gov
[[Page 56757]]
home page provides information on using Regulations.gov, including
instructions for submitting or viewing public comments, viewing other
supporting and related materials, and viewing the docket after the
close of the comment period.
E-mail: [email protected].
Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 1-5, Washington, DC 20219.
Fax: (202) 874-4448.
Hand Delivery/Courier: 250 E Street, SW., Attn: Public
Information Room, Mail Stop 1-5, Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket Number OCC-2008-0014'' in your comment. In general, OCC will
enter all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, e-mail addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this notice of proposed rulemaking by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next
to the ``Advanced Document Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2008-0014''
to view public comments for this rulemaking action.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC's Public Information Room, 250 E
Street, SW., Washington, DC. For security reasons, the OCC requires
that visitors make an appointment to inspect comments. You may do so by
calling (202) 874-5043. Upon arrival, visitors will be required to
present valid government-issued photo identification and submit to
security screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
Board: You may submit comments, identified by Docket No. R-1329, by
any of the following methods:
Agency Web Site: http://www.Federalreserve.gov. Follow the
instructions for submitting comments at http://www.Federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include docket
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at http://www.Federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets, NW.,
Washington, DC) between 9 a.m. and 5 p.m. on weekdays.
FDIC: You may submit comments by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web Site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: 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.
E-mail: [email protected].
Instructions: Comments submitted must include ``FDIC'' and ``RIN
3064-AD32.'' Comments received will be posted generally
without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any personal information provided.
OTS: You may submit comments, identified by OTS-2008-0010 by any of
the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
http://www.regulations.gov, under the ``More Search Options'' tab click
next to the ``Advanced Docket Search'' option where indicated, select
``Office of Thrift Supervision'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0010''
to submit or view public comments and to view supporting and related
materials for this notice of proposed rulemaking. The ``How to Use This
Site'' link on the Regulations.gov home page provides information on
using Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period.
E-mail address: [email protected]. Please
include OTS-2008-0010 in the subject line of the message and include
your name and telephone number in the message.
Fax: (202) 906-6518.
Mail: Regulation Comments, Chief Counsel's Office, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,
Attention: OTS-2008-0010.
Hand Delivery/Courier: 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, OTS-2008-0010.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. All comments received will be posted without change to the
OTS Internet Site at http://www.ots.treas.gov/Supervision&Legal.Laws&Regulations, including any personal information
provided. Comments received, including attachments and other supporting
materials, are part of the public record and subject to public
disclosure. Do not enclose any information in your comment or
supporting materials that could be considered confidential or
inappropriate for public disclosure.
Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next
to the ``Advanced Document Search'' option where indicated, select
``Office of Thrift Supervision'' from the agency drop-down menu and
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0010''
to view public comments for this rulemaking action.
Viewing Comments On-Site: You may inspect comments at the
Public Reading Room, 1700 G Street, NW., by appointment. To make an
appointment call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-6518. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) We schedule
[[Page 56758]]
appointments on business days between 10 a.m. and 4 p.m. In most cases,
appointments will be available the next business day following the date
we receive a request.
FOR FURTHER INFORMATION CONTACT: OCC: Paul Podgorski, Risk Expert,
Capital Policy (202-874-4755); or Jean Campbell, Senior Attorney, or
Ron Shimabukuro, Special Counsel, Legislative and Regulatory Activities
Division (202-874-5090).
Board: Barbara Bouchard, Associate Director (202-452-3072 or
[email protected]), Mary Frances Monroe, Manager (202-452-5231
or [email protected]), David Snyder, Supervisory Financial Analyst
(202-728-5893 or [email protected]), Division of Banking Supervision
and Regulation; or Mark Van Der Weide, Assistant General Counsel (202-
452-2263 or [email protected]) or Dinah Knight, Senior Attorney
(202-452-3838 or [email protected]), Legal Division. For users of
Telecommunications Device for the Deaf (``TDD'') only, contact 202-263-
4869.
FDIC: Christine M. Bouvier, Senior Policy Analyst (Bank Accounting)
(202-898-7289), Accounting and Securities Disclosure Section, Division
of Supervision and Consumer Protection; Nancy Hunt, Senior Policy
Analyst (202-898-6643), Capital Markets Branch, Division of Supervision
and Consumer Protection; Mark Handzlik, Senior Attorney (202-898-3990),
or Michael Phillips, Counsel (202-898-3581), Supervision Branch, Legal
Division.
OTS: Christine A. Smith, Project Manager, Capital Policy (202-906-
5740); Marvin Shaw, Senior Attorney, Regulations and Legislation (202-
906-6639); Patricia M. Hildebrand, Senior Policy Accountant, Accounting
(202-906-7048); or Craig Phillips, Senior Policy Accounting Fellow,
Accounting (202-906-5628).
SUPPLEMENTARY INFORMATION:
Proposed Capital Treatment for Goodwill Arising From a Taxable Business
Combination
Under the Agencies' existing regulatory capital rules, a banking
organization \1\ must deduct certain assets from tier 1 capital.\2\ A
banking organization is permitted to net any associated deferred tax
liability against some of those assets prior to deduction from tier 1
capital. Included among those assets are certain intangible assets
arising from a nontaxable business combination. Such netting generally
is not permitted for goodwill and other intangible assets arising from
a taxable business combination. In these cases, the full or gross
carrying amount of the asset is deducted.
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\1\ Unless otherwise indicated, the term ``banking
organization'' includes banks, savings associations, and bank
holding companies (BHCs). The terms ``bank holding company'' and
``BHC'' refer only to bank holding companies regulated by the Board.
\2\ See the Agencies' capital rules for more detail on what
assets are required to be deducted from regulatory capital and how
these deductions are calculated. See 12 CFR part 3 (national banks);
12 CFR part 208 (state member banks); 12 CFR part 225 (bank holding
companies); 12 CFR part 325 (state nonmember banks); and 12 CFR part
567 (savings associations). This proposal is focused on the
deduction of goodwill from tier 1 capital.
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Statement of Financial Accounting Standards No. 141, Business
Combinations (FAS 141), requires that all business combinations be
accounted for using the purchase method of accounting for financial
reporting purposes under generally accepted accounting principles
(GAAP).\3\ FAS 141 also requires that the acquiring entity assign the
cost of the acquired entity to each identifiable asset acquired and
liability assumed. The amounts assigned are based generally upon the
fair values of such assets and liabilities at the acquisition date. If
the cost of the acquired entity exceeds the net of the amounts so
assigned, the acquiring entity must recognize the excess amount as
goodwill.
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\3\ Under FAS 141, application of the purchase method to
combinations between mutual institutions was deferred, pending the
issuance of interpretive guidance. A revised statement issued in
December 2007, FAS 141(R), supersedes FAS 141 for financial
reporting years starting after December 15, 2008. The revisions to
FAS 141 incorporated in FAS 141(R) do not conflict with this
proposal. FAS 141(R) retains the fundamental requirements in FAS 141
that the acquisition method of accounting (which FAS 141 called the
``purchase method'') be used for all business combinations and
extends these requirements to combinations between two or more
mutual institutions. This proposal uses the term ``purchase method''
in order to be consistent with the current terminology under GAAP.
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Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (FAS 142), prohibits the amortization of
goodwill for financial reporting purposes under GAAP and requires
periodic testing of the carrying amount of goodwill for impairment.
However, a banking organization generally amortizes goodwill for tax
purposes. This difference in treatment generally results in the
recognition of a deferred tax liability under GAAP. The deferred tax
liability increases over time and is reflected in corresponding
reductions in earnings for financial reporting purposes until the
goodwill has been fully amortized for tax purposes. The deferred tax
liability generally is not reduced or reversed for financial reporting
purposes unless the associated goodwill is written down upon a finding
of impairment, or is otherwise derecognized.
The Agencies have received requests from several banking
organizations to permit the amount of goodwill arising from a taxable
business combination that must be deducted from tier 1 capital to be
reduced by any associated deferred tax liability. The Agencies believe
that this treatment would appropriately reflect a banking
organization's maximum exposure to loss if the goodwill becomes
impaired or is derecognized under GAAP.
Accordingly, the Agencies are proposing to amend their respective
capital rules to permit a banking organization to reduce the amount of
goodwill it must deduct from tier 1 capital by the amount of any
deferred tax liability associated with that goodwill. However, a
banking organization that reduces the amount of goodwill deducted from
tier 1 capital by the amount of the associated deferred tax liability
would not be permitted to net this deferred tax liability against
deferred tax assets when determining regulatory capital limitations on
deferred tax assets. The proposed change would permit a banking
organization to effectively reduce its regulatory capital deduction for
goodwill to an amount equal to the maximum regulatory capital reduction
that could occur as a result of the goodwill becoming completely
impaired or derecognized. This would increase a banking organization's
tier 1 capital, which is used to determine the banking organization's
leverage ratio and risk-based capital ratios.
For example, assume that goodwill in the amount of $9,000 arises
from a taxable business combination. For income tax purposes, this
goodwill is amortized over 15 years at a rate of $600 per year ($9,000/
15 years). However, the banking organization cannot recognize the $600
annual tax deduction for goodwill amortization in current income for
financial reporting purposes. Assuming an income tax rate of 30
percent, each year the banking organization would have an income tax
reduction of $180 ($600 x 30%) and would recognize this amount as a
deferred tax liability. Under GAAP, at the end of the first year, the
banking organization would report a deferred tax liability of $180. At
the end of the 15-year tax amortization period, it would report a
cumulative deferred tax liability of $2,700 ($180 x 15 years).\4\
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\4\ This example assumes that, throughout the tax amortization
period, there is no impairment or derecognition of the goodwill and
there is no change in the income tax rate.
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[[Page 56759]]
Under the Agencies' existing regulatory capital rules, the full
carrying amount of goodwill ($9,000) is deducted from tier 1 capital.
However, since the amortization of this asset for income tax purposes
reduces income taxes by $2,700 over the 15-year period, the maximum
amount of reduction in tier 1 capital that the banking organization
could experience in the event of total impairment of the goodwill at
the end of the 15-year period is $6,300 ($9,000 minus $2,700), not
$9,000. Under this proposed rule, the total deduction from tier 1
capital at the end of the first year would be $8,820 ($9,000 minus
$180) and, at the end of the fifteenth year, the deduction from tier 1
capital would be $6,300.
The Agencies request comment on all aspects of this proposal.
Specifically, the Agencies request comment on the impact that the
proposed treatment could have on a banking organization's regulatory
capital ratios.
The Agencies are considering for purposes of any final rule whether
they should extend the treatment proposed for goodwill to other
intangible assets acquired in a taxable business combination that
currently are not deductible from tier 1 capital net of associated
deferred tax liabilities.\5\ Accordingly, the Agencies request comment
on whether they should permit any additional intangible assets to be
deducted from tier 1 capital net of associated deferred tax
liabilities. For such assets, the Agencies request information
regarding the type of intangible asset and an estimate of the potential
impact on banking organizations' capital ratios from extending this
proposal to cover those assets, as well as any other relevant data or
pertinent information.
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\5\ As discussed above, under the Agencies' existing regulatory
capital rules, the full amount of any intangible asset acquired in a
taxable business combination generally is deducted from tier 1
capital, without netting of any associated deferred tax liability.
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Other Revisions
The OCC is proposing to consolidate the various provisions
permitting a bank to deduct assets from tier 1 capital on a basis net
of any associated deferred tax liability together in one section of the
regulatory text to make it easier to locate. In addition, the current
regulatory text's special treatment of intangible assets acquired due
to a nontaxable purchase business combination exempts purchased
mortgage servicing rights and purchased credit card relationships but
does not make clear whether those assets may be netted, and also does
not make clear whether intangible assets acquired in a taxable purchase
business combination may be netted.
The OCC is clarifying the appropriate treatment of disallowed
servicing assets and purchased credit card relationships to be as
follows: (1) Disallowed servicing assets may be deducted net of any
associated deferred tax liability, regardless of the method by which
the bank acquired such assets; and (2) servicing assets that are
includable in tier 1 capital and purchased credit card relationships
may not be deducted net of any associated deferred tax liability,
regardless of the method by which the bank acquired such assets. The
OCC is proposing these changes for the following reasons. The term
``purchased mortgage servicing rights'' is obsolete under GAAP. The OCC
is replacing this term with the broader term ``servicing assets'' and
making other clarifying changes to more accurately reflect the OCC's
existing interpretation of the current regulatory text.
The OCC also is proposing technical changes to its regulatory
capital rules. The OCC is proposing to amend the definition of goodwill
to conform to FAS 141 and FAS 142. These changes are non-substantive
and are being made because portions of the existing regulatory text
became obsolete when FAS 141 made application of the purchase method of
accounting for business combinations mandatory. In addition, the OCC is
proposing technical amendments to revise cross references and other
miscellaneous changes.
The Board also is proposing technical changes to conform the
definition of goodwill in its regulatory capital rules to GAAP, in
particular, to the terminology used in FAS 141 and FAS 142.\6\ These
changes are non-substantive and are being made because parts of the
existing regulatory text became obsolete when FAS 141 made application
of the purchase method of accounting for business combinations
mandatory. Further, the Board is proposing to amend Appendix A to 12
CFR part 225 to remove obsolete text that relates to goodwill
recognized by a BHC prior to December 31, 1992.
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\6\ The FDIC's and OTS's regulatory capital rules do not include
a definition of goodwill. Therefore, this aspect of the proposal
would not affect the FDIC's or OTS's regulations.
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The OTS is proposing four changes to its capital regulations.
First, OTS is proposing a change to amend its definition of
``intangible assets'' in 12 CFR 567.1 to delete obsolete text that
excluded servicing assets from the definition of intangible assets, and
to add regulatory text to the definition to include servicing assets as
intangible assets. Second, OTS is proposing a change to its definition
of ``intangible assets'' in 12 CFR 567.9 that would reference servicing
assets as intangible assets according to 12 CFR 567.1. Third, OTS is
proposing a change to conform its regulatory text to that of the other
Agencies by adding regulatory text that provides for netting a deferred
tax liability specifically related to an intangible asset (other than
disallowed servicing assets that are already permitted to be deducted
on a basis net of associated deferred tax liabilities, and purchased
credit card relationships that may not be deducted on a basis net of
associated deferred tax liabilities) arising from a nontaxable business
combination against that intangible asset. Fourth, OTS is proposing
other regulatory rule text changes that will conform its regulatory
text to that of the other Agencies by adding language to its rules
addressing the regulatory capital limitation on deferred tax assets.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires an agency
that is issuing a proposed rule to prepare and make available for
public comment an initial regulatory flexibility analysis that
describes the impact of the proposed rule on small entities.\7\ The RFA
provides that an agency is not required to prepare and publish an
initial regulatory flexibility analysis if the agency certifies that
the proposed rule will not, if promulgated, have a significant economic
impact on a substantial number of small entities.\8 \
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\7\ See 5 U.S.C. 603(a).
\8\ See 5 U.S.C. 605(b).
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Under regulations issued by the Small Business Administration,\9\ a
small entity includes a bank holding company, commercial bank, or
savings association with assets of $175 million or less (collectively,
small banking organizations).\10\ The proposed rule would permit a
banking organization to compute its deduction from regulatory capital
of goodwill net of any associated deferred tax liability. The Agencies
believe that this proposed rule will not have a significant economic
impact on a substantial number of small entities because the proposed
rule is elective and, thus, does not require a bank to
[[Page 56760]]
compute its deduction from regulatory capital of goodwill net of any
associated deferred tax liability. Each agency certifies that the
proposed rule will not, if promulgated in final form, have a
significant economic impact on a substantial number of small entities.
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\9\ See 13 CFR 121.201.
\10\ As of December 31, 2007, there were approximately 2,785
small bank holding companies, 932 small national banks, 467 small
state member banks, 3,274 small state nonmember banks, and 428 small
savings associations.
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Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995, the
Agencies reviewed the proposed rule regarding the deduction of goodwill
net of associated deferred tax liability as required by the Office of
Management and Budget.\11\ No collections of information pursuant to
the Paperwork Reduction Act are contained in the proposed rule.
However, implementation of this proposed rule would necessitate
clarifications to the Agencies' quarterly regulatory reports \12\ to
reflect the proposed change in a banking organization's tier 1 capital.
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\11\ See 44 U.S.C. 3506; 5 CFR 1320 Appendix A.1.
\12\ Consolidated Reports of Condition and Income (Call Report)
(OMB Nos. 7100-0036, 3064-0052, 1557-0081), Thrift Financial Report
(TFR) (OMB No. 1550-0023), Consolidated Financial Statements for
Bank Holding Companies (FR Y-9C) (OMB No. 7100-0128).
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Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the 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 proposed rule in a simple and straightforward manner.
The Agencies invite comment on whether the Agencies could take
additional steps to make the proposed rule easier to understand.
OCC and OTS Executive Order 12866 Determinations
Executive Order 12866 requires Federal agencies to prepare a
regulatory impact analysis for agency actions that are found to be
significant regulatory actions. Significant regulatory actions include,
among other things, rulemakings that have an annual effect on the
economy of $100 million or more or adversely affect in a material way
the economy, a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or state, local, or tribal
governments or communities. The OCC and OTS each have determined that
its portion of the proposed rule is not a significant regulatory
action.
OCC and OTS Executive Order 13132 Determinations
The OCC and OTS each determined that its portion of the proposed
rulemaking does not have any federalism implications for purposes of
Executive Order 13132.
OCC and OTS Unfunded Mandates Reform Act of 1995 Determinations
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (UMRA) requires that an agency prepare a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by state, local, and tribal
governments, in the aggregate, or by the private sector of $100 million
or more (adjusted annually for inflation) in any one year. If a
budgetary impact statement is required, section 205 of the UMRA also
requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule. The OCC and OTS
each have determined that its proposed rule will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of $133 million or more. Accordingly, neither OCC nor OTS has
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
List of Subjects
12 CFR Part 3
Accounting, Administrative practice and procedure, Banks, Banking,
Capital, National banks, Reporting and recordkeeping requirements,
Risk.
12 CFR Part 208
Accounting, Administrative practice and procedure, Banks, Banking,
Capital, Reporting and recordkeeping requirements, Risk.
12 CFR Part 225
Accounting, Administrative practice and procedure, Banks, Banking,
Capital, Federal Reserve System, Reporting and recordkeeping
requirements, Risk.
12 CFR Part 325
Accounting, Banks, Banking, Administrative practice and procedure,
Capital, Reporting and recordkeeping requirements, Risk.
12 CFR Part 567
Capital, Reporting and recordkeeping requirements, Risk, Savings
associations.
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the common preamble, part 3 of chapter
I of title 12 of the Code of Federal Regulations is proposed to be
amended as follows:
PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES
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.
2. In appendix A to part 3, Section 1 is amended by:
a. Removing, in paragraph (c)(1), the third sentence, the phrase
``section 1(c)(8)'' and by adding in lieu thereof the phrase ``section
1(c)(10)''; and
b. Revising paragraph (c)(17) to read as follows:
Appendix A to Part 3--Risk-Based Capital Guidelines
Section 1. Purpose, Applicability of Guidelines, and
Definitions.
* * * * *
(c) * * *
(17) Goodwill is an intangible asset that represents the excess
of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed.
* * * * *
3. In appendix A to part 3, Section 2 is amended by:
a. Removing, in paragraphs (c) introductory text and (c)(1)
introductory text, the word ``items'', and by adding in lieu thereof
the word ``assets'';
b. Removing, in paragraph (c)(1)(iii), the phrase ``section
2(c)(3)'' and by adding in lieu thereof the phrase ``sections 2(c)(3)
and (2)(c)(6)'';
c. Removing, in paragraph (c)(1)(iv), the phrase ``section
4(a)(3)'' and by adding in lieu thereof the phrase ``section 4(a)(2)'';
d. Removing, in footnote 6, the phrase ``section 1(c)(14)'' and by
adding in lieu thereof the phrase ``section 1(c)(18)'', and removing
the phrase ``section 4(a)(3)'' and by adding in lieu thereof the phase
``section 4(a)(2)'';
e. Removing paragraph (c)(2)(iv);
f. Adding a heading to paragraph (c)(3)(i);
g. Removing paragraph (c)(3)(iii) and redesignating paragraph
(c)(3)(iv) as paragraph (c)(3)(iii);
h. Removing paragraph (c)(4)(iii);
[[Page 56761]]
i. Redesignating paragraph (c)(6) as paragraph (c)(7) and adding a
new paragraph (c)(6) to read as follows; and
j. Revising the introductory text of newly designated paragraph
(c)(7) by removing the word ``items'' and adding in lieu thereof the
word ``assets''.
The revision and addition are set forth below.
Section 2. Components of Capital.
* * * * *
(c) * * *
(3) * * * (i) Net unrealized gains and losses on available-for-
sale securities. * * *
* * * * *
(6) Netting of Deferred Tax Liability. (i) Banks may elect to
deduct the following assets from Tier 1 capital on a basis that is
net of any associated deferred tax liability:
(A) Goodwill;
(B) Intangible assets acquired due to a nontaxable purchase
business combination, except banks may not elect to deduct from Tier
1 capital on a basis that is net of any associated deferred tax
liability, regardless of the method by which they were acquired:
(1) Purchased credit card relationships; and
(2) Servicing assets that are includable in Tier 1 capital;
(C) Disallowed servicing assets;
(D) Disallowed credit-enhancing interest-only strips; and
(E) Nonfinancial equity investments, as defined in section
1(c)(1) of this appendix A.
(ii) Deferred tax liabilities netted in this manner cannot also
be netted against deferred tax assets when determining the amount of
deferred tax assets that are dependent upon future taxable income as
calculated under section 2(c)(1)(iii) of this appendix A.
* * * * *
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the common preamble, the Board of
Governors of the Federal Reserve System proposes to amend 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)
1. The authority citation for part 208 continues to read as
follows:
Authority: 12 U.S.C. 24, 92(a), 248(a), 248(c), 321-328a, 371d,
461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835(a), 1882,
2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b,
781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-1, and 78w, 1681s,
1681w, 6801 and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b,
4106, and 4128.
2. In appendix A to part 208, amend section II.B. by revising
paragraphs 1.a., 1.e.iii., and 1.f. to read as follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
* * * * *
II. * * *
B. * * *
1. * * *
a. Goodwill. Goodwill is an intangible asset that represents the
excess of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed. Goodwill is
deducted from the sum of core capital elements in determining Tier 1
capital.
* * * * *
e. * * *
iii. Banks may elect to deduct goodwill, disallowed mortgage
servicing assets, disallowed nonmortgage servicing assets, and
disallowed credit-enhancing I/Os (both purchased and retained) on a
basis that is net of any associated deferred tax liability. Deferred
tax liabilities netted in this manner cannot also be netted against
deferred tax assets when determining the amount of deferred tax
assets that are dependent upon future taxable income.
f. Valuation. Banks must review the book value of goodwill and
other intangible assets at least quarterly and make adjustments to
these values as necessary. The fair value of mortgage servicing
assets, nonmortgage servicing assets, purchased credit card
relationships, and credit-enhancing I/Os also must be determined at
least quarterly. This determination shall include adjustments for
any significant changes in original valuation assumptions, including
changes in prepayment estimates or account attrition rates.
Examiners will review both the book value and the fair value
assigned to these assets, together with supporting documentation,
during the examination process. In addition, the Federal Reserve may
require, on a case-by-case basis, an independent valuation of a
bank's goodwill, other intangible assets, or credit-enhancing I/Os.
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
3. 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, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
4. In appendix A to part 225, amend section II.B. by revising
paragraphs 1.a., 1.e.iii, and 1.f. to read as follows:
Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure
* * * * *
II. * * *
B. * * *
1. * * *
a. Goodwill. Goodwill is an intangible asset that represents the
excess of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed. Goodwill is
deducted from the sum of core capital elements in determining tier 1
capital.
* * * * *
e. * * *
iii. Bank holding companies may elect to deduct goodwill,
disallowed mortgage servicing assets, disallowed nonmortgage
servicing assets, and disallowed credit-enhancing I/Os (both
purchased and retained) on a basis that is net of any associated
deferred tax liability. Deferred tax liabilities netted in this
manner cannot also be netted against deferred tax assets when
determining the amount of deferred tax assets that are dependent
upon future taxable income.
f. Valuation. Bank holding companies must review the book value
of goodwill and other intangible assets at least quarterly and make
adjustments to these values as necessary. The fair value of mortgage
servicing assets, nonmortgage servicing assets, purchased credit
card relationships, and credit-enhancing I/Os also must be
determined at least quarterly. This determination shall include
adjustments for any significant changes in original valuation
assumptions, including changes in prepayment estimates or account
attrition rates. Examiners will review both the book value and the
fair value assigned to these assets, together with supporting
documentation, during the inspection process. In addition, the
Federal Reserve may require, on a case-by-case basis, an independent
valuation of a bank holding company's goodwill, other intangible
assets, or credit-enhancing I/Os.
* * * * *
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the common preamble, part 325 of
chapter III of title 12 of the Code of Federal Regulations is proposed
to be amended as follows:
PART 325--CAPITAL MAINTENANCE
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).
[[Page 56762]]
2. Section 325.5 is amended by revising paragraph (g)(5) to read as
follows:
Sec. 325.5 Miscellaneous.
* * * * *
(g) * * *
(5) Goodwill and other intangible assets. This paragraph (g)(5)
provides the capital treatment for intangible assets acquired in a
nontaxable business combination, and goodwill acquired in a taxable
business combination.
(i) Intangible assets acquired in nontaxable purchase business
combinations. A deferred tax liability that is specifically related to
an intangible asset (other than mortgage servicing assets, nonmortgage
servicing assets, and purchased credit card relationships) acquired in
a nontaxable purchase business combination may be netted against this
intangible asset. Only the net amount of this intangible asset must be
deducted from Tier 1 capital.
(ii) Goodwill acquired in a taxable purchase business combination.
A deferred tax liability that is specifically related to goodwill
acquired in a taxable purchase business combination may be netted
against this goodwill. Only the net amount of this goodwill must be
deducted from Tier 1 capital.
(iii) Treatment of a netted deferred tax liability. When a deferred
tax liability is netted in accordance with paragraph (g)(5)(i) or (ii)
of this section, the taxable temporary difference that gives rise to
this deferred tax liability must be excluded from existing taxable
temporary differences when determining the amount of deferred tax
assets that are dependent upon future taxable income and calculating
the maximum allowable amount of such assets.
(iv) Valuation. The FDIC in its discretion may require independent
fair value estimates for goodwill and other intangible assets on a
case-by-case basis where it is deemed appropriate for safety and
soundness purposes.
Office of Thrift Supervision
12 CFR Chapter V
For the reasons set forth in the common preamble, part 567 of
chapter V of title 12 of the Code of Federal Regulations is proposed to
be amended as follows:
PART 567--CAPITAL
1. The authority citation for part 567 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828
(note).
2. Section 567.1 is amended by revising the definition for
intangible assets to read as follows:
Sec. 567.1 Definitions.
* * * * *
Intangible assets. The term intangible assets means assets
considered to be intangible assets under generally accepted accounting
principles. These assets include, but are not limited to, goodwill,
core deposit premiums, purchased credit card relationships, favorable
leaseholds, and servicing assets (mortgage and non-mortgage). Interest-
only strips receivable and other nonsecurity financial instruments are
not intangible assets under this definition.
* * * * *
3. Section 567.5 is amended by adding new paragraph (a)(2)(vii) to
read as follows:
Sec. 567.5 Components of capital.
* * * * *
(a) * * *
(2) * * *
(vii) Deferred tax assets that are not includable in core capital
pursuant to Sec. 567.12 of this part are deducted from assets and
capital in computing core capital.
* * * * *
4. Section 567.9 is amended by revising paragraph (c)(1) to read as
follows:
Sec. 567.9 Tangible capital requirements.
* * * * *
(c) * * *
(1) Intangible assets (as defined in Sec. 567.1) and credit
enhancing interest-only strips not includable in tangible capital under
Sec. 567.12.
* * * * *
5. Section 567.12 is amended by:
a. Revising the heading and paragraphs (a) and (b)(3);
b. Adding paragraph (b)(5);
c. Revising paragraph (e)(3); and
d. Adding paragraph (h) to read as follows:
Sec. 567.12 Purchased credit card relationships, servicing assets,
intangible assets (other than purchased credit card relationships and
servicing assets), credit-enhancing interest-only strips, and deferred
tax assets.
(a) Scope. This section prescribes the maximum amount of purchased
credit card relationships, serving assets, intangible assets (other
than purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that savings
associations may include in calculating tangible and core capital.
(b) * * *
(3) Intangible assets, as defined in Sec. 567.1 of this part,
other than purchased credit card relationships described in paragraph
(b)(1) of this section, servicing assets described in paragraph (b)(2)
of this section, and core deposit intangibles described in paragraph
(g)(3) of this section, are deducted in computing tangible and core
capital, subject to paragraph (e)(3)(ii) of this section.
* * * * *
(5) Deferred tax assets may be included (that is not deducted) in
computing core capital subject to the restrictions of paragraph (h) of
this section, and may be included in tangible capital in the same
amount.
* * * * *
(e) * * *
(3) * * *
(i) For purposes of computing the limits and sublimits in
paragraphs (e) and (h) of this section, core capital is computed before
the deduction of disallowed servicing assets, disallowed purchased
credit card relationships, disallowed credit-enhancing interest-only
strips (purchased and retained), and disallowed deferred tax assets.
(ii) A savings association may elect to deduct the following items
on a basis net of deferred tax liabilities:
(A) Disallowed servicing assets;
(B) Goodwill such that only the net amount must be deducted from
Tier 1 capital;
(C) Disallowed credit-enhancing interest only strips (both
purchased and retained); and
(D) Other intangible assets arising from non-taxable business
combinations. A deferred tax liability that is specifically related to
an intangible asset (other than purchased credit card relationships)
arising from a nontaxable business combination may be netted against
this intangible asset. The net amount of the intangible asset must be
deducted from Tier 1 capital.
(iii) Deferred tax liabilities that are netted in accordance with
paragraph (e)(3)(ii) of this section cannot also be netted against
deferred tax assets when determining the amount of deferred tax assets
that are dependent upon future taxable income.
* * * * *
(h) Treatment of deferred tax assets. For purposes of calculating
Tier 1 capital under this part (but not for financial statement
purposes) deferred tax assets are subject to the conditions,
limitations, and restrictions described in this section.
(1) Deferred tax assets that are dependent upon future taxable
income. These assets are:
[[Page 56763]]
(i) Deferred tax assets arising from deductible temporary
differences that exceed the amount of taxes previously paid that could
be recovered through loss carrybacks if existing temporary differences
(both deductible and taxable and regardless of where the related
deferred tax effects are reported on the balance sheet) fully reverse
at the calendar quarter-end date; and
(ii) Deferred tax assets arising from operating loss and tax credit
carryforwards.
(2) Tier 1 capital limitations. (i) The maximum allowable amount of
deferred tax assets that are dependent upon future taxable income, net
of any valuation allowance for deferred tax assets, will be limited to
the lesser of:
(A) The amount of deferred tax assets that are dependent upon
future taxable income that is expected to be realized within one year
of the calendar quarter-end date, based on a projected future taxable
income for that year; or
(B) Ten percent of the amount of Tier 1 capital that exists before
the deduction of any disallowed servicing assets, any disallowed
purchased credit card relationships, any disallowed credit-enhancing
interest-only strips, and any disallowed deferred tax assets.
(ii) For purposes of this limitation, all existing temporary
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are dependent
upon future taxable income, net of any valuation allowance for deferred
tax assets, in excess of this limitation will be deducted from assets
and from equity capital for purposes of determining Tier 1 capital
under this part. The amount of deferred tax assets that can be realized
from taxes paid in prior carryback years and from the reversal of
existing taxable temporary differences generally would not be deducted
from assets and from equity capital.
(iii) Notwithstanding paragraph (h)(2)(B)(ii) of this section, the
amount of carryback potential that may be considered in calculating the
amount of deferred tax assets that a savings association that is part
of a consolidated group (for tax purposes) may include in Tier 1
capital may not exceed the amount which the association could
reasonably expect to have refunded by its parent.
(3) Projected future taxable income. Projected future taxable
income should not include net operating loss carryforwards to be used
within one year of the most recent calendar quarter-end date or the
amount of existing temporary differences expected to reverse within
that year. Projected future taxable income should include the estimated
effect of tax planning strategies that are expected to be implemented
to realize tax carryforwards that will otherwise expire during that
year. Future taxable income projections for the current fiscal year
(adjusted for any significant changes that have occurred or are
expected to occur) may be used when applying the capital limit at an
interim calendar quarter-end date rather than preparing a new
projection each quarter.
(4) Unrealized holding gains and losses on available-for-sale debt
securities. The deferred tax effects of any unrealized holding gains
and losses on available-for-sale debt securities may be excluded from
the determination of the amount of deferred tax assets that are
dependent upon future taxable income and the calculation of the maximum
allowable amount of such assets. If these deferred tax effects are
excluded, this treatment must be followed consistently over time.
Dated: September 18, 2008.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, September 23, 2008.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 18th day of September 2008.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: September 23, 2008.
By the Office of Thrift Supervision.
John Reich,
Director.
[FR Doc. E8-22741 Filed 9-29-08; 8:45 am]
BILLING CODE 4810-33-P (25%), 6210-01-P (25%), 6714-01-P (25%), 6720-
01-P (25%)