[Federal Register Volume 73, Number 250 (Tuesday, December 30, 2008)]
[Rules and Regulations]
[Pages 79602-79608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30780]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2008-0025]
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-2008-0019]
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: Final rule.
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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 amending their regulatory
capital rules 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. For a banking organization that elects to apply this final
rule, the amount of goodwill the banking organization must deduct from
tier 1 capital would reflect the maximum exposure to loss in the event
that such goodwill is impaired or derecognized for financial reporting
purposes.
[[Page 79603]]
DATES: Effective date: This rule is effective January 29, 2009.
Applicability date: Banking organizations may elect to apply this
final rule for purposes of the regulatory reporting period ending on
December 31, 2008.
FOR FURTHER INFORMATION CONTACT:
OCC: Paul Podgorski, Risk Expert, Capital Policy (202-874-4755); or
Jean Campbell, Senior Attorney, or Ron Shimabukuro, Senior Counsel,
Legislative and Regulatory Activities Division (202-874-5090).
Board: Barbara Bouchard, Associate Director (202-452-3072), Mary
Frances Monroe, Manager (202-452-5231), David Snyder, Supervisory
Financial Analyst (202-728-5893), Division of Banking Supervision and
Regulation; or Mark Van Der Weide, Assistant General Counsel (202-452-
2263) or Dinah Knight, Senior Attorney (202-452-3838), 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:
I. Background
Under the Agencies' existing risk-based and leverage 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 making the
deduction from tier 1 capital. Included among the assets eligible for
this netting treatment 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.
On September 30, 2008, the Agencies published a notice of proposed
rulemaking (the proposal or NPR) in the Federal Register that would
permit a banking organization to reduce the amount of goodwill arising
from a taxable business combination that it must deduct from tier 1
capital by the amount of any deferred tax liability associated with
that goodwill.\3\ The Board, OCC, and OTS also proposed revisions to
their respective capital rules that were intended to conform certain
provisions of their rules to developments in generally accepted
accounting principles (GAAP), clarify certain definitions and related
provisions, and present the rule text in a manner that is consistent
across the Agencies. The Agencies requested comment on all aspects of
the proposal and whether to extend the proposed capital treatment for
any deferred tax liability associated with goodwill to deferred tax
liabilities associated with other intangible assets acquired in a
taxable business combination.
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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 final rule is focused on the
deduction of goodwill from tier 1 capital.
\3\ See 73 FR 56756 (September 30, 2008).
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II. Comments
The Agencies received 13 public comments on the proposal from
banking organizations, industry associations, and other parties. The
majority of the commenters supported the proposal. Five of the
commenters who supported the proposal encouraged the Agencies to adopt
the final rule so that it could be applicable for regulatory capital
reporting purposes as of December 31, 2008. The Agencies agree and are
permitting banking organizations to elect to apply the rule for
purposes of the regulatory reporting period ending on December 31,
2008.
The Agencies note that the NPR requested comment and solicited data
on the capital impact of potentially extending the proposed rule to
intangible assets other than goodwill acquired in a taxable business
combination. Although several commenters submitted general requests to
extend the capital treatment proposed for goodwill to other intangible
assets, they did not provide quantitative data to support broadening
the scope of the proposal. In the absence of any supportive analyses,
the Agencies have decided not to broaden the scope of the rule.
Two commenters noted that the proposed rule either would or should
permit the inclusion of goodwill in regulatory capital. The Agencies
are prohibited by law from permitting a banking organization to include
goodwill in regulatory capital.\4\ The Agencies note that this final
rule continues to require a banking organization to deduct goodwill
from tier 1 capital.
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\4\ See 12 U.S.C. 1828(n).
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As several commenters stated, if goodwill becomes impaired or is
derecognized under GAAP, a banking organization's maximum exposure to
loss is equal to the carrying value of the goodwill less any associated
deferred tax liability. The Agencies agree with commenters that, unlike
most other liabilities, a deferred tax liability associated with
goodwill does not represent a claim on or interest in the cash or
assets of the organization. For these reasons, the Agencies believe
that it is appropriate to permit a banking organization to reduce the
amount of goodwill it must deduct from tier 1 capital by the amount of
any associated deferred tax liability, that is, the amount that
reflects the banking organization's maximum exposure to loss if such
goodwill becomes impaired or derecognized under GAAP.
One commenter disagreed with the calculation of the maximum capital
reduction that could occur as a result of the impairment of goodwill in
the example in the NPR. This commenter asserted that the maximum
capital reduction under GAAP should be equal to the carrying value of
goodwill less the sum of tax benefits recognized as of the date of
impairment and those tax benefits to be realized in future periods. The
Agencies believe that current rules adequately address the treatment of
deferred tax assets for regulatory capital purposes and that deferred
tax assets that may be created for tax benefits to be realized in the
future are beyond the scope of this NPR. One commenter expressed
concern about the tax rate used in the example in the NPR. The Agencies
emphasize that the tax rate in the example was simply an assumption for
illustrative purposes.
Two commenters opposed the proposal. One expressed general
opposition to any rule that would reduce the regulatory capital
requirements for banking organizations.
[[Page 79604]]
Another commenter urged the Agencies to withdraw the proposal in light
of other efforts by the Federal government to provide capital support
to the financial services industry. Alternatively, if the Agencies did
not withdraw the proposal, this commenter requested an extension of the
comment period to address valuation issues. Further, this commenter
criticized the proposal as an attempt to provide artificial capital
support to certain banking organizations. In addition, several
commenters that supported the proposal raised questions about the
valuation of goodwill. The Agencies believe that the rule as proposed
achieves consistency with GAAP for regulatory reporting purposes and
for determining the carrying amount of both goodwill and deferred tax
liabilities.
III. Final Rule
After reviewing the comments, the Agencies have adopted the
proposal without change. Under the final rule, a banking organization
may reduce the amount of goodwill that 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 deferred
tax liability is not permitted to net this deferred tax liability
against deferred tax assets when determining regulatory capital
limitations on deferred tax assets. For these banking organizations,
the amount of goodwill deducted from tier 1 capital will reflect each
organization's maximum exposure to loss in the event that the entire
amount of goodwill is impaired or derecognized, an event which triggers
the concurrent derecognition of the related deferred tax liability for
financial reporting purposes.
IV. Other Revisions
As discussed in the preamble to the proposed rule, the OCC is
consolidating 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. The OCC is also clarifying the current regulatory
text's special treatment of intangible assets acquired due to a
nontaxable purchase business combination. In addition, the OCC is
replacing the term ``purchased mortgage servicing rights'' with the
broader term ``servicing assets,'' making clarifying changes to more
accurately reflect the OCC's existing interpretation of the current
regulatory text, amending the definition of goodwill to conform to
GAAP, and making other technical and miscellaneous changes to its
regulatory capital rules. No comments were received on these
amendments. The amendments are adopted by the OCC as proposed. However,
existing regulatory text not printed in the proposal has been added at
section 2(c) for ease of reader reference to clarify that goodwill is
required to be deducted from tier 1 capital.
The Board is adopting as final the non-substantive technical
changes proposed in the NPR that conform the definition of goodwill in
its regulatory capital rules to GAAP. Further, the Board is amending
Appendix A to 12 CFR part 225 to remove obsolete text that relates to
goodwill recognized by a BHC prior to December 31, 1992. The Board
received no comments on its proposal to make these rule changes.
OTS is adopting as final the changes to its capital regulations as
proposed in the NPR as follows: First, OTS is amending its definition
of ``intangible assets'' in 12 CFR 567.1 and 12 CFR 567.9 to reference
servicing assets as intangible assets. Second, OTS is conforming its
regulatory text to that of the other Agencies to provide for netting a
deferred tax liability specifically related to certain intangible
assets against those intangible assets, prior to deduction when
calculating regulatory capital, and to add regulatory text addressing
the regulatory capital limitation on deferred tax assets. In addition,
OTS is amending its definition in 12 CFR 565.2(f) and other proposed
regulatory text in 12 CFR 567.9(c)(1) to conform with changes in this
rule.
Effective Date and Applicability Date
This final rule takes effect 30 days after publication in the
Federal Register. In response to requests from commenters, the Agencies
are permitting banking organizations to elect to apply this final rule
for purposes of the regulatory reporting period ending on December 31,
2008.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) requires an agency that is
issuing a final rule to provide a final regulatory flexibility analysis
or to certify that the rule will not have a significant economic impact
on a substantial number of small entities.\5\
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\5\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
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Under regulations issued by the Small Business Administration,\6\ a
small entity includes a bank holding company, commercial bank, or
savings association with assets of $175 million or less (collectively,
small banking organizations).\7\ This final rule would in effect 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 final rule will not have a significant economic
impact on a substantial number of small entities because the final rule
is elective and, thus, does not require a banking organization to
compute its deduction from regulatory capital of goodwill net of any
associated deferred tax liability. In addition, the Agencies did not
receive any comments that the proposal would have a significant impact
on small banking organizations. Accordingly, each of the Agencies
certifies that this rule will not have a significant economic impact on
a substantial number of small entities.
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\6\ See 13 CFR 121.201.
\7\ As of June 30, 2008, there were approximately 2,636 small
bank holding companies, 730 small national banks, 467 small state
member banks, 3,222 small state nonmember banks, and 412 small
savings associations.
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Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995, the
Agencies reviewed the rule regarding the treatment of a deferred tax
liability attributable to goodwill as required by the Office of
Management and Budget.\8\ No collections of information pursuant to the
Paperwork Reduction Act are contained in the rule. However,
implementation of this rule will require certain clarifying revisions
to the instructions for the Agencies' quarterly regulatory reports \9\
to reflect the change in a banking organization's tier 1 capital.
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\8\ See 44 U.S.C. 3506; 5 CFR 1320 Appendix A.1.
\9\ 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 rule in a simple and straightforward manner.
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
[[Page 79605]]
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 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 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 (UMRA)\10\
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.\11\ 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.\12\ The OCC and OTS each have determined
that its 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.
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\10\ See 2 U.S.C. 1532.
\11\ The OCC and OTS adjusted $100 million for inflation using
the GDP implicit price deflator with the second quarter of 1995 as
the base index. The result was $132.64 million, which OCC and OTS
rounded to $133 million.
\12\ See 2 U.S.C. 1535.
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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 565
Administrative practice and procedure, Capital, Savings
associations.
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
0
For the reasons set forth in the common 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, Section 1 is amended by:
0
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
0
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.
* * * * *
0
3. In Appendix A to part 3, Section 2 is amended by:
0
a. Revising paragraphs (c) introductory text, and (c)(1) introductory
text;
0
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)'';
0
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)'';
0
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)'';
0
e. Removing paragraph (c)(2)(iv);
0
f. Adding a heading to paragraph (c)(3)(i);
0
g. Removing paragraph (c)(3)(iii) and redesignating paragraph
(c)(3)(iv) as paragraph (c)(3)(iii);
0
h. Removing paragraph (c)(4)(iii);
0
i. Redesignating paragraph (c)(6) as paragraph (c)(7) and adding a new
paragraph (c)(6) to read as follows; and
0
j. Amending the introductory text of newly designated paragraph (c)(7)
by removing the word ``items'' and adding in lieu thereof the word
``assets''.
The revisions and addition are set forth below.
Section 2. Components of Capital.
* * * * *
(c) Deductions from Capital. The following items are deducted
from the appropriate portion of a national bank's capital base when
calculating its risk-based capital ratio:
(1) Deductions from Tier 1 Capital. The following items are
deducted from Tier 1 capital before the Tier 2 portion of the
calculation is made:
* * * * *
(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.
* * * * *
[[Page 79606]]
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
0
For the reasons set forth in the common 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, 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.
0
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)
0
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.
0
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
0
For the reasons set forth in the common preamble, part 325 of chapter
III of title 12 of the Code of Federal Regulations is amended 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. 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
[[Page 79607]]
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
0
For the reasons set forth in the common preamble, parts 565 and 567 of
chapter V of title 12 of the Code of Federal Regulations are amended as
follows:
PART 565--PROMPT CORRECTIVE ACTION
0
1. The authority citation for part 565 continues to read as follows:
Authority: 12 U.S.C. 1831o.
0
2. Section 565.2 is amended by revising paragraph (f) to read as
follows:
Sec. 565.2 Definitions.
* * * * *
(f) Tangible equity means the amount of a savings association's
core capital as computed in part 567 of this chapter plus the amount of
its outstanding cumulative perpetual preferred stock (including related
surplus), minus intangible assets as defined in Sec. 567.1 of this
chapter, except mortgage servicing assets to the extent they are
includable under Sec. 567.12. Non-mortgage servicing assets that have
not been previously deducted in calculating core capital are deducted.
* * * * *
PART 567--CAPITAL
0
3. The authority citation for part 567 continues to read as follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828
(note).
0
4. 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.
* * * * *
0
5. 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.
* * * * *
0
6. 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) except for
mortgage servicing assets to the extent they are includable in tangible
capital under Sec. 567.12, and credit enhancing interest-only strips
and deferred tax assets not includable in tangible capital under Sec.
567.12.
* * * * *
0
7. Section 567.12 is amended by:
0
a. Revising the heading and paragraphs (a) and (b)(3);
0
b. Adding paragraph (b)(5);
0
c. Revising paragraph (e)(3); and
0
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) Computation. (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) Tier 1 capital limitations. (i) The maximum allowable amount of
deferred tax assets net of any valuation allowance that are dependent
upon future taxable income 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
[[Page 79608]]
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)(1)(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.
(2) 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.
(3) 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: December 15, 2008.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, December 19, 2008.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 16th day of December, 2008.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: December 15, 2008.
By the Office of Thrift Supervision.
John Reich,
Director.
[FR Doc. E8-30780 Filed 12-29-08; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P