[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR211.43]

[Page 385-387]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)--Table of Contents
 
              Subpart D--International Lending Supervision
 
Sec. 211.43  Allocated transfer risk reserve.

    (a) Establishment of Allocated Transfer Risk Reserve. A banking 
institution shall establish an allocated transfer risk reserve (ATRR) 
for specified international assets when required by the Board in 
accordance with this section.
    (b) Procedures and standards--(1) Joint agency determination. At 
least annually, the Federal banking agencies shall determine jointly, 
based on the standards set forth in paragraph (b)(2) of this section, 
the following:
    (i) Which international assets subject to transfer risk warrant 
establishment of an ATRR;
    (ii) The amount of the ATRR for the specified assets; and
    (iii) Whether an ATRR established for specified assets may be 
reduced.

[[Page 386]]

    (2) Standards for requiring ATRR--(i) Evaluation of assets. The 
Federal banking agencies shall apply the following criteria in 
determining whether an ATRR is required for particular international 
assets:
    (A) Whether the quality of a banking institution's assets has been 
impaired by a protracted inability of public or private obligors in a 
foreign country to make payments on their external indebtedness as 
indicated by such factors, among others, as whether:
    (1) Such obligors have failed to make full interest payments on 
external indebtedness;
    (2) Such obligors have failed to comply with the terms of any 
restructured indebtedness; or
    (3) A foreign country has failed to comply with any International 
Monetary Fund or other suitable adjustment program; or
    (B) Whether no definite prospects exist for the orderly restoration 
of debt service.
    (ii) Determination of amount of ATRR. (A) In determining the amount 
of the ATRR, the Federal banking agencies shall consider:
    (1) The length of time the quality of the asset has been impaired;
    (2) Recent actions taken to restore debt service capability;
    (3) Prospects for restored asset quality; and
    (4) Such other factors as the Federal banking agencies may consider 
relevant to the quality of the asset.
    (B) The initial year's provision for the ATRR shall be ten percent 
of the principal amount of each specified international asset, or such 
greater or lesser percentage determined by the Federal banking agencies. 
Additional provision, if any, for the ATRR in subsequent years shall be 
fifteen percent of the principal amount of each specified international 
asset, or such greater or lesser percentage determined by the Federal 
banking agencies.
    (3) Board notification. Based on the joint agency determinations 
under paragraph (b)(1) of this section, the Board shall notify each 
banking institution holding assets subject to an ATRR:
    (i) Of the amount of the ATRR to be established by the institution 
for specified international assets; and
    (ii) That an ATRR established for specified assets may be reduced.
    (c) Accounting treatment of ATRR--(1) Charge to current income. A 
banking institution shall establish an ATRR by a charge to current 
income and the amounts so charged shall not be included in the banking 
institution's capital or surplus.
    (2) Separate accounting. A banking institution shall account for an 
ATRR separately from the Allowance for Possible Loan Losses, and shall 
deduct the ATRR from ``gross loans and leases'' to arrive at ``net loans 
and leases.'' The ATRR must be established for each asset subject to the 
ATRR in the percentage amount specified.
    (3) Consolidation. A banking institution shall establish an ATRR, as 
required, on a consolidated basis. For banks, consolidation should be in 
accordance with the procedures and tests of significance set forth in 
the instructions for preparation of Consolidated Reports of Condition 
and Income (FFIEC Nos. 031, 032, 033 and 034). For bank holding 
companies, the consolidation shall be in accordance with the principles 
set forth in the ``Instructions to the Bank Holding Company Financial 
Supplement to Report F.R. Y-6'' (Form F.R. Y-9). Edge and Agreement 
corporations engaged in banking shall report in accordance with 
instructions for preparation of the Report of Condition for Edge and 
Agreement Corporations (Form F.R. 2886b).
    (4) Alternative accounting treatment. A banking institution need not 
establish an ATRR if it writes down in the period in which the ATRR is 
required, or has written down in prior periods, the value of the 
specified international assets in the requisite amount for each such 
asset. For purposes of this paragraph, international assets may be 
written down by a charge to the Allowance for Possible Loan Losses or a 
reduction in the principal amount of the asset by application of 
interest payments or other collections on the asset. However, the 
Allowance for Possible Loan Losses must be replenished in such amount 
necessary to restore it to a level which adequately provides for

[[Page 387]]

the estimated losses inherent in the banking institutions's loan 
portfolio.
    (5) Reduction of ATRR. A banking institution may reduce an ATRR when 
notified by the Board or, at any time, by writing down such amount of 
the international asset for which the ATRR was established.