[Federal Register: November 27, 2001 (Volume 66, Number 228)]
[Proposed Rules]
[Page 59176-59178]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27no01-10]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 208 and 225
[Regulations H and Y; Docket No. R-1117]
Risk-Based Capital Guidelines; Supplementary Capital Elements
(Tier 2 Capital); Deferred Tax Assets
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule with request for comment.
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[[Page 59177]]
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is proposing to amend its risk-based capital guidelines to clarify that
deferred tax assets in excess of the allowable amount (disallowed
deferred tax assets) are included in the items that are deducted from
tier 1 capital for the purpose of determining the maximum allowable
amount of tier 2 capital that a banking organization may include in
qualifying total capital and the maximum allowable amount of term
subordinated debt and intermediate-term preferred stock that may be
treated as supplementary capital. The proposed rule would reduce the
maximum allowable amount of tier 2 capital for institutions that have
disallowed deferred tax assets, as well as the amount of term
subordinated debt and intermediate-term preferred stock that those
institutions could include in supplementary capital. This clarification
will make the Federal Reserve's capital guidelines consistent with
those of the Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift
Supervision (OTS).
DATES: Comments must be received by December 27, 2001.
ADDRESSES: Comments should refer to Docket No. R-1117 and should be
mailed to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551, or mailed electronically to
regs.comments@federalreserve.gov. Comments addressed to Ms. Johnson may
also be delivered to the Board's mail facility in the West Courtyard
between 8:45 a.m. and 5:15 p.m., located on 21st Street between
Constitution Avenue and C Street, NW. Members of the public may inspect
comments in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. on weekdays pursuant to Sec. 261.12, except as provided in
Sec. 261.14, of the Board's Rules Regarding Availability of
Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Barbara Bouchard, Associate Director
(202/452-3072), or David Adkins, Supervisory Financial Analyst (202/
452-5259), Division of Banking Supervision and Regulation. For users of
Telecommunications Device for the Deaf (``TDD'') only, contact 202/263-
4869.
SUPPLEMENTARY INFORMATION: Under the Board's risk-based capital
guidelines, banking organizations must deduct disallowed deferred tax
assets from tier 1 capital, along with goodwill and certain other
intangible assets.\1\ As a general rule, the maximum amount of tier 2
capital that may be included in an organization's qualifying total
capital is limited to 100 percent of tier 1 capital. In addition, the
aggregate amount of term subordinated debt (excluding mandatory
convertible debt) and intermediate-term preferred stock that may be
treated as supplementary capital is limited to 50 percent of tier 1
capital. However, for purposes of these two limitations, the Board's
current guidelines define tier 1 capital as net of goodwill and certain
other intangible assets but not of disallowed deferred tax assets. This
treatment is inconsistent with that of the OCC, the FDIC, and the OTS
(the other federal banking agencies), whose capital guidelines
specifically require disallowed deferred tax assets to be deducted from
tier 1 capital in determining these limitations. The Board is proposing
to amend its risk-based capital guidelines so that, in addition to
goodwill and certain other intangible assets, disallowed deferred tax
assets will also be netted out of tier 1 capital for the purpose of
determining these two limitations. These changes are being proposed in
order to make the Federal Reserve's risk-based capital guidelines
consistent with current market practice, and, in keeping with the
mandate of section 303(a)(1) of the Riegle Community Development and
Regulatory Improvement Act of 1994, to make the Federal Reserve's risk-
based capital rules consistent with those of the other Federal banking
agencies.
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\1\ The amount of deferred tax assets that may be included in a
banking organization's capital may not exceed the lesser of (i) the
amount of deferred tax assets that the banking organization is
expected to realize within one year, or (ii) 10 percent of tier 1
capital. Amounts in excess of this threshold represent disallowed
deferred tax assets and must be deducted from a banking
organization's core capital elements in determining tier 1 capital.
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Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
Board has determined that this rule would not have a significant impact
on a substantial number of small entities in accord with the spirit and
purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). An
analysis of recent Call Report data indicates that less than four
percent of banks with assets of $100 million or less carry disallowed
deferred tax assets on their balance sheets. In addition, many of these
banks may already be making the proper deduction of these disallowed
deferred tax assets from tier 1 capital. Accordingly, a regulatory
flexibility analysis is not required.
Paperwork Reduction Act
The Board has determined that this proposed rule does not involve a
collection of information pursuant to the provisions of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
Solicitation of Comments Regarding the Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments about how
to make the rule easier to understand, including answers to the
following questions:
(1) Is the material organized in an effective manner? If not, how
could the material be better organized?
(2) Are the terms of the proposed rule clearly stated? If not, how
could the terms be more clearly stated?
(3) Does the proposed rule contain technical language or jargon
that is unclear? If not, which language requires clarification?
(4) Would a different format (with respect to the grouping and
order of sections and use of headings) make the proposed rule easier to
understand? If so, what changes to the format would make the proposed
rule easier to understand?
(5) Would increasing the number of sections (and making each
section shorter) clarify the proposed rule? If so, which portions of
the proposed rule should be changed in this respect?
(6) What additional changes would make the proposed rule easier to
understand?
List of Subjects
12 CFR Part 208
Accounting, Agriculture, Banks, banking, Confidential business
information, Crime, Currency, Federal Reserve System, Mortgages,
Reporting and recordkeeping requirements, Securities.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.
For the reasons set forth in the preamble, part 208 and part 225 of
chapter II of title 12 of the Code of Federal Regulations are proposed
to be amended as set forth below:
[[Page 59178]]
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, 36, 92a, 93a, 248(a), 248(c), 321-338a,
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1835a, 1882, 2901-2907,
3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w, 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, section II.A.2. is amended by
revising the first undesignated paragraph following paragraph (v), and
section II.A.2.d. is amended by revising paragraph (i) to read as
follows:
Appendix A to Part 208--Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure
II. * * *
A. * * *
2. * * *
(v) * * *
The maximum amount of Tier 2 capital that may be included in a
bank's qualifying total capital is limited to 100 percent of Tier 1
capital (net of goodwill, other intangible assets required to be
deducted in accordance with section II.B.1.b. of this appendix, and
deferred tax assets required to be deducted in accordance with
section II.B.4. of this appendix).
* * * * *
(d) Subordinated debt and intermediate term preferred stock. (i)
The aggregate amount of term subordinated debt (excluding mandatory
convertible debt) and intermediate-term preferred stock that may be
treated as supplementary capital is limited to 50 percent of Tier 1
capital (net of goodwill, other intangible assets required to be
deducted in accordance with section II.B.1.b. of this appendix, and
deferred tax assets required to be deducted in accordance with
section II.B.4. of this appendix).
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
1. 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, 3907,
and 3909; 15 U.S.C. 6801 and 6805.
2. In appendix A to part 225, section II.A.2. is amended by
revising the first undesignated paragraph following paragraph (v), and
section II.A.2.d. is amended by revising paragraph (i) to read as
follows:
Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure
II. * * *
A. * * *
2. * * *
(v) * * *
The maximum amount of Tier 2 capital that may be included in an
organization's qualifying total capital is limited to 100 percent of
Tier 1 capital (net of goodwill, other intangible assets required to
be deducted in accordance with section II.B.1.b. of this appendix,
and deferred tax assets required to be deducted in accordance with
section II.B.4. of this appendix).
* * * * *
(d) Subordinated debt and intermediate term preferred stock. (i)
The aggregate amount of term subordinated debt (excluding mandatory
convertible debt) and intermediate-term preferred stock that may be
treated as supplementary capital is limited to 50 percent of tier 1
capital (net of goodwill, other intangible assets required to be
deducted in accordance with section II.B.1.b. of this appendix, and
deferred tax assets required to be deducted in accordance with
section II.B.4. of this appendix).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, November 19, 2001.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 01-29331 Filed 11-26-01; 8:45 am]
BILLING CODE 6210-01-P