Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2017; Report to Congressional Committees, 3867-3869 [2018-01434]

Download as PDF Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices comments, without edit, including any personal information the commenter provides, to www.regulations.gov as described in the system of records notice (DOT/ALL– 14 FDMS), which can be reviewed at www.dot.gov/ privacy. Services for Individuals with Disabilities: The public meeting will be physically accessible to people with disabilities. Individuals requiring accommodations, such as sign language interpretation or other ancillary aids, are asked to notify Cheryl Whetsel at cheryl.whetsel@dot.gov. FOR FURTHER INFORMATION CONTACT: For information about the meeting, contact Cheryl Whetsel by phone at 202–366– 4431 or by email at cheryl.whetsel@ dot.gov. SUPPLEMENTARY INFORMATION: I. Background The VIS Working Group is a recently created advisory committee established in accordance with Section 10 of the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (Pub. L. 114–183), the Federal Advisory Committee Act of 1972 (5 U.S.C., App. 2, as amended), and 41 CFR 102–3.50(a). daltland on DSKBBV9HB2PROD with NOTICES II. Meeting Details and Agenda The VIS Working Group agenda will include briefings on topics such as mandate requirements, integrity management, data types and tools, inline inspection repair and other direct assessment methods, geographic information system implementation, subcommittee considerations, lessons learned, examples of existing information-sharing systems, safety management systems, and more. As part of its work, the committee will ultimately provide recommendations to the Secretary, as required and specifically outlined in Section 10 of Public Law 114–183, addressing: (a) The need for, and the identification of, a system to ensure that dig verification data are shared with inline inspection operators to the extent consistent with the need to maintain proprietary and security-sensitive data in a confidential manner to improve pipeline safety and inspection technology; (b) Ways to encourage the exchange of pipeline inspection information and the development of advanced pipeline inspection technologies and enhanced risk analysis; (c) Opportunities to share data, including dig verification data between operators of pipeline facilities and inline inspector vendors to expand VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 3867 knowledge of the advantages and disadvantages of the different types of in-line inspection technology and methodologies; (d) Options to create a secure system that protects proprietary data while encouraging the exchange of pipeline inspection information and the development of advanced pipeline inspection technologies and enhanced risk analysis; (e) Means and best practices for the protection of safety and securitysensitive information and proprietary information; and (f) Regulatory, funding, and legal barriers to sharing the information described in paragraphs (a) through (d). The Secretary will publish the VIS Working Group’s recommendations on a publicly available DOT website and in the docket. The VIS Working Group will fulfill its purpose once its recommendations are published online. PHMSA will publish the agenda on the PHMSA meeting page https:// primis.phmsa.dot.gov/meetings/ MtgHome.mtg?mtg=130, once it is finalized. U.S. House of Representatives and to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate describing differences among the accounting and capital standards used by the agencies. Section 37(c) requires that this report be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: OCC: Benjamin Pegg, Risk Expert, Capital Policy, (202) 649–7146, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. Board: Elizabeth MacDonald, Manager, Capital and Regulatory Policy, (202) 475–6316, Division of Supervision and Regulation, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. FDIC: Benedetto Bosco, Chief, Capital Policy Section, (202) 898–6853, Division of Risk Management Supervision, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. Issued in Washington, DC, on January 23, 2018, under authority delegated in 49 CFR 1.97. Alan K. Mayberry, Associate Administrator for Pipeline Safety. Report to the Committee on Financial Services of the U.S. House of Representatives and to the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate Regarding Differences in Accounting and Capital Standards Among the Federal Banking Agencies [FR Doc. 2018–01476 Filed 1–25–18; 8:45 am] BILLING CODE 4910–60–P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency FEDERAL RESERVE SYSTEM FEDERAL DEPOSIT INSURANCE CORPORATION Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2017; Report to Congressional Committees Office of the Comptroller of the Currency (OCC), Treasury; Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC). ACTION: Report to Congressional Committees. AGENCY: The OCC, the Board, and the FDIC (collectively, the agencies) have prepared this report pursuant to section 37(c) of the Federal Deposit Insurance Act. Section 37(c) requires the agencies to jointly submit an annual report to the Committee on Financial Services of the SUMMARY: PO 00000 Frm 00195 Fmt 4703 Sfmt 4703 SUPPLEMENTARY INFORMATION: The text of the report follows: Introduction Under section 37(c) of the Federal Deposit Insurance Act (section 37(c)), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) must jointly submit an annual report to the Committee on Financial Services of the U.S. House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate that describes any differences among the accounting and capital standards established by the agencies for insured depository institutions (institutions).1 In accordance with section 37(c), the agencies are submitting this joint report, which covers differences among their accounting or capital standards existing as of September 30, 2017, applicable to institutions. In recent years, the agencies have acted together to harmonize their accounting and capital standards and eliminate as many 1 See 12 U.S.C. 1831n(c). This report must be published in the Federal Register. See 12 U.S.C. 1831n(c)(3). E:\FR\FM\26JAN1.SGM 26JAN1 3868 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES differences as possible. As of September 30, 2017, the agencies have not identified any material differences among themselves in the accounting standards applicable to institutions. In 2013, the agencies revised the riskbased and leverage capital rules for institutions (capital rules),2 which harmonized the agencies’ capital rules in a comprehensive manner.3 Only a few differences remain, which are statutorily mandated for certain categories of institutions or which reflect certain technical, generally nonmaterial differences among the agencies’ capital rules. As revised in 2013, the agencies’ capital rules generally have increased the quantity and quality of regulatory capital. For example, these revised capital rules include a minimum common equity tier 1 capital ratio of 4.5 percent, raise the minimum tier 1 capital ratio from 4 percent to 6 percent, and establish additional capital buffer amounts for institutions: The capital conservation buffer, and, for advanced approaches institutions,4 the countercyclical capital buffer. These revised capital rules also require all institutions to meet a 4 percent minimum leverage ratio measured as an institution’s tier 1 capital to average total consolidated assets (generally applicable leverage ratio) and require advanced approaches institutions to meet a 3 percent minimum supplementary leverage ratio, measured as an institution’s tier 1 capital to the sum of on- and off-balance sheet exposures (supplementary leverage ratio).5 2 See 78 FR 62018 (October 11, 2013) (final rule issued by the OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final rule issued by the FDIC). The FDIC later issued its final rule in 79 FR 20754 (April 14, 2014). The agencies’ respective capital rules are at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 324 (FDIC). These capital rules apply to institutions, as well as to certain bank holding companies, and savings and loan holding companies. 12 CFR 217.1(c). 3 The capital rules reflect the scope of each agency’s regulatory jurisdiction. For example, the Board’s capital rule includes requirements related to bank holding companies, savings and loan holding companies, and state member banks, while the FDIC’s capital rule includes provisions for state nonmember banks and state savings associations, and the OCC’s capital rule includes provisions for national banks and federal savings associations. 4 Generally, these are institutions, bank holding companies, and savings and loan holding companies that are subject to the capital rules with total consolidated assets of $250 billion or more or total consolidated on-balance sheet foreign exposures of at least $10 billion. 5 Under the auspices of the Federal Financial Institutions Examination Council, the agencies have developed the Consolidated Reports of Condition and Income, or ‘‘Call Report,’’ where institutions report their respective capital and leverage ratios. VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 Differences in Capital Standards Among the Federal Banking Agencies Below are summaries of the technical differences remaining among the capital standards of the agencies’ capital rules.6 Definitions The agencies’ capital rules largely contain the same definitions.7 The differences that exist generally serve to accommodate the different scope of jurisdiction of each agency. Set forth below are two definitional differences among the agencies. Each agency’s definitional provisions provide that a ‘‘corporate exposure is an exposure to a company that is not’’ one of 11 separate other types of exposures.8 The Board’s capital rule provides that two additional items are not corporate exposures: a policy loan and a separate account.9 Unlike the OCC’s and FDIC’s capital rules, the Board’s capital rule covers bank holding companies and savings and loan holding companies, which may engage in insurance underwriting activities 10 in which institutions cannot engage,11 and these additional items in the Board’s capital rule are relevant for insurance underwriting activities. Thus, these additional items are only relevant to bank holding companies and savings and loan holding companies under the terms of the Board’s capital rule. The agencies’ capital rules also have differing definitions of a pre-sold construction loan. All three agencies provide that a pre-sold construction loan means any ‘‘one-to-four family residential construction loan to a builder that meets the requirements of section 618(a)(1) or (2) of the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in addition to other criteria, the purchaser has not terminated the contract.’’ 12 The Board’s definition provides further clarification that, if a purchaser has terminated the contract, the institution must immediately apply a 100 percent risk weight to the loan and report the revised risk weight in the next quarterly Call Report.13 Similarly, if the purchaser has terminated the contract, the OCC and FDIC capital rules would immediately 6 Certain minor differences, such as terminology specific to each agency for the institutions that they supervise, are not included in this report. 7 See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC). 8 Id. 9 12 CFR 217.2. The Board’s rule separately defines policy loan and separate account. Id. 10 78 FR 62127 (October 11, 2013). 11 See 12 U.S.C. 1831a. 12 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), 12 CFR 324.2 (FDIC). 13 12 CFR 217.2. PO 00000 Frm 00196 Fmt 4703 Sfmt 4703 disqualify the loan from receiving a 50 percent risk weight, and would apply a 100 percent risk weight to the loan. The change in risk weight would be reflected in the next quarterly Call Report. Thus, the minor wording difference between the agencies should have no practical consequence. Capital Components and Eligibility Criteria for Regulatory Capital Instruments While the capital rules generally provide uniform eligibility criteria for regulatory capital instruments, there are two textual differences among the agencies’ capital rules. First, the OCC’s and FDIC’s capital rules require that additional tier 1 capital instruments not be subject to a ‘‘limit’’ imposed by the contractual terms governing the instrument, while the Board’s capital rule does not include this requirement.14 Second, only the Board’s capital rule states that ‘‘[s]tate member banks are subject to certain other legal restrictions on reductions in capital resulting from cash dividends, including out of the capital surplus account, under 12 U.S.C. 324 and 12 CFR 208.5.’’ 15 The Board’s capital rule also includes similar language relating to distributions on additional tier 1 capital instruments.16 However, the agencies apply the criteria for determining eligibility of regulatory capital instruments to ensure consistent outcomes. Capital Deductions There is a technical difference between the FDIC’s capital rule and the OCC’s and Board’s capital rules with regard to an explicit requirement for deduction of examiner-identified losses. The agencies require their examiners to determine whether their respective supervised institutions have appropriately identified losses. The FDIC’s capital rule, however, explicitly requires FDIC-supervised institutions to deduct identified losses from common equity tier 1 capital elements, to the extent that the institution’s common equity tier 1 capital would have been reduced if the appropriate accounting entries had been recorded.17 Generally, identified losses are those items that an examiner determines to be chargeable against income, capital, or general valuation allowances. For example, identified losses may include, among other items, assets 14 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 (FDIC). 15 12 CFR 217.20. 16 Id. 17 12 CFR 324.22(a)(9). E:\FR\FM\26JAN1.SGM 26JAN1 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices classified as loss, off-balance-sheet items classified as loss, any expenses that are necessary for the institution to record in order to replenish its general valuation allowances to an adequate level, and estimated losses on contingent liabilities. The Board and the OCC expect their supervised institutions to promptly recognize examineridentified losses, but the requirement is not explicit under their capital rules. Instead, the Board and the OCC apply their supervisory authorities to ensure that their supervised institutions charge off any identified losses. Subsidiaries of Savings Associations There are special statutory requirements for the agencies’ capital treatment of a savings association’s investment in or credit to its subsidiaries as compared with the capital treatment of such transactions between other types of institutions and their subsidiaries. Specifically, the Home Owners’ Loan Act (HOLA) distinguishes between subsidiaries of savings associations engaged in activities that are permissible for national banks and those engaged in activities that are not permissible for national banks.18 When subsidiaries of a savings association are engaged in activities that are not permissible for national banks,19 the parent savings association generally must deduct the parent’s investment in and extensions of credit to these subsidiaries from the capital of the parent savings association. If a subsidiary of a savings association engages solely in activities permissible for national banks, no deduction is required and investments in and loans to that organization may be assigned the risk weight appropriate for the activity.20 As the appropriate federal banking agencies for federal and state savings associations, respectively, the OCC and the FDIC apply this capital treatment to those types of institutions. The Board’s regulatory capital framework does not apply to savings associations and therefore does not include this requirement. daltland on DSKBBV9HB2PROD with NOTICES Tangible Capital Requirement Federal statutory law subjects savings associations to a specific tangible capital requirement but does not similarly do so with respect to banks. Under section 18 See 12 U.S.C. 1464(t)(5). engaged in activities not permissible for national banks are considered nonincludable subsidiaries. 20 A deduction from capital is only required to the extent that the savings association’s investment exceeds the generally applicable thresholds for deduction of investments in the capital of an unconsolidated financial institution. 19 Subsidiaries VerDate Sep<11>2014 20:14 Jan 25, 2018 Jkt 244001 5(t)(2)(B) of HOLA, savings associations are required to maintain tangible capital in an amount not less than 1.5 percent of total assets.21 The capital rules of the OCC and the FDIC include a requirement that covered savings associations maintain a tangible capital ratio of 1.5 percent.22 This statutory requirement does not apply to banks and, thus, there is no comparable regulatory provision for banks. The distinction is of little practical consequence, however, because under the Prompt Corrective Action (PCA) framework, all institutions are considered critically undercapitalized if their tangible equity falls below 2 percent of total assets.23 Generally speaking, the appropriate federal banking agency must appoint a receiver within 90 days after an institution becomes critically undercapitalized.24 Enhanced Supplementary Leverage Ratio The agencies adopted enhanced supplementary leverage ratio standards that take effect beginning on January 1, 2018.25 These standards require certain bank holding companies to exceed a 5 percent supplementary leverage ratio to avoid limitations on distributions and certain discretionary bonus payments and also require the subsidiary institutions of these bank holding companies to meet a 6 percent supplementary leverage ratio to be considered ‘‘well capitalized’’ under the PCA framework.26 The rule text establishing the scope of application for the enhanced supplementary leverage ratio differs among the agencies. However, the distinction is of little practical consequence at this time because the rules of each agency apply the enhanced supplementary leverage ratio to the same set of bank holding companies. The Board applies the enhanced supplementary leverage ratio standards to bank holding companies identified as global systemically important bank holding companies as defined in 12 CFR 217.2 and those bank holding companies’ Board-supervised, institution subsidiaries.27 The OCC and the FDIC apply enhanced 21 See 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B). 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(6) (FDIC). The Board’s regulatory capital framework does not apply to savings associations and, therefore, does not include this requirement. 23 See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 (OCC); 12 CFR 208.45 (Board); 12 CFR 324.403 (FDIC). 24 12 U.S.C. 1831o(h)(3)(A). 25 See 79 FR 24528 (May 1, 2014). 26 See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 208.43(b)(1)(iv)(B) (Board); 12 CFR 324.403(b)(1)(v) (FDIC). 27 See 80 FR 49082 (August 14, 2015). 22 See PO 00000 Frm 00197 Fmt 4703 Sfmt 4703 3869 supplementary leverage ratio standards to the institution subsidiaries under their supervisory jurisdiction of a toptier bank holding company that has more than $700 billion in total assets or more than $10 trillion in assets under custody.28 Dated: January 11, 2018. Grace E. Dailey, Senior Deputy Comptroller and Chief, National Bank Examiner, Office of the Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, January 11, 2018. Ann E. Misback, Secretary of the Board. Dated at Washington, DC, this 19th day of January 2018. By order of the Board of Directors. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. [FR Doc. 2018–01434 Filed 1–25–18; 8:45 am] BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P UNITED STATES SENTENCING COMMISSION Sentencing Guidelines for United States Courts United States Sentencing Commission. ACTION: Notice of proposed amendments to sentencing guidelines, policy statements, and commentary. Request for public comment, including public comment regarding retroactive application of any of the proposed amendments. Notice of public hearing. AGENCY: Pursuant to section 994(a), (o), and (p) of title 28, United States Code, the United States Sentencing Commission is considering promulgating amendments to the sentencing guidelines, policy statements, and commentary. This notice sets forth the proposed amendments and, for each proposed amendment, a synopsis of the issues addressed by that amendment. This notice also sets forth several issues for comment, some of which are set forth together with the proposed amendments, and one of which (regarding retroactive application of proposed amendments) is set forth in the SUPPLEMENTARY INFORMATION section of this notice. DATES: (1) Written Public Comment.— Written public comment regarding the proposed amendments and issues for comment set forth in this notice, SUMMARY: 28 See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 324.403(b)(1)(v) (FDIC). E:\FR\FM\26JAN1.SGM 26JAN1

Agencies

[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3867-3869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01434]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Joint Report: Differences in Accounting and Capital Standards 
Among the Federal Banking Agencies as of September 30, 2017; Report to 
Congressional Committees

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury; 
Board of Governors of the Federal Reserve System (Board); and Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Report to Congressional Committees.

-----------------------------------------------------------------------

SUMMARY: The OCC, the Board, and the FDIC (collectively, the agencies) 
have prepared this report pursuant to section 37(c) of the Federal 
Deposit Insurance Act. Section 37(c) requires the agencies to jointly 
submit an annual report to the Committee on Financial Services of the 
U.S. House of Representatives and to the Committee on Banking, Housing, 
and Urban Affairs of the U.S. Senate describing differences among the 
accounting and capital standards used by the agencies. Section 37(c) 
requires that this report be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Benjamin Pegg, Risk Expert, Capital Policy, (202) 649-7146, 
Office of the Comptroller of the Currency, 400 7th Street SW, 
Washington, DC 20219.
    Board: Elizabeth MacDonald, Manager, Capital and Regulatory Policy, 
(202) 475-6316, Division of Supervision and Regulation, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, (202) 898-
6853, Division of Risk Management Supervision, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The text of the report follows:

Report to the Committee on Financial Services of the U.S. House of 
Representatives and to the Committee on Banking, Housing, and Urban 
Affairs of the U.S. Senate Regarding Differences in Accounting and 
Capital Standards Among the Federal Banking Agencies

Introduction

    Under section 37(c) of the Federal Deposit Insurance Act (section 
37(c)), the Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) must 
jointly submit an annual report to the Committee on Financial Services 
of the U.S. House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the U.S. Senate that describes any 
differences among the accounting and capital standards established by 
the agencies for insured depository institutions (institutions).\1\
---------------------------------------------------------------------------

    \1\ See 12 U.S.C. 1831n(c). This report must be published in the 
Federal Register. See 12 U.S.C. 1831n(c)(3).
---------------------------------------------------------------------------

    In accordance with section 37(c), the agencies are submitting this 
joint report, which covers differences among their accounting or 
capital standards existing as of September 30, 2017, applicable to 
institutions. In recent years, the agencies have acted together to 
harmonize their accounting and capital standards and eliminate as many

[[Page 3868]]

differences as possible. As of September 30, 2017, the agencies have 
not identified any material differences among themselves in the 
accounting standards applicable to institutions.
    In 2013, the agencies revised the risk-based and leverage capital 
rules for institutions (capital rules),\2\ which harmonized the 
agencies' capital rules in a comprehensive manner.\3\ Only a few 
differences remain, which are statutorily mandated for certain 
categories of institutions or which reflect certain technical, 
generally nonmaterial differences among the agencies' capital rules.
---------------------------------------------------------------------------

    \2\ See 78 FR 62018 (October 11, 2013) (final rule issued by the 
OCC and the Board); 78 FR 55340 (September 10, 2013) (interim final 
rule issued by the FDIC). The FDIC later issued its final rule in 79 
FR 20754 (April 14, 2014). The agencies' respective capital rules 
are at 12 CFR part 3 (OCC), 12 CFR part 217 (Board), and 12 CFR part 
324 (FDIC). These capital rules apply to institutions, as well as to 
certain bank holding companies, and savings and loan holding 
companies. 12 CFR 217.1(c).
    \3\ The capital rules reflect the scope of each agency's 
regulatory jurisdiction. For example, the Board's capital rule 
includes requirements related to bank holding companies, savings and 
loan holding companies, and state member banks, while the FDIC's 
capital rule includes provisions for state nonmember banks and state 
savings associations, and the OCC's capital rule includes provisions 
for national banks and federal savings associations.
---------------------------------------------------------------------------

    As revised in 2013, the agencies' capital rules generally have 
increased the quantity and quality of regulatory capital. For example, 
these revised capital rules include a minimum common equity tier 1 
capital ratio of 4.5 percent, raise the minimum tier 1 capital ratio 
from 4 percent to 6 percent, and establish additional capital buffer 
amounts for institutions: The capital conservation buffer, and, for 
advanced approaches institutions,\4\ the countercyclical capital 
buffer. These revised capital rules also require all institutions to 
meet a 4 percent minimum leverage ratio measured as an institution's 
tier 1 capital to average total consolidated assets (generally 
applicable leverage ratio) and require advanced approaches institutions 
to meet a 3 percent minimum supplementary leverage ratio, measured as 
an institution's tier 1 capital to the sum of on- and off-balance sheet 
exposures (supplementary leverage ratio).\5\
---------------------------------------------------------------------------

    \4\ Generally, these are institutions, bank holding companies, 
and savings and loan holding companies that are subject to the 
capital rules with total consolidated assets of $250 billion or more 
or total consolidated on-balance sheet foreign exposures of at least 
$10 billion.
    \5\ Under the auspices of the Federal Financial Institutions 
Examination Council, the agencies have developed the Consolidated 
Reports of Condition and Income, or ``Call Report,'' where 
institutions report their respective capital and leverage ratios.
---------------------------------------------------------------------------

Differences in Capital Standards Among the Federal Banking Agencies

    Below are summaries of the technical differences remaining among 
the capital standards of the agencies' capital rules.\6\
---------------------------------------------------------------------------

    \6\ Certain minor differences, such as terminology specific to 
each agency for the institutions that they supervise, are not 
included in this report.
---------------------------------------------------------------------------

Definitions
    The agencies' capital rules largely contain the same 
definitions.\7\ The differences that exist generally serve to 
accommodate the different scope of jurisdiction of each agency. Set 
forth below are two definitional differences among the agencies. Each 
agency's definitional provisions provide that a ``corporate exposure is 
an exposure to a company that is not'' one of 11 separate other types 
of exposures.\8\ The Board's capital rule provides that two additional 
items are not corporate exposures: a policy loan and a separate 
account.\9\ Unlike the OCC's and FDIC's capital rules, the Board's 
capital rule covers bank holding companies and savings and loan holding 
companies, which may engage in insurance underwriting activities \10\ 
in which institutions cannot engage,\11\ and these additional items in 
the Board's capital rule are relevant for insurance underwriting 
activities. Thus, these additional items are only relevant to bank 
holding companies and savings and loan holding companies under the 
terms of the Board's capital rule.
---------------------------------------------------------------------------

    \7\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 
(FDIC).
    \8\ Id.
    \9\ 12 CFR 217.2. The Board's rule separately defines policy 
loan and separate account. Id.
    \10\ 78 FR 62127 (October 11, 2013).
    \11\ See 12 U.S.C. 1831a.
---------------------------------------------------------------------------

    The agencies' capital rules also have differing definitions of a 
pre-sold construction loan. All three agencies provide that a pre-sold 
construction loan means any ``one-to-four family residential 
construction loan to a builder that meets the requirements of section 
618(a)(1) or (2) of the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act of 1991 (12 U.S.C. 1831n), and, in 
addition to other criteria, the purchaser has not terminated the 
contract.'' \12\ The Board's definition provides further clarification 
that, if a purchaser has terminated the contract, the institution must 
immediately apply a 100 percent risk weight to the loan and report the 
revised risk weight in the next quarterly Call Report.\13\ Similarly, 
if the purchaser has terminated the contract, the OCC and FDIC capital 
rules would immediately disqualify the loan from receiving a 50 percent 
risk weight, and would apply a 100 percent risk weight to the loan. The 
change in risk weight would be reflected in the next quarterly Call 
Report. Thus, the minor wording difference between the agencies should 
have no practical consequence.
---------------------------------------------------------------------------

    \12\ 12 CFR 3.2 (OCC), 12 CFR 217.2 (Board), 12 CFR 324.2 
(FDIC).
    \13\ 12 CFR 217.2.
---------------------------------------------------------------------------

Capital Components and Eligibility Criteria for Regulatory Capital 
Instruments
    While the capital rules generally provide uniform eligibility 
criteria for regulatory capital instruments, there are two textual 
differences among the agencies' capital rules. First, the OCC's and 
FDIC's capital rules require that additional tier 1 capital instruments 
not be subject to a ``limit'' imposed by the contractual terms 
governing the instrument, while the Board's capital rule does not 
include this requirement.\14\ Second, only the Board's capital rule 
states that ``[s]tate member banks are subject to certain other legal 
restrictions on reductions in capital resulting from cash dividends, 
including out of the capital surplus account, under 12 U.S.C. 324 and 
12 CFR 208.5.'' \15\ The Board's capital rule also includes similar 
language relating to distributions on additional tier 1 capital 
instruments.\16\ However, the agencies apply the criteria for 
determining eligibility of regulatory capital instruments to ensure 
consistent outcomes.
---------------------------------------------------------------------------

    \14\ 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 
(FDIC).
    \15\ 12 CFR 217.20.
    \16\ Id.
---------------------------------------------------------------------------

Capital Deductions
    There is a technical difference between the FDIC's capital rule and 
the OCC's and Board's capital rules with regard to an explicit 
requirement for deduction of examiner-identified losses. The agencies 
require their examiners to determine whether their respective 
supervised institutions have appropriately identified losses. The 
FDIC's capital rule, however, explicitly requires FDIC-supervised 
institutions to deduct identified losses from common equity tier 1 
capital elements, to the extent that the institution's common equity 
tier 1 capital would have been reduced if the appropriate accounting 
entries had been recorded.\17\ Generally, identified losses are those 
items that an examiner determines to be chargeable against income, 
capital, or general valuation allowances.
---------------------------------------------------------------------------

    \17\ 12 CFR 324.22(a)(9).
---------------------------------------------------------------------------

    For example, identified losses may include, among other items, 
assets

[[Page 3869]]

classified as loss, off-balance-sheet items classified as loss, any 
expenses that are necessary for the institution to record in order to 
replenish its general valuation allowances to an adequate level, and 
estimated losses on contingent liabilities. The Board and the OCC 
expect their supervised institutions to promptly recognize examiner-
identified losses, but the requirement is not explicit under their 
capital rules. Instead, the Board and the OCC apply their supervisory 
authorities to ensure that their supervised institutions charge off any 
identified losses.
Subsidiaries of Savings Associations
    There are special statutory requirements for the agencies' capital 
treatment of a savings association's investment in or credit to its 
subsidiaries as compared with the capital treatment of such 
transactions between other types of institutions and their 
subsidiaries. Specifically, the Home Owners' Loan Act (HOLA) 
distinguishes between subsidiaries of savings associations engaged in 
activities that are permissible for national banks and those engaged in 
activities that are not permissible for national banks.\18\ When 
subsidiaries of a savings association are engaged in activities that 
are not permissible for national banks,\19\ the parent savings 
association generally must deduct the parent's investment in and 
extensions of credit to these subsidiaries from the capital of the 
parent savings association. If a subsidiary of a savings association 
engages solely in activities permissible for national banks, no 
deduction is required and investments in and loans to that organization 
may be assigned the risk weight appropriate for the activity.\20\ As 
the appropriate federal banking agencies for federal and state savings 
associations, respectively, the OCC and the FDIC apply this capital 
treatment to those types of institutions. The Board's regulatory 
capital framework does not apply to savings associations and therefore 
does not include this requirement.
---------------------------------------------------------------------------

    \18\ See 12 U.S.C. 1464(t)(5).
    \19\ Subsidiaries engaged in activities not permissible for 
national banks are considered non-includable subsidiaries.
    \20\ A deduction from capital is only required to the extent 
that the savings association's investment exceeds the generally 
applicable thresholds for deduction of investments in the capital of 
an unconsolidated financial institution.
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Tangible Capital Requirement
    Federal statutory law subjects savings associations to a specific 
tangible capital requirement but does not similarly do so with respect 
to banks. Under section 5(t)(2)(B) of HOLA, savings associations are 
required to maintain tangible capital in an amount not less than 1.5 
percent of total assets.\21\ The capital rules of the OCC and the FDIC 
include a requirement that covered savings associations maintain a 
tangible capital ratio of 1.5 percent.\22\ This statutory requirement 
does not apply to banks and, thus, there is no comparable regulatory 
provision for banks. The distinction is of little practical 
consequence, however, because under the Prompt Corrective Action (PCA) 
framework, all institutions are considered critically undercapitalized 
if their tangible equity falls below 2 percent of total assets.\23\ 
Generally speaking, the appropriate federal banking agency must appoint 
a receiver within 90 days after an institution becomes critically 
undercapitalized.\24\
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    \21\ See 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
    \22\ See 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(6) (FDIC). 
The Board's regulatory capital framework does not apply to savings 
associations and, therefore, does not include this requirement.
    \23\ See 12 U.S.C. 1831o(c)(3); see also 12 CFR 6.4 (OCC); 12 
CFR 208.45 (Board); 12 CFR 324.403 (FDIC).
    \24\ 12 U.S.C. 1831o(h)(3)(A).
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Enhanced Supplementary Leverage Ratio
    The agencies adopted enhanced supplementary leverage ratio 
standards that take effect beginning on January 1, 2018.\25\ These 
standards require certain bank holding companies to exceed a 5 percent 
supplementary leverage ratio to avoid limitations on distributions and 
certain discretionary bonus payments and also require the subsidiary 
institutions of these bank holding companies to meet a 6 percent 
supplementary leverage ratio to be considered ``well capitalized'' 
under the PCA framework.\26\ The rule text establishing the scope of 
application for the enhanced supplementary leverage ratio differs among 
the agencies. However, the distinction is of little practical 
consequence at this time because the rules of each agency apply the 
enhanced supplementary leverage ratio to the same set of bank holding 
companies. The Board applies the enhanced supplementary leverage ratio 
standards to bank holding companies identified as global systemically 
important bank holding companies as defined in 12 CFR 217.2 and those 
bank holding companies' Board-supervised, institution subsidiaries.\27\ 
The OCC and the FDIC apply enhanced supplementary leverage ratio 
standards to the institution subsidiaries under their supervisory 
jurisdiction of a top-tier bank holding company that has more than $700 
billion in total assets or more than $10 trillion in assets under 
custody.\28\
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    \25\ See 79 FR 24528 (May 1, 2014).
    \26\ See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 
208.43(b)(1)(iv)(B) (Board); 12 CFR 324.403(b)(1)(v) (FDIC).
    \27\ See 80 FR 49082 (August 14, 2015).
    \28\ See 12 CFR 6.4(c)(1)(iv)(B) (OCC); 12 CFR 324.403(b)(1)(v) 
(FDIC).

    Dated: January 11, 2018.
Grace E. Dailey,
Senior Deputy Comptroller and Chief, National Bank Examiner, Office of 
the Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, January 11, 2018.
Ann E. Misback,
Secretary of the Board.

    Dated at Washington, DC, this 19th day of January 2018.

    By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-01434 Filed 1-25-18; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P

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