Joint Report to Congressional Committees: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2023, 88616-88618 [2023-28173]

Download as PDF 88616 Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices Federal Deposit Insurance Corporation. Dated at Washington, DC, on December 18, 2023. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2023–28206 Filed 12–21–23; 8:45 am] BILLING CODE 6714–01–P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency FEDERAL RESERVE SYSTEM FEDERAL DEPOSIT INSURANCE CORPORATION Joint Report to Congressional Committees: Differences in Accounting and Capital Standards Among the Federal Banking Agencies as of September 30, 2023 Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation. ACTION: Report to Congressional Committees. AGENCY: 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) 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 for insured depository institutions (institutions). Section 37(c) requires that this report be published in the Federal Register. The agencies have not identified any material differences among the agencies’ accounting and capital standards applicable to the institutions they regulate and supervise. FOR FURTHER INFORMATION CONTACT: OCC: Diana Wei, Risk Expert, Capital Policy, (202) 649–5554, Rima Kundnani, Counsel, Chief Counsel’s Office, (202) 649–5490, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7–1–1 to access telecommunications relay services. Board: Andrew Willis, Manager, (202) 912–4323, Jennifer McClean, Senior Financial Institution Policy Analyst II, ddrumheller on DSK120RN23PROD with NOTICES1 SUMMARY: VerDate Sep<11>2014 18:10 Dec 21, 2023 Jkt 262001 (202) 785–6033, Shooka Saket, Senior Financial Institution Policy Analyst II, (202) 475–3869, Division of Supervision and Regulation, Mark Buresh, Senior Counsel (202) 452–5270 and Jasmin Keskinen, Senior Attorney, (202) 475– 6650, Legal Division, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. For users of Telecommunications Device for the Deaf (TDD) and TTY– TRS, please call 711 from any telephone, anywhere in the United States. FDIC: Benedetto Bosco, Chief, Capital Policy Section, (703) 245–0778, Christine Bouvier, Assistant Chief Accountant, (202) 898–7289, Richard Smith, Capital Policy Analyst, Capital Policy Section, (703) 254–0782, Division of Risk Management Supervision, Amber Beck, Senior Attorney, (202) 898–3772, Legal Division, 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 In accordance with section 37(c), the agencies are submitting this joint report, which covers differences among their accounting and capital standards existing as of September 30, 2023, applicable to institutions.1 In recent years, the agencies have acted together to harmonize their accounting and capital standards and eliminate as many differences as possible. As of September 30, 2023, the agencies have not identified any material differences among the agencies’ accounting standards applicable to institutions. In 2013, the agencies revised the riskbased and leverage capital rule for institutions (capital rule),2 which 1 Although not required under section 37(c), this report includes descriptions of certain of the Board’s capital standards applicable to depository institution holding companies where such descriptions are relevant to the discussion of capital standards applicable to institutions. 2 See 78 FR 62018 (October 11, 2013) (final rule issued by the OCC and the Board); 78 FR 55,340 (September 10, 2013) (interim final rule issued by the FDIC). The FDIC later issued its final rule in 79 FR 20,754 (April 14, 2014). The agencies’ respective capital rule is at 12 CFR pt. 3 (OCC), 12 CFR pt. 217 (Board), and 12 CFR pt. 324 (FDIC). The capital rule applies to institutions, as well as to certain bank holding companies (BHCs) and savings and PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 harmonized the agencies’ capital rule in a comprehensive manner.3 Since 2013, the agencies have revised the capital rule on several occasions, further reducing the number of differences in the agencies’ capital rule.4 Today, 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 rule. No new material differences were identified in the capital standards applicable to institutions in this report compared to the previous report submitted by the agencies pursuant to section 37(c). Differences in the Standards Among the Federal Banking Agencies Differences in Accounting Standards As of September 30, 2023, the agencies have not identified any material differences among themselves in the accounting standards applicable to institutions. Differences in Capital Standards The following are the remaining technical differences among the capital standards of the agencies’ capital rule.5 Definitions The agencies’ capital rule largely contains the same definitions.6 The differences that exist generally serve to accommodate the different needs of the institutions that each agency charters, regulates, and/or supervises. The agencies’ capital rule has differing definitions of a pre-sold construction loan. The capital rule of all three agencies provides that a pre-sold construction loan means any ‘‘one-tofour family residential construction loan to a builder that meets the requirements of section 618(a)(1) or (2) of the loan holding companies (SLHCs). See also 12 CFR 217.1(c). 3 The capital rule reflects the scope of each agency’s regulatory jurisdiction. For example, the Board’s capital rule includes requirements related to BHCs, SLHCs, and state member banks (SMBs), 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 See, e.g., 84 FR 35234 (July 22, 2019). The OCC and FDIC revised their capital rule to conform with language in the Board’s capital rule related to the qualification criteria for additional tier 1 capital instruments and the definition of corporate exposures. As a result, these differences, which were included in previous reports submitted by the agencies pursuant to section 37(c), have been eliminated. 5 Certain minor differences, such as terminology specific to each agency for the institutions that it supervises, are not included in this report. 6 See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC). E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices 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.’’ 7 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 Consolidated Reports of Condition and Income (Call Report).8 Similarly, if the purchaser has terminated the contract, the OCC and FDIC capital rule 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. ddrumheller on DSK120RN23PROD with NOTICES1 Capital Components and Eligibility Criteria for Regulatory Capital Instruments While the capital rule generally provides uniform eligibility criteria for regulatory capital instruments, there are some textual differences among the agencies’ capital rule. The capital rule of each of the three agencies requires that, for an instrument to qualify as common equity tier 1 or additional tier 1 capital, cash dividend payments be paid out of net income and retained earnings, but the Board’s capital rule also allows cash dividend payments to be paid out of related surplus.9 The provision in the Board’s capital rule that allows dividends to be paid out of related surplus is a difference in substance among the agencies’ capital rule. However, due to the restrictions on institutions regulated by the Board in separate regulations, this additional language in the Board’s rule has a practical impact only on bank holding companies (BHCs) and savings and loan holding companies (SLHCs) and is not a difference as applied to institutions. The agencies apply the criteria for determining eligibility of regulatory capital instruments in a manner that ensures consistent outcomes for institutions. Both the Board’s capital rule and the FDIC’s capital rule also include an additional sentence noting that institutions regulated by each agency are subject to restrictions independent 7 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC). 8 12 CFR 217.2. 9 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board). VerDate Sep<11>2014 18:10 Dec 21, 2023 Jkt 262001 of the capital rule on paying dividends out of surplus and/or that would result in a reduction of capital stock.10 These additional sentences do not create differences in substance between the agencies’ capital standards, but rather note that restrictions apply under separate regulations. In addition, the Board’s capital rule includes a requirement that a Boardregulated institution 11 must obtain prior approval before redeeming regulatory capital instruments.12 This requirement effectively applies only to a BHC or an SLHC and is, therefore, not included in the OCC’s and FDIC’s capital rule. All three agencies require institutions to obtain prior approval before redeeming regulatory capital instruments in other regulations.13 The additional provision in the Board’s capital rule, therefore, only has a practical impact on BHCs and SLHCs and is not a difference as applied to institutions. Capital Deductions There is a technical difference between the FDIC’s capital rule and the OCC’s and Board’s capital rule 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 institutions’ common equity tier 1 capital would have been reduced if the appropriate accounting entries had been recorded.14 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 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 10 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board); 12 CFR 324.20(b)(1)(v) and 324.20(c)(1)(viii) (FDIC). Although not referenced in the capital rule, the OCC has similar restrictions on dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain restrictions on the payment of dividends that apply under separate regulations, and therefore not discussed in this report, are different among the agencies. Compare 12 CFR 208.5 (Board) and 12 CFR 5.64 (OCC) with 12 CFR 303.241 (FDIC). 11 Board-regulated institution refers to an SMB, a BHC, or an SLHC. See 12. CFR 217.2. 12 12 CFR 217.20(f); see also 12 CFR 217.20(b)(1)(iii). 13 See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5 (Board); 12 CFR 303.241 (FDIC). 14 12 CFR 324.22(a)(9). PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 88617 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 rule. 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.15 When subsidiaries of a savings association are engaged in activities that are not permissible for national banks,16 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.17 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. Tangible Capital Requirement Federal 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 15 12 U.S.C. 1464(t)(5). engaged in activities not permissible for national banks are considered nonincludable subsidiaries. 17 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. 16 Subsidiaries E:\FR\FM\22DEN1.SGM 22DEN1 88618 Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices of total assets.18 The capital rule of the OCC and the FDIC includes a requirement that savings associations maintain a tangible capital ratio of 1.5 percent.19 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.20 Generally speaking, the appropriate federal banking agency must appoint a receiver within 90 days after an institution becomes critically undercapitalized.21 in total assets or more than $10 trillion in assets under custody.25 Enhanced Supplementary Leverage Ratio Agency Information Collection Activities; Continuing Collections; Comment Request; Designation of Financial Market Utilities The agencies adopted enhanced supplementary leverage ratio standards that took effect beginning on January 1, 2018.22 These standards require certain BHCs 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 BHCs to meet a 6 percent supplementary leverage ratio to be considered ‘‘well capitalized’’ under the PCA framework.23 The rule text establishing the scope of application for the enhanced supplementary leverage ratio differs among the agencies. The Board and the FDIC apply the enhanced supplementary leverage ratio standards for institutions based on parent BHCs being identified as global systemically important BHCs as defined in 12 CFR 217.2.24 The OCC applies enhanced supplementary leverage ratio standards to the institution subsidiaries under their supervisory jurisdiction of a toptier BHC that has more than $700 billion 18 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B). CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(1)(vi) (FDIC). The Board’s regulatory capital framework does not apply to savings associations and, therefore, does not include this requirement. 20 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). 21 12 U.S.C. 1831o(h)(3)(A). 22 See 79 FR 24,528 (May 1, 2014). 23 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 208.43(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC). 24 12 CFR 208.43(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC). ddrumheller on DSK120RN23PROD with NOTICES1 19 12 VerDate Sep<11>2014 18:10 Dec 21, 2023 Jkt 262001 Michael J. Hsu, Acting Comptroller of the Currency, Board of Governors of the Federal Reserve System. Ann E. Misback, Secretary of the Board, Federal Deposit Insurance Corporation. Dated at Washington, DC, on October 10, 2023. James P. Sheesley, Assistant Executive Secretary. [FR Doc. 2023–28173 Filed 12–21–23; 8:45 am] BILLING CODE 6210–01–P; 6714–01–P; 4810–33–P FINANCIAL STABILITY OVERSIGHT COUNCIL Financial Stability Oversight Council. ACTION: Notice and request for comments. AGENCY: The Financial Stability Oversight Council (the ‘‘Council’’), as part of its continuing effort to reduce paperwork and respondent burden, invites members of the public and affected agencies to comment on the continuing information collections listed below, as required by the Paperwork Reduction Act of 1995. The Council is soliciting comments concerning its collection of information related to its authority to designate financial market utilities as systemically important. Section 804 of the DoddFrank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) provides the Council the authority to designate a financial market utility (‘‘FMU’’) that the Council determines is or is likely to become systemically important because the failure of or a disruption to the functioning of the FMU could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the United States financial system. DATES: Written comments must be received on or before February 20, 2024. ADDRESSES: Interested persons are invited to submit comments regarding this proposed collection according to the instructions below. All submissions must refer to the document title and docket number FSOC–2023–0003. SUMMARY: 25 12 PO 00000 CFR 6.4(b)(1)(i)(D)(2) (OCC). Frm 00060 Fmt 4703 Sfmt 4703 Electronic submission of comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at https:// www.regulations.gov. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt, and enables the Council to make them available to the public. Comments submitted electronically through the https://www.regulations.gov website can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically. Mail. Send comments to Financial Stability Oversight Council, 1500 Pennsylvania Avenue NW, Washington, DC 20220. Public inspection of comments. All properly submitted comments will be available for inspection and downloading at https:// www.regulations.gov. Additional instructions. In general, comments received, including attachments and other supporting materials, are part of the public record and are available to the public. Do not submit any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. FOR FURTHER INFORMATION CONTACT: Samantha MacInnis, Director of Operations, Financial Stability Oversight Council, U.S. Treasury Department, (202) 622–2354, Samantha.MacInnis@treasury.gov; Mark Schlegel, Senior Counsel, U.S. Treasury Department, (202) 622–1027, Mark.Schlegel@treasury.gov. SUPPLEMENTARY INFORMATION: Title: Designation of Financial Market Utilities. OMB Control Number: 1505–0239. Type of Review: Extension without change of a currently approved collection. Description: On July 27, 2011, the Council published in the Federal Register a final rule (12 CFR part 1320) that describes the criteria that will inform the Council’s designation of FMUs as systemically important under the Dodd-Frank Act and the processes and procedures established under the Dodd-Frank Act for any such designation. On July 18, 2012, the Council designated eight FMUs as systemically important under title VIII of the Dodd-Frank Act. The collection of information under 12 CFR 1320.11 affords FMUs that are under consideration for designation, or rescission of designation, an E:\FR\FM\22DEN1.SGM 22DEN1

Agencies

[Federal Register Volume 88, Number 245 (Friday, December 22, 2023)]
[Notices]
[Pages 88616-88618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28173]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Joint Report to Congressional Committees: Differences in 
Accounting and Capital Standards Among the Federal Banking Agencies as 
of September 30, 2023

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

ACTION: Report to Congressional Committees.

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SUMMARY: 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) 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 for insured depository 
institutions (institutions). Section 37(c) requires that this report be 
published in the Federal Register. The agencies have not identified any 
material differences among the agencies' accounting and capital 
standards applicable to the institutions they regulate and supervise.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Diana Wei, Risk Expert, Capital Policy, (202) 649-5554, Rima 
Kundnani, Counsel, Chief Counsel's Office, (202) 649-5490, Office of 
the Comptroller of the Currency, 400 7th Street SW, Washington, DC 
20219. If you are deaf, hard of hearing, or have a speech disability, 
please dial 7-1-1 to access telecommunications relay services.
    Board: Andrew Willis, Manager, (202) 912-4323, Jennifer McClean, 
Senior Financial Institution Policy Analyst II, (202) 785-6033, Shooka 
Saket, Senior Financial Institution Policy Analyst II, (202) 475-3869, 
Division of Supervision and Regulation, Mark Buresh, Senior Counsel 
(202) 452-5270 and Jasmin Keskinen, Senior Attorney, (202) 475-6650, 
Legal Division, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue NW, Washington, DC 20551. For users of 
Telecommunications Device for the Deaf (TDD) and TTY-TRS, please call 
711 from any telephone, anywhere in the United States.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, (703) 245-
0778, Christine Bouvier, Assistant Chief Accountant, (202) 898-7289, 
Richard Smith, Capital Policy Analyst, Capital Policy Section, (703) 
254-0782, Division of Risk Management Supervision, Amber Beck, Senior 
Attorney, (202) 898-3772, Legal Division, 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

    In accordance with section 37(c), the agencies are submitting this 
joint report, which covers differences among their accounting and 
capital standards existing as of September 30, 2023, applicable to 
institutions.\1\ In recent years, the agencies have acted together to 
harmonize their accounting and capital standards and eliminate as many 
differences as possible. As of September 30, 2023, the agencies have 
not identified any material differences among the agencies' accounting 
standards applicable to institutions.
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    \1\ Although not required under section 37(c), this report 
includes descriptions of certain of the Board's capital standards 
applicable to depository institution holding companies where such 
descriptions are relevant to the discussion of capital standards 
applicable to institutions.
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    In 2013, the agencies revised the risk-based and leverage capital 
rule for institutions (capital rule),\2\ which harmonized the agencies' 
capital rule in a comprehensive manner.\3\ Since 2013, the agencies 
have revised the capital rule on several occasions, further reducing 
the number of differences in the agencies' capital rule.\4\ Today, 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 rule. No 
new material differences were identified in the capital standards 
applicable to institutions in this report compared to the previous 
report submitted by the agencies pursuant to section 37(c).
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    \2\ See 78 FR 62018 (October 11, 2013) (final rule issued by the 
OCC and the Board); 78 FR 55,340 (September 10, 2013) (interim final 
rule issued by the FDIC). The FDIC later issued its final rule in 79 
FR 20,754 (April 14, 2014). The agencies' respective capital rule is 
at 12 CFR pt. 3 (OCC), 12 CFR pt. 217 (Board), and 12 CFR pt. 324 
(FDIC). The capital rule applies to institutions, as well as to 
certain bank holding companies (BHCs) and savings and loan holding 
companies (SLHCs). See also 12 CFR 217.1(c).
    \3\ The capital rule reflects the scope of each agency's 
regulatory jurisdiction. For example, the Board's capital rule 
includes requirements related to BHCs, SLHCs, and state member banks 
(SMBs), 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\ See, e.g., 84 FR 35234 (July 22, 2019). The OCC and FDIC 
revised their capital rule to conform with language in the Board's 
capital rule related to the qualification criteria for additional 
tier 1 capital instruments and the definition of corporate 
exposures. As a result, these differences, which were included in 
previous reports submitted by the agencies pursuant to section 
37(c), have been eliminated.
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Differences in the Standards Among the Federal Banking Agencies

Differences in Accounting Standards

    As of September 30, 2023, the agencies have not identified any 
material differences among themselves in the accounting standards 
applicable to institutions.

Differences in Capital Standards

    The following are the remaining technical differences among the 
capital standards of the agencies' capital rule.\5\
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    \5\ Certain minor differences, such as terminology specific to 
each agency for the institutions that it supervises, are not 
included in this report.
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Definitions

    The agencies' capital rule largely contains the same 
definitions.\6\ The differences that exist generally serve to 
accommodate the different needs of the institutions that each agency 
charters, regulates, and/or supervises.
---------------------------------------------------------------------------

    \6\ See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 
(FDIC).
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    The agencies' capital rule has differing definitions of a pre-sold 
construction loan. The capital rule of all three agencies provides 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

[[Page 88617]]

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.'' \7\ 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 Consolidated Reports of Condition and Income 
(Call Report).\8\ Similarly, if the purchaser has terminated the 
contract, the OCC and FDIC capital rule 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.
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    \7\ 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 12 CFR 324.2 (FDIC).
    \8\ 12 CFR 217.2.
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Capital Components and Eligibility Criteria for Regulatory Capital 
Instruments

    While the capital rule generally provides uniform eligibility 
criteria for regulatory capital instruments, there are some textual 
differences among the agencies' capital rule. The capital rule of each 
of the three agencies requires that, for an instrument to qualify as 
common equity tier 1 or additional tier 1 capital, cash dividend 
payments be paid out of net income and retained earnings, but the 
Board's capital rule also allows cash dividend payments to be paid out 
of related surplus.\9\ The provision in the Board's capital rule that 
allows dividends to be paid out of related surplus is a difference in 
substance among the agencies' capital rule. However, due to the 
restrictions on institutions regulated by the Board in separate 
regulations, this additional language in the Board's rule has a 
practical impact only on bank holding companies (BHCs) and savings and 
loan holding companies (SLHCs) and is not a difference as applied to 
institutions. The agencies apply the criteria for determining 
eligibility of regulatory capital instruments in a manner that ensures 
consistent outcomes for institutions.
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    \9\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board).
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    Both the Board's capital rule and the FDIC's capital rule also 
include an additional sentence noting that institutions regulated by 
each agency are subject to restrictions independent of the capital rule 
on paying dividends out of surplus and/or that would result in a 
reduction of capital stock.\10\ These additional sentences do not 
create differences in substance between the agencies' capital 
standards, but rather note that restrictions apply under separate 
regulations.
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    \10\ 12 CFR 217.20(b)(1)(v) and 217.20(c)(1)(viii) (Board); 12 
CFR 324.20(b)(1)(v) and 324.20(c)(1)(viii) (FDIC). Although not 
referenced in the capital rule, the OCC has similar restrictions on 
dividends; 12 CFR 5.55 and 12 CFR 5.63. Certain restrictions on the 
payment of dividends that apply under separate regulations, and 
therefore not discussed in this report, are different among the 
agencies. Compare 12 CFR 208.5 (Board) and 12 CFR 5.64 (OCC) with 12 
CFR 303.241 (FDIC).
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    In addition, the Board's capital rule includes a requirement that a 
Board-regulated institution \11\ must obtain prior approval before 
redeeming regulatory capital instruments.\12\ This requirement 
effectively applies only to a BHC or an SLHC and is, therefore, not 
included in the OCC's and FDIC's capital rule. All three agencies 
require institutions to obtain prior approval before redeeming 
regulatory capital instruments in other regulations.\13\ The additional 
provision in the Board's capital rule, therefore, only has a practical 
impact on BHCs and SLHCs and is not a difference as applied to 
institutions.
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    \11\ Board-regulated institution refers to an SMB, a BHC, or an 
SLHC. See 12. CFR 217.2.
    \12\ 12 CFR 217.20(f); see also 12 CFR 217.20(b)(1)(iii).
    \13\ See 12 CFR 5.46, 5.47, 5.55, and 5.56 (OCC); 12 CFR 208.5 
(Board); 12 CFR 303.241 (FDIC).
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Capital Deductions

    There is a technical difference between the FDIC's capital rule and 
the OCC's and Board's capital rule 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 institutions' common equity 
tier 1 capital would have been reduced if the appropriate accounting 
entries had been recorded.\14\ Generally, identified losses are those 
items that an examiner determines to be chargeable against income, 
capital, or general valuation allowances.
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    \14\ 12 CFR 324.22(a)(9).
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    For example, identified losses may include, among other items, 
assets 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 rule. 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.\15\
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    \15\ 12 U.S.C. 1464(t)(5).
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    When subsidiaries of a savings association are engaged in 
activities that are not permissible for national banks,\16\ 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.\17\ 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.
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    \16\ Subsidiaries engaged in activities not permissible for 
national banks are considered non-includable subsidiaries.
    \17\ 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 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

[[Page 88618]]

of total assets.\18\ The capital rule of the OCC and the FDIC includes 
a requirement that savings associations maintain a tangible capital 
ratio of 1.5 percent.\19\ 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.\20\ Generally speaking, the 
appropriate federal banking agency must appoint a receiver within 90 
days after an institution becomes critically undercapitalized.\21\
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    \18\ 12 U.S.C. 1464(t)(1)(A)(ii) and (t)(2)(B).
    \19\ 12 CFR 3.10(a)(6) (OCC); 12 CFR 324.10(a)(1)(vi) (FDIC). 
The Board's regulatory capital framework does not apply to savings 
associations and, therefore, does not include this requirement.
    \20\ 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).
    \21\ 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 took effect beginning on January 1, 2018.\22\ These 
standards require certain BHCs 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 BHCs to meet a 6 percent supplementary leverage 
ratio to be considered ``well capitalized'' under the PCA 
framework.\23\ The rule text establishing the scope of application for 
the enhanced supplementary leverage ratio differs among the agencies. 
The Board and the FDIC apply the enhanced supplementary leverage ratio 
standards for institutions based on parent BHCs being identified as 
global systemically important BHCs as defined in 12 CFR 217.2.\24\ The 
OCC applies enhanced supplementary leverage ratio standards to the 
institution subsidiaries under their supervisory jurisdiction of a top-
tier BHC that has more than $700 billion in total assets or more than 
$10 trillion in assets under custody.\25\
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    \22\ See 79 FR 24,528 (May 1, 2014).
    \23\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 
208.43(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC).
    \24\ 12 CFR 208.43(b)(1)(i)(D)(2) (Board); 12 CFR 
324.403(b)(1)(ii) (FDIC).
    \25\ 12 CFR 6.4(b)(1)(i)(D)(2) (OCC).

Michael J. Hsu,
Acting Comptroller of the Currency, Board of Governors of the Federal 
Reserve System.

Ann E. Misback,
Secretary of the Board, Federal Deposit Insurance Corporation.

    Dated at Washington, DC, on October 10, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-28173 Filed 12-21-23; 8:45 am]
BILLING CODE 6210-01-P; 6714-01-P; 4810-33-P

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