Request for Comment on a Proposal to Amend Regulation K (International  Banking Operations) - District

Request for Comment on a Proposal to Amend Regulation K (International Banking Operations) - District

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Federal Reserve Bankll Kof DallasDALLAS, TEXAS 75265-5906November 2, 2001Notice 01-82TO: The Chief Executive Officer of eachfinancial institution and others concernedin the Eleventh Federal Reserve DistrictSUBJECTRequest for Comment on a Proposal to Amend Regulation K(International Banking Operations)DETAILSThe Board of Governors of the Federal Reserve System has requested publiccomment on a proposal to amend its regulation relating to international lending. The proposalwould simplify the discussion concerning the accounting for fees on international loans bymaking the regulation consistent with generally accepted accounting principles.The Board must receive comments by December 1, 2001. Please address comments toJennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th and CStreet, N.W., Washington, DC 20551. Also, you may mail comments electronically toregs.comments@federalreserve.gov. All comments should refer to Docket No. R-1114.ATTACHMENTA copy of the Board’s notice as it appears on pages 54399–402, Vol. 66, No. 208 ofthe Federal Register dated October 26, 2001, is attached.MORE INFORMATIONFor more information, please contact Dick Burda, Banking Supervision Department,(713) 652-1503. For additional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254 or access District Notices on our web site at http://www.dallasfed.org/banking/notices/index.html.For additional copies, ...

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Federal Reserve Bank
ll K
of Dallas
DALLAS, TEXAS
75265-5906
November 2, 2001
Notice 01-82
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Request for Comment on a Proposal to Amend Regulation K
(International Banking Operations)
DETAILS
The Board of Governors of the Federal Reserve System has requested public
comment on a proposal to amend its regulation relating to international lending. The proposal
would simplify the discussion concerning the accounting for fees on international loans by
making the regulation consistent with generally accepted accounting principles.
The Board must receive comments by December 1, 2001. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th and C
Street, N.W., Washington, DC 20551. Also, you may mail comments electronically to
regs.comments@federalreserve.gov. All comments should refer to Docket No. R-1114.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 54399–402, Vol. 66, No. 208 of
the Federal Register dated October 26, 2001, is attached.
MORE INFORMATION
For more information, please contact Dick Burda, Banking Supervision Department,
(713) 652-1503. For additional copies of this Bank’s notice, contact the Public Affairs
Department at (214) 922-5254 or access District Notices on our web site at
http://www.dallasfed.org/banking/notices/index.html.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.Federal Register/Vol. 66, No. 208/Friday, October 26, 2001/Proposed Rules 54399
conditions that may lead to increased contained in GAAP were insufficient toFEDERAL RESERVE SYSTEM
transfer risk. Transfer risk may arise due accomplish adequate uniformity in
12 CFR Part 211 to the possibility that an asset of a accounting principles in this area. Since
banking institution cannot be serviced that time, the Financial Accounting
[Regulation K; Docket No. R–1114]
in the currency of payment because of Standards Board (FASB) has revised the
a lack of, or restraints on, the GAAP rules for fee accounting forInternational Banking Operations;
availability of foreign exchange in the international loans in a manner thatInternational Lending Supervision
country of the obligor. Section 905(a) of accommodates the specific requirements
AGENCY: Board of Governors of the ILSA directs each federal banking of section 906 of ILSA. In order to
Federal Reserve System. agency to require banking institutions reduce the regulatory burden on
ACTION: Notice of proposed rulemaking. within its jurisdiction to establish and banking institutions, and simplify its
maintain a special reserve whenever the regulations, the Board proposes to
SUMMARY: The Board of Governors of the agency determines that the quality of an eliminate from the revised version of
Federal Reserve System (Board) is institution’s assets has been impaired by Subpart D the requirements as to the
seeking public comment on a proposal a protracted inability of public or particular accounting method to be
to amend its regulations relating to private borrowers in a foreign country to followed in accounting for fees on
international lending by simplifying the make payments on their external international loans and to require
discussion concerning the accounting indebtedness, or no definite prospects instead that institutions follow GAAP in
for fees on international loans to make exist for the orderly restoration of debt accounting for such fees. The Federal
the regulation consistent with generally service. 12 U.S.C. 3904(a). In keeping Deposit Insurance Corporation and the
accepted accounting principles (GAAP). with the requirements of ILSA, on Office of the Comptroller of the
DATES: Comments should be submitted February 13, 1984, the Board, the Currency have revised their regulations
on or before December 1, 2001. Federal Deposit Insurance Corporation, to eliminate the requirements as to the
and the Office of the Comptroller of the particular accounting method to beADDRESSES: Comments, which should
Currency (collectively, the federal followed in accounting for fees onrefer to Docket No. R–1114, may be
banking agencies) issued a joint notice international loans and to requiremailed to the Board of Governors of the
of final rulemaking requiring banking instead that banking institutions followFederal Reserve System, 20th & C Street,
institutions to establish special reserves, GAAP in accounting for such fees. InNW., Washington, DC 20551, to the
the allocated transfer risk reserve the event that the FASB changes theattention of Jennifer J. Johnson,
(ATRR), against the risks presented in GAAP rules on fee accounting forSecretary. Comments addressed to the
certain international assets. (49 FR international loans, the Board willattention of Ms. Johnson may be
5594). reexamine its regulation in light of ILSAdelivered to the Board’s mail room
ILSA also requires the federal banking to assess the need for a revision to thebetween 8:45 a.m. and 5:15 p.m., and to
agencies to promulgate regulations for regulation.the security control room outside those
accounting for fees charged by bankinghours. Both the mail room and the Initial Regulatory Flexibility Analysisinstitutions in connection withsecurity control room are accessible
The Regulatory Flexibility Act (5international loans. Section 906(a) offrom the courtyard entrance on 20th
U.S.C. 601 et seq.) requires an initialILSA (12 U.S.C. 3905(a)) dealsStreet between Constitution Avenue and
regulatory flexibility analysis with anyspecifically with the restructuring ofC Street, NW. Comments may be
notice of proposed rulemaking. Nointernational loans to avoid excessiveinspected in Room MP–500 between
analysis is required, however, if thedebt service burden on debtor countries.9:00 a.m. and 5:00 p.m. weekdays,
head of the agency certifies that the ruleThis section requires bankingexcept as provided in § 261.8 of the
will not, if promulgated, have ainstitutions, in connection with theBoard’s Rules Regarding Availability of
significant economic impact on arestructuring of an international loan, toInformation, 12 CFR 261.8.
substantial number of small businessamortize any fee exceeding the
FOR FURTHER INFORMATION CONTACT: entities. 5 U.S.C. 605(b). A descriptionadministrative cost of the restructuring
Michael G. Martinson, Associate of the reasons why the action by theover the effective life of the loan.
Director (202/452–3640), Division of agency is being considered and aSection 906(b) of ILSA (12 U.S.C.
Banking Supervision and Regulation; or statement of the objectives of, and the3905(b)) deals with all international
Ann Misback, Assistant General legal basis for, the proposed rule areloans and requires the federal banking
Counsel (202/452–3788), Legal Division, contained in the supplementaryagencies to promulgate regulations for
Board of Governors of the Federal information above. As described moreaccounting for agency, commitment,
Reserve System, 20th & C Street, NW., fully above, the proposed rule revisesmanagement and other fees in
Washington, DC 20551. For users of accounting mechanisms for feesconnection with such loans to assure
Telecommunications Device for the Deaf associated with international loans andthat the appropriate portion of such fees
(‘‘TDD’’) only, contact 202/263–4869. harmonizes their treatment withis accrued in income over the effective
SUPPLEMENTARY INFORMATION: The accounting principles set forth in otherlife of each such loan.
International Lending Supervision Act The Board’s current regulation regulations. Both the underlying
of 1983 (ILSA), 12 U.S.C. 3901, et seq., provides a separate accounting regulation and the rule proposed herein
requires each federal banking agency to treatment for each type of fee charged by primarily affect financial institutions
evaluate the foreign country exposure banking institutions in connection with engaged in significant international loan
and transfer risk of banking institutions their international lending. When ILSA transactions, and the overall impact of
within its jurisdiction for use in was enacted in 1983 and the current the proposed rule will be to reduce
examination and supervision of such regulatory burden. Accordingly,regulation on accounting for
institutions. To implement ILSA, the pursuant to 5 U.S.C. 605(b), the Boardinternational loan fees was promulgated
federal banking agencies, through the hereby certifies that the rule will noton March 29, 1984, Congress and the
Interagency Country Exposure Review federal banking agencies considered that have a significant economic impact on
Committee (ICERC), assess and the application of the broad fee a substantial number of small business
categorize countries on the basis of accounting principles for banks entities.
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Paperwork Reduction Act Solicitation of Comments Regarding Act. It applies to State banks that are
Use of ‘‘Plain Language’’ members of the Federal Reserve SystemIn accordance with the Paperwork
(State member banks); corporationsReduction Act of 1995 (44 U.S.C. 3506; Section 722 of the GLB Act requires
organized under section 25(A) of the5 CFR part 1320 Appendix A.1), the the Board to use ‘‘plain language’’ in all
FRA (12 U.S.C. 611 through 631) (EdgeBoard reviewed the proposed rule under proposed and final rules published after
Corporations); corporations operatingthe authority delegated to the Board by January 1, 2000. The Board invites
subject to an agreement with the Boardthe Office of Management and Budget. comments about how to make the
under section 25 of the FRA (12 U.S.C.The collections of information proposed rule easier to understand,
601 through 604a) (Agreementassociated with this proposed including answers to the following
Corporations); and bank holdingrulemaking are found in 12 CFR 211.43 questions:
companies (as defined in section 2 ofand 211.44. This information is required (1) Has the Board organized the
the BHC Act (12 U.S.C. 1841(a)) but notto evidence compliance with the material in an effective manner? If not,
including a bank holding company thatrequirements of Regulation K and the how could the material be better
is a foreign banking organization asInternational Lending Supervision Act. organized?
defined in § 211.21(n).The respondents/recordkeepers are for- (2) Are the terms of the rule clearly
profit financial institutions, including stated? If not, how could the terms be § 211.42 Definitions.
small businesses. more clearly stated?
For the purposes of this subpart:The Federal Reserve may not conduct (3) Does the rule contain technical
(a) Administrative cost means thoseor sponsor, and an organization is not language or jargon that is unclear? If so,
costs which are specifically identifiedrequired to respond to, this information which language requires clarification?
with negotiating, processing and(4) Would a different format (withcollection unless it displays a currently
consummating the loan. These costsrespect to grouping and order ofvalid OMB control number. The
include, but are not necessarily limitedsections and use of headings) make theinformation on the allocated transfer
to: legal fees; costs of preparing andrule easier to understand? If so, whatrisk reserve requested in 211.43 is
processing loan documents; and anchanges to the format would make thecollected in the Consolidated Reports of
allocable portion of salaries and relatedrule easier to understand?Condition and Income (FFIEC 031 and
benefits of employees engaged in the(5) Would increasing the number of041; OMB No. 7100–0036), the
international lending function. Nosections (and making each sectionConsolidated Financial Statements for
portion of supervisory andshorter) clarify the rule? If so, whichBank Holding Companies (FR Y–9C;
administrative expenses or otherportions of the rule should be changedOMB No. 7100–0128), and the Report of
indirect expenses such as occupancyin this respect?Condition for Edge and Agreement
and other similar overhead costs shall(6) What additional changes wouldCorporations (FR 2886B; OMB No.
be included.make the rule easier to understand?7100–0086). The proposed rule would
(b) Banking institution means a Statenot change the burden associated with List of Subjects in 12 CFR Part 211 member bank; bank holding company;these reports. The information requested
Exports, Federal Reserve System, Edge Corporation and Agreementin 211.44 on international assets is
Foreign banking, Holding companies, Corporation engaged in banking.collected in the Country Exposure
Investments, Reporting and Banking institution does not include aReports (FFIEC 009/009a; OMB No.
recordkeeping requirements. foreign banking organization as defined7100–0035) and the burden for this
For the reasons set out in the in § 211.21(n).report also remains unchanged.
preamble, the Board proposes to amend (c) Federal banking agencies meansComments are invited on: a. whether
12 CFR part 211 as follows: the Board of Governors of the Federalthe collections of information are
Reserve System, the Comptroller of thenecessary for the proper performance of
PART 211—INTERNATIONAL Currency, and the Federal Depositthe Federal Reserve’s functions;
BANKING OPERATIONS Insurance Corporation.including whether the information has
(REGULATION K) (d) International assets means thosepractical utility; b. the accuracy of the
assets required to be included inFederal Reserve’s estimate of the burden 1. The authority citation for part 211
banking institutions’ Country Exposureof the information collections, including continues to read as follows:
Report forms (FFIEC No. 009).the cost of compliance; c. ways to
Authority: 12 U.S.C. 221 et seq., 1818,
(e) International loan means a loan asenhance the quality, utility, and clarity 1835a, 1841 et seq., 3101 , 3109 et seq.
defined in the instructions to the Reportof the information to be collected; and 2. Sections 211.41 through 211.45 are
of Condition and Income for thed. ways to minimize the burden of revised to read as follows:
respective banking institution (FFIECinformation collection on respondents,
§ 211.41 Authority, purpose, and scope. Nos. 031 and 041) and made to a foreignincluding through the use of automated
government, or to an individual, acollection techniques or other forms of (a) Authority. This subpart is issued
corporation, or other entity not a citizeninformation technology. Comments on by the Board of Governors of the Federal
of, resident in, or organized orthe collections of information should be Reserve System (Board) under the
incorporated in the United States.sent to Mary M. West, Chief, Federal authority of the International Lending
Reserve Board Clearance Officer, (f) Restructured international loanSupervision Act of 1983 (Pub. L. 98–
Division of Research and Statistics, Mail means a loan that meets the following181, title IX, 97 Stat. 1153)
Stop 41, Board of Governors of the criteria:(International Lending Supervision Act);
Federal Reserve System, Washington, (1) The borrower is unable to servicethe Federal Reserve Act (12 U.S.C. 221
DC 20551, with copies of such the existing loan according to its termset seq.) (FRA), and the Bank Holding
comments to be sent to the Office of and is a resident of a foreign country inCompany Act of 1956, as amended (12
Management and Budget, Paperwork which there is a generalized inability ofU.S.C. 1841 et seq.) (BHC Act).
Reduction Project (7100–0036, 7100– (b) Purpose and scope. This subpart is public and private sector obligors to
0128, 7100–0086, or 7100–0035), issued in furtherance of the purposes of meet their external debt obligations on
Washington, DC 20503. the International Lending Supervision a timely basis because of a lack of, or
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restraints on the availability of, needed (2) Recent actions taken to restore an ATRR if it writes down in the period
foreign exchange in the country; and debt service capability; in which the ATRR is required, or has
(2) The terms of the existing loan are (3) Prospects for restored asset written down in prior periods, the value
amended to reduce stated interest or quality; and of the specified international assets in
(4) Such other factors as the Federalextend the schedule of payments; or the requisite amount for each such asset.
banking agencies may consider relevant(3) A new loan is made to, or for the For purposes of this paragraph,
to the quality of the asset.benefit of, the borrower, enabling the international assets may be written
(B) The initial year’s provision for theborrower to service or refinance the down by a charge to the Allowance for
ATRR shall be ten percent of theexisting debt. Loan and Lease Losses or a reduction in
principal amount of each specified(g) Transfer risk means the possibility the principal amount of the asset by
international asset, or such greater orthat an asset cannot be serviced in the application of interest payments or
lesser percentage determined by thecurrency of payment because of a lack other collections on the asset; provided,
Federal banking agencies. Additionalof, or restraints on the availability of, that only those international assets that
provision, if any, for the ATRR inneeded foreign exchange in the country may be charged to the Allowance for
subsequent years shall be fifteen percentof the obligor. Loan and Lease Losses pursuant to
of the principal amount of each generally accepted accounting
§ 211.43 Allocated transfer risk reserve. specified international asset, or such principles may be written down by a
(a) Establishment of allocated transfer greater or lesser percentage determined charge to the Allowance for Loan and
risk reserve. A banking institution shall by the Federal banking agencies. Lease Losses. However, the Allowance
establish an allocated transfer risk (3) Board notification. Based on the for Loan and Lease Losses must be
reserve (ATRR) for specified joint agency determinations under replenished in such amount necessary
international assets when required by paragraph (b)(1) of this section, the to restore it to a level which adequately
the Board in accordance with this Board shall notify each banking provides for the estimated losses
section. institution holding assets subject to an inherent in the banking institution’s
(b) Procedures and standards—(1) ATRR: loan portfolio.
Joint agency determination. At least (i) Of the amount of the ATRR to be
(5) Reduction of ATRR. A bankingannually, the Federal banking agencies established by the institution for
institution may reduce an ATRR whenshall determine jointly, based on the specified international assets; and
notified by the Board or, at any time, bystandards set forth in paragraph (b)(2) of (ii) That an ATRR established for
writing down such amount of thethis section, the following: specified assets may be reduced.
international asset for which the ATRR(c) Accounting treatment of ATRR—(i) Which international assets subject
was established.(1) Charge to current income. A bankingto transfer risk warrant establishment of
institution shall establish an ATRR by aan ATRR; § 211.44 Reporting and disclosure of
charge to current income and the(ii) The amount of the ATRR for the international assets.
amounts so charged shall not bespecified assets; and (a) Requirements. (1) Pursuant to
(iii) Whether an ATRR established for included in the banking institution’s
section 907(a) of the International
specified assets may be reduced. capital or surplus.
Lending Supervision Act of 1983 (Title(2) Separate accounting. A banking(2) Standards for requiring ATRR—(i)
IX, Pub. L. 98–181, 97 Stat. 1153)institution shall account for an ATRREvaluation of assets. The Federal
(ILSA), a banking institution shallseparately from the Allowance for Loanbanking agencies shall apply the
submit to the Board, at least quarterly,and Lease Losses, and shall deduct thefollowing criteria in determining
information regarding the amounts andATRR from ‘‘gross loans and leases’’ towhether an ATRR is required for
composition of its holdings ofarrive at ‘‘net loans and leases.’’ Theparticular international assets:
international assets.(A) Whether the quality of a banking ATRR must be established for each asset
(2) Pursuant to section 907(b) of ILSA,institution’s assets has been impaired by subject to the ATRR in the percentage
a banking institution shall submit to thea protracted inability of public or amount specified.
Board information regarding(3) Consolidation. A bankingprivate obligors in a foreign country to
concentrations in its holdings ofinstitution shall establish an ATRR, asmake payments on their external
international assets that are material inrequired, on a consolidated basis. Forindebtedness as indicated by such
relation to total assets and to capital ofbanks, consolidation should be infactors, among others, as whether:
the institution, such information to beaccordance with the procedures and(1) Such obligors have failed to make
made publicly available by the Board ontests of significance set forth in thefull interest payments on external
request.instructions for preparation ofindebtedness; or
(b) Procedures. The format, contentConsolidated Reports of Condition and(2) Such obligors have failed to
and reporting and filing dates of theIncome (FFIEC Nos. 031 and 041). Forcomply with the terms of any
reports required under paragraph (a) ofbank holding companies, therestructured indebtedness; or
this section shall be determined jointly(3) A foreign country has failed to consolidation shall be in accordance
by the Federal banking agencies. Thecomply with any International Monetary with the principles set forth in the
requirements to be prescribed by theFund or other suitable adjustment ‘‘Instructions to Consolidated Financial
Federal banking agencies may includeprogram; or Statements for Bank Holding
changes to existing reporting forms(B) Whether no definite prospects Companies’’ (Form F.R. Y–9). Edge and
(such as the Country Exposure Report,exist for the orderly restoration of debt Agreement corporations engaged in
form FFIEC No. 009) or such otherservice. banking shall report in accordance with
requirements as the Federal banking(ii) Determination of amount of instructions for preparation of the
agencies deem appropriate. The FederalATRR. (A) In determining the amount of Report of Condition for Edge and
banking agencies also may determine tothe ATRR, the Federal banking agencies Agreement Corporations (Form F.R.
exempt from the requirements ofshall consider: 2886b).
(1) The length of time the quality of (4) Alternative accounting treatment. paragraph (a) of this section banking
the asset has been impaired; A banking institution need not establish institutions that, in the Federal banking
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§ 211.45 Accounting for fees onagencies’ judgment, have de minimis (b) Accounting treatment. Subject to
international loans.holdings of international assets. paragraph (a) of this section, banking
institutions shall account for fees on(c) Reservation of authority. Nothing (a) Restrictions on fees for
international loans in accordance withrestructured international loans. Nocontained in this rule shall preclude the
generally accepted accountingBoard from requiring from a banking banking institution shall charge, in
principles.institution such additional or more connection with the restructuring of an
By order of the Board of Governors of thefrequent information on the institution’s international loan, any fee exceeding the
Federal Reserve System, October 18, 2001.holding of international assets as the administrative cost of the restructuring
Jennifer J. Johnson,Board may consider necessary. unless it amortizes the amount of the fee
Secretary of the Board.exceeding the administrative cost over
[FR Doc. 01–26731 Filed 10–25–01; 8:45 am]the effective life of the loan.
BILLING CODE 6210–01–P
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