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FIL-74-2003 Attachment

[Federal Register: October 1, 2003 (Volume 68, Number 190)]

[Rules and Regulations]

[Page 56530-56537]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr01oc03-4]


 

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DEPARTMENT OF THE TREASURY


 

Office of the Comptroller of the Currency


 

12 CFR Part 3


 

[Docket No. 03-21]

RIN 1557-AC76


 

FEDERAL RESERVE SYSTEM


 

12 CFR Parts 208 and 225


 

[Regulations H and Y; Docket No. R-1156]


 

FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Part 325


 

RIN 3064-AC74


 

DEPARTMENT OF THE TREASURY


 

Office of Thrift Supervision


 

12 CFR Part 567


 

[No. 2003-48]

RIN 1550-AB79


 

 

Risk-Based Capital Guidelines; Capital Adequacy Guidelines;

Capital Maintenance: Interim Capital Treatment of Consolidated Asset-

Backed Commercial Paper Program Assets


 

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of

Governors of the Federal Reserve System; Federal Deposit Insurance

Corporation; and Office of Thrift Supervision, Treasury.


 

ACTION: Interim final rule with a request for comments.


 

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of

Governors of the Federal Reserve System (Board), Federal Deposit

Insurance Corporation (FDIC), and Office of Thrift Supervision (OTS)

(collectively, the agencies) are amending their risk-based capital

standards by providing an interim capital treatment for assets in

asset-backed commercial paper (ABCP) programs that are consolidated

onto the balance sheets of sponsoring banks, bank holding companies,

and thrifts (collectively, sponsoring banking organizations) as a

result of a recently issued accounting interpretation, Financial

Accounting Standards Board Interpretation No. 46, Consolidation of

Variable Interest Entities (FIN 46). The interim capital treatment

allows sponsoring banking organizations to remove the


 

[[Page 56531]]


 

consolidated ABCP program assets from their risk-weighted asset bases

for the purpose of calculating their risk-based capital ratios.

Sponsoring banking organizations must continue to hold risk-based

capital against all other risk exposures arising in connection with

ABCP programs, including direct credit substitutes, recourse

obligations, residual interests, long-term liquidity facilities, and

loans, in accordance with each agency's existing risk-based capital

standards. In addition, any minority interests in ABCP programs that

are consolidated as a result of FIN 46 are to be excluded from

sponsoring banking organizations' minority interest component of tier 1

capital and, hence, from total risk-based capital.

This interim capital treatment will be applicable only for the

regulatory reporting periods ending September 30 and December 31, 2003,

and March 31, 2004. In addition, this interim capital treatment does

not alter the accounting rules for balance sheet consolidation nor does

it affect the denominator of the tier 1 leverage capital ratio

calculation, which continues to be based primarily on on-balance sheet

assets as reported under generally accepted accounting principles

(GAAP). Thus, as a result of FIN 46, banking organizations must include

all assets of consolidated ABCP programs in on-balance sheet assets for

purposes of calculating the tier 1 leverage capital ratio.

The agencies also have issued a related notice of proposed

rulemaking published elsewhere in today's Federal Register, in which

the agencies are soliciting comments on a permanent risk-based capital

treatment for the risks arising from ABCP programs.


 

DATES: This interim final rule is effective October 1, 2003. Comments

on the interim final rule must be received by November 17, 2003.


 

ADDRESSES: Comments should be directed to:

OCC: You should send comments to the Public Information Room,

Office of the Comptroller of the Currency, Mailstop 1-5, Attention:

Docket No. 03-21, 250 E Street, SW., Washington, DC 20219. Due to

delays in the delivery of paper mail in the Washington area and at the

OCC, commenters are encouraged to submit comments by fax or e-mail.

Comments may be sent by fax to (202) 874-4448, or by e-mail to regs.comments@occ.treas.gov.

You can make an appointment to inspect and photocopy the comments by calling the

Public Information Room at (202) 874-5043.

Board: Comments should refer to Docket No. R-1156 and may be mailed

to Ms. Jennifer J. Johnson, Secretary, Board of Governors of the

Federal Reserve System, 20th and Constitution Avenue, NW., Washington,

DC 20551. However, because paper mail in the Washington area and at the

Board of Governors is subject to delay, please consider submitting your comments by

e-mail to regs.comments@federalreserve.gov, or faxing them

to the Office of the Secretary at 202/452-3819 or 202/452-3102. Members

of the public may inspect comments in Room MP-500 of the Martin

Building between 9 a.m. and 5 p.m. weekdays pursuant to Sec. 261.12,

except as provided in Sec. 261.14, of the Board's Rules Regarding

Availability of Information, 12 CFR 261.12 and 261.14.

FDIC: Written comments should be addressed to Robert E. Feldman,

Executive Secretary, Attention: Comments, Federal Deposit Insurance

Corporation, 550 17th Street, NW., Washington, DC 20429. Comments also

may be hand delivered to the guard station at the rear of the 550 17th

Street Building (located on F Street), on business days between 7 a.m.

and 5 p.m. Comments may be inspected and photocopied in the FDIC Public

Information Center, Room 100, 801 17th Street, NW., Washington, DC,

between 9 a.m. and 4:30 p.m. on business days.

OTS: Send comments to Regulation Comments, Chief Counsel's Office,

Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,

Attention: No. 2003-48.

Delivery: Hand deliver comments to the Guard's Desk, East Lobby

Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days,

Attention: Regulation Comments, Chief Counsel's Office, Attention: No.

2003-48.

Facsimiles: Send facsimile transmissions to FAX Number (202) 906-

6518, Attention: No. 2003-48. E-Mail: Send e-mails to regs.comments@ots.treas.gov,

Attention: No. 2003-48 and include your name and telephone number. Due to temporary

disruptions in mail service in the Washington, DC area, commenters are

encouraged to send comments by fax or e-mail, if possible.

Availability of comments: OTS will post comments and the related

index on the OTS Internet Site at

http://www.ots.treas.gov.

In addition, you may inspect comments at the Public Reading Room, 1700 G

Street, NW., by appointment. To make an appointment for access, call (202) 906-5922, send

an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906-7755. (Please identify the

materials you would like to inspect to assist us in serving you.) We

schedule appointments on business days between 10 a.m. and 4 p.m. In

most cases, appointments will be available the business day after the

date we receive a request.


 

FOR FURTHER INFORMATION CONTACT:

OCC: Amrit Sekhon, Risk Expert, Capital Policy Division, (202) 874-

5211; Mauricio Claver-Carone, Attorney, or Ron Shimabukuro, Special

Counsel, Legislative and Regulatory Activities Division, (202) 874-

5090, Office of the Comptroller of the Currency, 250 E Street, SW.,

Washington, DC 20219.

Board: Thomas R. Boemio, Senior Supervisory Financial Analyst,

(202) 452-2982, David Kerns, Supervisory Financial Analyst, (202) 452-

2428, Barbara Bouchard, Assistant Director, (202) 452-3072, Division of

Banking Supervision and Regulation; or Mark E. Van Der Weide, Counsel,

(202) 452-2263, Legal Division. For the hearing impaired only,

Telecommunication Device for the Deaf (TDD), (202) 263-4869.

FDIC: Jason C. Cave, Chief, Policy Section, Capital Markets Branch,

(202) 898-3548, Robert F. Storch, Chief Accountant, Division of

Supervision and Consumer Protection, (202) 898-8906; Michael B.

Phillips, Counsel, Supervision and Legislation Branch, Legal Division,

(202) 898-3581, Federal Deposit Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429.

OTS: Michael D. Solomon, Senior Program Manager for Capital Policy,

(202) 906-5654, David W. Riley, Project Manager, Supervision Policy,

(202) 906-6669; or Teresa A. Scott, Counsel (Banking and Finance),

(202) 906-6478, Office of Thrift Supervision, 1700 G Street, NW.,

Washington, DC 20552.


 

SUPPLEMENTARY INFORMATION:


 

I. Background


 

An asset-backed commercial paper (ABCP) program typically is a

program through which a banking organization provides funding to its

corporate customers by sponsoring and administering a bankruptcy-remote

special purpose entity that purchases asset pools from, or extends

loans to, those customers. The asset pools in an ABCP program may

include, for example, trade receivables, consumer loans, or asset-

backed securities. The ABCP program raises cash to provide funding to

the banking organization's customers through the issuance of commercial

paper into the market. Typically, the sponsoring banking organization

provides liquidity and credit enhancements to the ABCP program, which

aids the program in obtaining high quality credit ratings that


 

[[Page 56532]]


 

facilitate the issuance of the commercial paper.\1\

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\1\ For the purposes of this rulemaking, a banking organization

is considered the sponsor of an ABCP program if it establishes the

program, approves the sellers permitted to participate in the

program; approves the asset pools to be purchased by the program; or

administers the ABCP program by monitoring the assets, arranging for

debt placement, compiling monthly reports, or ensuring compliance

with the program documents and with the program's credit and

investment policy.

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In January 2003, the Financial Accounting Standards Board (FASB)

issued interpretation No. 46, "Consolidation of Variable Interest

Entities" (FIN 46), requiring the consolidation of variable interest

entities (VIEs) onto the balance sheets of companies deemed to be the

primary beneficiaries of those entities.\2\ FIN 46 may result in the

consolidation of many ABCP programs onto the balance sheets of banking

organizations beginning in the third quarter of 2003. In contrast,

under pre-FIN 46 accounting standards, banking organizations normally

have not been required to consolidate the assets of these programs.

Banking organizations that are required to consolidate ABCP program

assets will have to include all of these program assets (mostly

receivables and securities) and liabilities (mainly commercial paper)

on their September 30, 2003 balance sheets for purposes of the bank

Reports of Condition and Income (Call Report), the Thrift Financial

Report (TFR), and the bank holding company financial statements (FR Y-

9C Report). If no changes were made to regulatory capital standards,

the resulting increase in the asset base would lower both the tier 1

leverage and risk-based capital ratios of banking organizations that

must consolidate the assets held in ABCP programs.

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\2\ Under FIN 46, the FASB broadened the criteria for

determining when one entity is deemed to have a controlling

financial interest in another entity and, therefore, when an entity

must consolidate another entity in its financial statements. An

entity generally does not need to be analyzed under FIN 46 if it is

designed to have "adequate capital" as described in FIN 46 and its

shareholders control the entity with their share votes and are

allocated its profits and losses. If the entity fails these

criteria, it typically is deemed a VIE and each stakeholder in the

entity (a group that can include, but is not limited to, legal-form

equity holders, creditors, sponsors, guarantors, and servicers) must

access whether it is the entity's "primary beneficiary" using the

FIN 46 criteria. This analysis considers whether effective control

exists by evaluating the entity's risks and rewards. The stakeholder

who holds the majority of the entity's risks or rewards is the

primary beneficiary and must consolidate the VIE.

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


 

The agencies believe that the consolidation of ABCP program assets

onto the balance sheets of sponsoring banking organizations could

result in risk-based capital requirements that do not appropriately

reflect the risks faced by banking organizations that sponsor these

programs. The agencies believe that sponsoring banking organizations

generally face limited risk exposure to ABCP programs, which generally

is confined to the credit enhancements and liquidity facility

arrangements that they provide to these programs. In addition,

operational controls and structural provisions, along with

overcollateralization or other credit enhancements provided by the

companies that sell assets into ABCP programs can further mitigate the

risk to which sponsoring banking organizations are exposed. Because of

the limited risks, the agencies believe that it is appropriate to

provide an interim risk-based capital treatment that permits sponsoring

banking organizations to exclude from risk-weighted assets, on a

temporary basis, assets held by ABCP programs that must be consolidated

onto the balance sheets of sponsoring banking organizations as a result

of FIN 46.

The period during which the interim rule is in effect will provide

the agencies with additional time to develop the appropriate risk-based

capital requirements for banking organizations' sponsorship and other

involvement with ABCP programs and to receive comments from the

industry on a related proposal also published in today's Federal

Register.


 

II. Interim Risk-Based Capital and Regulatory Reporting Treatment


 

The agencies are amending their risk-based capital standards to

permit sponsoring banking organizations to exclude the assets of ABCP

programs that must be consolidated under FIN 46 from risk-weighted

assets when they calculate their tier 1 and total risk-based capital

ratios for the quarters ending September 30, 2003, December 31, 2003,

and March 31, 2004. Sponsoring banking organizations must continue to

assess risk-based capital against any credit enhancements or long-term

liquidity facilities that they provide to such ABCP programs. For

example, banking organizations that sponsor ABCP programs generally

assign any investment-grade equivalent credit enhancements that they

provide to these programs to the 100 percent risk weight category.\3\

Most liquidity facilities currently provided to ABCP programs are

structured with a maturity of less than one year and, under the

agencies' current risk-based capital rules, do not incur a capital

charge.

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\3\ Under the agencies' risk-based capital standards, banking

organizations may, subject to supervisory approval, use their

internal risk ratings system to assess the credit quality of non-

rated direct credit substitutes provided to ABCP programs in order

to determine the appropriate risk-based capital charge. Direct

credit substitutes provided to ABCP programs that are the equivalent

of nono-investment grade are assigned to either the 200 percent risk

weight category or effectively deducted from risk-based capital.

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Under this interim rule, for the third and fourth quarters of 2003,

as well as for the first quarter of 2004, when reporting items 34

through 43 on Schedule RC-R (Regulatory Capital) of the Call Report and

Schedule HC-R (Regulatory Capital) of the FR Y-9C, any consolidated

ABCP program assets resulting from application of FIN 46 are to be

reported in column A, "Totals (from Schedule RC)," as well as in

column B, "Items not Subject to Risk-Weighting." With respect to the

TFR, thrifts should not include the subject program assets in any of

the lines for assets to risk weight on Schedule CCR that comprise the

subtotal on line CCR64.

Reporting in this manner will exclude the ABCP program assets from

incorporation into the calculation of the risk-based capital ratios.

Banking organizations should continue to report the notional amounts of

any credit enhancements and liquidity facilities provided to ABCP

programs in the risk-based capital schedule line items in which these

exposures would be properly reported as of the June 30, 2003 reporting

date. In addition, credit enhancements and liquidity facilities that

sponsoring banking organizations provide to their ABCP programs are to

be reported in Memorandum items 3.a.(1) and 3.b.(1) of Schedule RC-S

(Servicing, Securitization, and Asset Sale Activities) of the Call

Report and Schedule HC-S (Servicing, Securitization, and Asset Sale

Activities) of the FR Y-9C consolidated reports, respectively. Thrifts

should include any related credit enhancements on Schedule CC, lines

CC455, CC465, or CC468, as appropriate.

In addition, any minority interests in ABCP programs that are

consolidated as a result of FIN 46 are to be excluded from sponsoring

banking organizations' minority interest component of tier 1 capital

and, hence, also from total risk-based capital. Exclusion from capital

of any minority interests associated with consolidated ABCP programs is

required when the programs' assets are not included in an

organization's risk-weighted asset base and, thus, are not assessed a

risk-based capital charge. When sponsoring banking organizations report

item 6, "Qualifying minority interest in consolidated subsidiaries,"

of


 

[[Page 56533]]


 

Schedule RC-R of the Call Report and Schedule HC-R of the FR Y-9C, they

should exclude the amount of minority interest associated with such

consolidated ABCP programs. With respect to the TFR, when sponsoring

savings associations report on line CCR125, "Minority Interest in

Includable Consolidated Subsidiaries," of Schedule CCR, they should

exclude the amount of minority interest associated with such

consolidated ABCP programs.

This interim risk-based capital (and the associated regulatory

capital reporting) treatment will expire on April 1, 2004. If the

agencies have not implemented an alternative risk-based capital

approach for banking organizations that sponsor ABCP programs prior to

the expiration of the interim treatment, then sponsoring banking

organizations will be required to subject ABCP program assets that are

consolidated under FIN 46 to the applicable risk-based capital

treatment for on-balance sheet assets. The agencies reserve the

authority to require sponsoring banking organizations to hold an

alternative amount of risk-based capital against ABCP program assets at

any time during the period this interim treatment is in effect in the

event that an agency determines that the application of these risk-

based capital requirements does not adequately address the risks

present in a sponsoring banking organization's involvement with an ABCP

program.

This interim risk-based capital treatment has no bearing on the

accounting requirements as established by GAAP or the manner in which

banking organizations report consolidated on-balance sheet assets. In

addition, the interim capital treatment does not affect the denominator

of the tier 1 leverage capital ratio calculation, which will continue

to be based primarily on on-balance sheet assets as reported under

GAAP. Thus, in accordance with FIN 46, banking organizations must

include all assets of consolidated ABCP programs in on-balance sheet

assets for purposes of calculating the tier 1 leverage capital ratio.

In addition, in contrast to many other cases where minority interest in

consolidated subsidiaries may be included as a component of tier 1

capital and, hence, incorporated into the tier 1 leverage capital ratio

calculation, minority interest related to sponsoring banking

organizations' ABCP program assets consolidated as a result of FIN 46

are not included in tier 1 capital. Thus, the reported tier 1 leverage

capital ratio for a sponsoring banking organization will be lower than

if only its ABCP program assets were consolidated. However, the

agencies anticipate that the exclusion of minority interests related to

consolidated ABCP program assets will not significantly affect the tier

1 leverage capital ratio of sponsoring banking organizations because

the equity in ABCP programs generally is small relative to the capital

levels of sponsoring banking organizations.

The agencies seek comment on all aspects of the interim rule. In a

related notice of proposed rulemaking published elsewhere in today's

Federal Register, the agencies are soliciting comments on the removal

of the April 1, 2004 sunset provision contained in this interim final

rule so that assets of ABCP programs consolidated under FIN 46 and any

associated minority interest would continue to be excluded from risk-

weighted assets and tier 1 capital, respectively, of sponsoring banking

organizations for purposes of calculating the risk-based capital

ratios. The proposed elimination of the sunset provision is conditional

upon the agencies implementing appropriate risk-based capital

requirements for all risk exposures arising from ABCP programs.

Thus, the agencies also have proposed that liquidity facilities

with an original maturity of one year or less that banking

organizations provide to ABCP programs be converted to on-balance sheet

credit equivalent amounts using the 20 percent credit conversion factor

(as opposed to the existing zero percent credit conversion factor) and

assigned to the appropriate risk weight category according to the

underlying assets or obligor, after consideration of any guarantees or

collateral, or external credit ratings if the risk exposure is an

asset-or mortgage-backed security. In general, this capital requirement

on short-term liquidity facilities would be in addition to existing

risk-based capital requirements for credit enhancements provided to

ABCP programs.


 

Regulatory Flexibility Act Analysis


 

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

agencies have determined that this interim rule would not have a

significant impact on a substantial number of small entities in

accordance with the spirit and purposes of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.). Accordingly, a regulatory flexibility

analysis is not required. In addition, the interim rule would reduce

regulatory burden with respect to the agencies' risk-based capital

standards.


 

Administrative Procedure Act


 

Pursuant to section 553 of the Administrative Procedure Act, 5

U.S.C. 553, the agencies find good cause for issuing this interim rule

in advance of the receipt of comments from interested parties. The

agencies believe that it is important to make this interim final rule

effective before banking organizations must calculate their regulatory

risk-based capital ratios at the end of the third quarter 2003. If ABCP

program assets are consolidated under FIN 46, then the resulting

capital requirement might not be commensurate with the risk inherent in

sponsoring banking organizations' involvement with such programs. The

agencies are seeking public comment on the interim final rule and, in a

related notice of proposed rulemaking, are seeking comment on an

alternative risk-based capital treatment for the risk exposures arising

from this activity.

In addition, under section 553(d)(3) of the Administrative

Procedure Act, an agency may issue an interim rule or a final rule

without delaying its effective date for 30 days from the date of

publication if the agency finds good cause and publishes its finding

with the rule. The agencies have determined that the issuance of this

interim rule without delaying its effective date for 30 days from the

date of publication will provide certainty for banking organizations in

calculating their regulatory capital ratios for the third quarter 2003.


 

Paperwork Reduction Act


 

The agencies have determined that this interim rule does not

involve a collection of information pursuant to the provisions of the

Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).


 

Unfunded Mandates Reform Act of 1995


 

OCC: Section 202 of the Unfunded Mandates Reform Act of 1995, Pub.

L. 104-4 (Unfunded Mandates Act) requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

Federal mandate that may result in expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. This interim rule is designed

to temporarily offset the effect on risk-based capital ratios of FIN 46

with


 

[[Page 56534]]


 

respect to ABCP programs. The OCC has determined that this interim rule

will not result in expenditures by state, local, or tribal governments,

or by the private sector, of $100 million or more in any one year.

Accordingly, Section 202 of the Unfunded Mandates Act does not require

the OCC to prepare a budgetary impact statement for this rule.

OTS: Section 202 of the Unfunded Mandates Reform Act of 1995, Pub.

L. 104-4 (Unfunded Mandates Act) requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

Federal mandate that may result in expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. OTS has determined that this

interim rule will not result in expenditures by state, local, or tribal

governments, or by the private sector, of $100 million or more in any

one year. Accordingly, section 202 of the Unfunded Mandates Act does

not require the OTS to prepare a budgetary impact statement for this

rule.


 

Plain Language


 

Section 722 of the Gramm-Leach-Bliley (GLB) Act requires the

Federal banking agencies to use "plain language" in all proposed and

final rules published after January 1, 2000. In light of this

requirement, the agencies have sought to present the interim final rule

in a simple and straightforward manner. The agencies invite comments on

whether there are additional steps the agencies could take to make the

rule easier to understand.


 

List of Subjects


 

12 CFR Part 3


 

Administrative practice and procedure, Capital, National banks,

Reporting and recordkeeping requirements, Risk.


 

12 CFR Part 208


 

Accounting, Agriculture, Banks, banking, Confidential business

information, Crime, Currency, Federal Reserve System, Mortgages,

Reporting and recordkeeping requirements, Securities.


 

12 CFR Part 225


 

Administrative practice and procedure, Banks, banking, Federal

Reserve System, Holding companies, Reporting and recordkeeping

requirements, Securities.


 

12 CFR Part 325


 

Administrative practice and procedure, Bank deposit insurance,

Banks, banking, Capital adequacy, Reporting and recordkeeping

requirements, Savings associations, State non-member banks.


 

12 CFR Part 567


 

Capital, Reporting and recordkeeping requirements, Savings

associations.


 

Department of the Treasury


 

Office of the Comptroller of the Currency


 

12 CFR Chapter 1


 

Authority and Issuance


 

0

For the reasons set out in the joint preamble, part 3 of chapter I of

title 12 of the Code of Federal Regulations is amended as follows:


 

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES


 

0

1. The authority citation for part 3 continues to read as follows:


 

Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n

note, 1835, 3907, and 3909.


 

0

2. In Appendix A to part 3:

0

a. In section 1, paragraphs (c)(3) through (c)(35) are redesignated as

paragraphs (c)(4) through (c)(36); newly redesignated paragraphs

(c)(30) through (c)(36) are redesignated (c)(31) through (c)(37); and

two new paragraphs (c)(3) and (c)(30) are added;

0

b. In section 2, paragraph (a)(3) is revised; and

0

c. In section 4, two new paragraphs (j) and (k) are added.


 

Appendix A to Part 3--Risk-Based Capital Guidelines


 

Section 1. Purpose, Applicability of Guidelines, and Definitions.


 

* * * * *

(c) * * *

(3) Asset-backed commercial paper program means a program that

issues commercial paper backed by assets or other exposures held in

a bankruptcy-remote special purpose entity.

* * * * *

(30) Sponsor means a bank that:

(i) Establishes an asset-backed commercial paper program;

(ii) Approves the sellers permitted to participate in the asset-

backed commercial paper program;

(iii) Approves the asset pools to be purchased by the asset-

backed commercial paper program; or

(iv) Administers the asset-backed commercial paper program by

monitoring the assets, arranging for debt placement, compiling

monthly reports, or ensuring compliance with the program documents

and with the program's credit and investment policy.

* * * * *


 

Section 2. Components of Capital.


 

* * * * *

(a) * * *

(3) Minority interests in the equity accounts of consolidated

subsidiaries, except that the following are not included in Tier 1

capital or total capital:

(i) Minority interests in a small business investment company or

investment fund that holds nonfinancial equity investments and

minority interests in a subsidiary that is engaged in nonfinancial

activities and is held under one of the legal authorities listed in

section 1(c)(21) of this appendix A.

(ii) Minority interests in consolidated asset-backed commercial

paper programs sponsored by a bank if the consolidated assets are

excluded from risk-weighted assets pursuant to section 4(j)(1) of

this appendix A. This section 2(a)(3)(ii) of this appendix A is

effective from July 1, 2003 to April 1, 2004.

* * * * *


 

Section 4. Recourse, Direct Credit Substitutes and Positions in

Securitizations


 

* * * * *

(j) Asset-backed commercial paper programs subject to

consolidation. (1) A bank that qualifies as a primary beneficiary

and must consolidate an asset-backed commercial paper program as a

variable interest entity under generally accepted accounting

principles may exclude the consolidated asset-backed commercial

paper program assets from risk-weighted assets if the bank is the

sponsor of the consolidated asset-backed commercial paper program.

(2) If a bank excludes such consolidated asset-backed commercial

paper program assets from risk-weighted assets, the bank must assess

the appropriate risk-based capital charge against any risk exposures

of the bank arising in connection with such asset-backed commercial

paper programs, including direct credit substitutes, recourse

obligations, residual interests, liquidity facilities, and loans, in

accordance with sections 3 and 4(b) of this appendix A.

(3) If a bank either elects not to exclude such consolidated

asset-backed commercial paper program assets from its risk-weighted

assets in accordance with section 4(j)(1) of this appendix A, or is

not permitted to exclude consolidated asset-backed commercial paper

program assets, the bank must assess risk-based capital charge based

on the appropriate risk weight of the consolidated asset-backed

commercial paper program assets in accordance with section 3(a) of

this appendix A. In such case, direct credit substitutes and

recourse obligations (including residual interests), and loans that

sponsoring banks provide to such asset-backed commercial paper

programs are not subject to any capital charge under section 4 of

this appendix A.

(4) This section (4)(j) of this appendix A is effective from

July 1, 2003 until April 1, 2004.


 

[[Page 56535]]


 

(k) Other variable interest entities subject to consolidation.

(1) If a bank that is required to consolidated the assets of a

variable interest entity under generally accepted accounting

principles, the bank must assess risk-based capital charge based on

the appropriate risk weight of the consolidated assets in accordance

with section 3(a) of this appendix A. In such case, direct credit

substitutes and recourse obligations (including residual interests),

and loans that sponsoring banks provide to such asset-backed

commercial paper programs are not subject to any capital charge

under section 4 of this appendix A.

(2) This section 4(k) of this appendix A is effective from July

1, 2003 until April 1, 2004.

* * * * *


 

Dated: September 4, 2003.

John D. Hawke, Jr.

Comptroller of the Currency.


 

Federal Reserve System


 

12 CFR Chapter II


 

Authority and Issuance


 

0

For the reasons set forth in the joint preamble, the Board of Governors

of the Federal Reserve System amends parts 208 and 225 of chapter II of

title 12 of the Code of Federal Regulations as follows:


 

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL

RESERVE SYSTEM (REGULATION H)


 

0

1. The authority citation for part 208 continues to read as follows:


 

Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a,

371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),

1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882,

2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b,

78l(b), 78l(g), 78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w; 31 U.S.C.

5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.



 

0

2. In Appendix A to part 208, the following amendments are made:

0

a. In section II.A.1.c., Minority interest in equity accounts of

consolidated subsidiaries, two new sentences are added at the end of

the paragraph.

0

b. In section III.B--

0

i. In paragraph 3.a., paragraphs xiv. and xv. are redesignated xv. and

xvi.;

0

ii. In paragraph 3.a., a new paragraph xiv., Sponsor, is added; and

0

iii. A new paragraph 6 is added at the end of section II. B.


 

Appendix A to Part 208--Capital Adequacy Guidelines for State Member

Banks: Risk-Based Measure


 

* * * * *

II. * * *

A. * * *

1. * * *

c. * * * In addition, minority interests in consolidated asset-

backed commercial paper programs (as defined in section III.B.6. of

this appendix) that are sponsored by a bank are not to be included

in the bank's Tier 1 or total capital base if the bank excludes the

consolidated assets of such programs from risk-weighted assets

pursuant to section III.B.6. of this appendix. This capital

treatment for minority interests in consolidated asset-backed

commercial paper programs will be effective from July 1, 2003 and

will expire on April 1, 2004.

* * * * *

III. * * *

B. * * *

3. * * *

a. * * *

xiv. Sponsor means a bank that establishes an asset-backed

commercial paper program; approves the sellers permitted to

participate in the program; approves the asset pools to be purchased

by the program; or administers the asset-backed commercial paper

program by monitoring the assets, arranging for debt placement,

compiling monthly reports, or ensuring compliance with the program

documents and with the program's credit and investment policy.

* * * * *

6. Asset-backed commercial paper programs. a. An asset-backed

commercial paper (ABCP) program typically is a program through which

a bank provides funding to its corporate customers by sponsoring and

administering a bankruptcy-remote special purpose entity that

purchases asset pools from, or extends loans to, the bank's

customers. The ABCP program raises the cash to provide the funding

through the issuance of commercial paper in the market.

b. A bank that qualifies as a primary beneficiary and must

consolidate an ABCP program that is defined as a variable interest

entity under GAAP may exclude the consolidated ABCP program assets

from its risk-weighted assets provided that the bank is the sponsor

of the consolidated ABCP program. If a bank excludes such

consolidated ABCP program assets, the bank must apply the

appropriate risk-based capital charge against any risk exposures of

the bank arising in connection with such ABCP programs, including

direct credit substitutes, recourse obligations, residual interests,

liquidity facilities, and loans, in accordance with sections

III.B.3., III.C. and III.D. of this appendix.

c. This capital treatment for consolidated assets of certain

ABCP programs will be effective from July 1, 2003 and will expire on

April 1, 2004.

* * * * *


 

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL

(REGULATION Y)


 

0

1. The authority citation for part 225 continues to read as follows:


 

Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,

1843( c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907,

and 3909; 15 U.S.C. 6801 and 6805.



 

0

2. In Appendix A to part 225, the following amendments are made:

0

a. In section II.A.1.c., Minority interest in equity accounts of

consolidated subsidiaries, two new sentences are added at the end of

the paragraph.

0

b. In section III.B.--

0

i. In paragraph 3.a., paragraphs xiv. and xv. are redesignated xv. and

xvi.;

0

ii. In paragraph 3.a., a new paragraph xiv., Sponsor, is added; and

0

iii. A new paragraph 6 is added at the end of section III.B.


 

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding

Companies: Risk-Based Measure


 

* * * * *

II. * * *

A. * * *

1. * * *

c. * * * In addition, minority interests in consolidated asset-

backed commercial paper programs (as defined in section III.B.6. of

this appendix) that are sponsored by a banking organization are not

to be included in the organization's Tier 1 or total capital base if

the organization excludes the consolidated assets of such programs

from risk-weighted assets pursuant to section III.B.6. of this

appendix. This capital treatment for minority interests in

consolidated asset-backed commercial paper programs will be

effective from July 1, 2003 and will expire on April 1, 2004.

* * * * *

III. * * *

B. * * *

3. * * *

a. * * *

xiv. Sponsor means a bank holding company that establishes an

asset-backed commercial paper program; approves the sellers

permitted to participate in the program; approves the asset pools to

be purchased by the program; or administers the asset-backed

commercial paper program by monitoring the assets, arranging for

debt placement, compiling monthly reports, or ensuring compliance

with the program documents and with the program's credit and

investment policy.

* * * * *

6. Asset-backed commercial paper programs. a. An asset-backed

commercial paper (ABCP) program typically is a program through which

a banking organization provides funding to its corporate customers

by sponsoring and administering a bankruptcy-remote special purpose

entity that purchases asset pools from, or extends loans to, the

organization's customers. The ABCP program raises the cash to

provide the funding through the issuance of commercial paper in the

market.

b. A banking organization that qualifies as a primary

beneficiary and must consolidate an ABCP program that is defined as

a variable interest entity under GAAP may exclude the consolidated

ABCP program assets from its risk-weighted assets provided that the

bank holding company is the sponsor of the consolidated ABCP

program. If a banking organization excludes such ABCP


 

[[Page 56536]]


 

program assets, the banking organization must apply the appropriate

risk-based capital charge against any risk exposures of the

organization arising in connection with such ABCP programs,

including direct credit substitutes, recourse obligations, residual

interests, liquidity facilities, and loans, in accordance with

sections III.B.3., III.C. and III.D. of this appendix.

c. This capital treatment for consolidated assets of certain

ABCP programs will be effective from July 1, 2003 and will expire on

April 1, 2004.

* * * * *



 

By order of the Board of Governors of the Federal Reserve

System, September 12, 2003.


 

Jennifer J. Johnson,

Secretary of the Board.


 

Federal Deposit Insurance Corporation


 

12 CFR Chapter III


 

Authority and Issuance


 

0

For the reasons set forth in the joint preamble, the Board of Directors

of the Federal Deposit Insurance Corporation amends part 325 of chapter

III of title 12 of the Code of Federal Regulations as follows:


 

PART 325--CAPITAL MAINTENANCE


 

0

1. The authority citation for part 325 continues to read as follows:


 

Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),

1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),

1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat.

1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat.

2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12

U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended

by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).



 

0

2. In Appendix A to part 325, the following amendments are made:

0

a. In section I.A.1.iii, the four undesignated paragraphs are

designated (a), (b), (c), and (d), and a new paragraph (e) is added to

that section.

0

b. In section II.B--

0

i. In paragraph 5.a., paragraphs (15) and (16) are redesignated (16)

and (17);

0

ii. In paragraph 5.a., a new paragraph (15), Sponsor, is added; and

0

iii. A new paragraph 6 is added at the end of section II.B.


 

Appendix A to Part 325--Statement of Policy on Risk-Based Capital


 

* * * * *

I. * * *

A. * * *

1. * * *

iii. * * *

(e) Minority interests in consolidated asset-backed commercial

paper programs (as defined in section II.B.6. of this appendix) that

are sponsored by a bank are not to be included in the bank's tier 1

or total capital base if the bank excludes the consolidated assets

of such programs from risk-weighted assets pursuant to section

II.B.6. of this appendix. This capital treatment for minority

interests in consolidated asset-backed commercial paper programs

will be effective from July 1, 2003 and will expire on April 1,

2004.

* * * * *

II. * * *

B. * * *

5. * * *

a. * * *

(15) Sponsor means a bank that establishes an asset-backed

commercial paper program; approves the sellers permitted to

participate in the program; approves the asset pools to be purchased

by the program; or administers the asset-backed commercial paper

program by monitoring the assets, arranging for debt placement,

compiling monthly reports, or ensuring compliance with the program

documents and with the program's credit and investment policy.

* * * * *

6. Asset-backed commercial paper programs. a. An asset-backed

commercial paper (ABCP) program typically is a program through which

a bank provides funding to its corporate customers by sponsoring and

administering a bankruptcy-remote special purpose entity that

purchases asset pools from, or extends loans to, the bank's

customers. The ABCP program raises the cash to provide the funding

through the issuance of commercial paper in the market.

b. A bank that qualifies as a primary beneficiary and must

consolidate an ABCP program that is defined as a variable interest

entity under generally accepted accounting principles may exclude

the consolidated ABCP program assets from risk-weighted assets

provided that the bank is the sponsor of the consolidated ABCP

program. If a bank excludes such consolidated ABCP program assets,

the bank must assess the appropriate risk-based capital charge

against any risk exposures of the bank arising in connection with

such ABCP programs, including direct credit substitutes, recourse

obligations, residual interests, liquidity facilities, and loans, in

accordance with sections II.B.5., II.C., and II.D. of this appendix.

c. This capital treatment for consolidated assets of certain

ABCP programs will be effective from July 1, 2003 and will expire on

April 1, 2004.

* * * * *


 

By order of the Board of Directors.


 

Dated at Washington, DC, this 5th day of September 2003.


 

Federal Deposit Insurance Corporation.


 

Robert E. Feldman,

Executive Secretary.


 

DEPARTMENT OF THE TREASURY


 

Office of Thrift Supervision


 

12 CFR Chapter V


 

Authority and Issuance


 

0

For the reasons set out in the preamble, part 567 of chapter V of title

12 of the Code of Federal Regulations is amended as follows:


 

PART 567--CAPITAL


 

0

1. The authority citation for part 567 continues to read as follows:


 

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828

(note).



 

0

2. Section 567.1 is amended by adding a definition of "asset backed

commercial paper program" to read as follows:



 

Sec. 567.1 Definitions


 

* * * * *

Asset backed commercial paper program. The term asset backed

commercial paper program (ABCP) means a program that issues commercial

paper backed assets or exposures held in a bankruptcy-remote special

purpose entity. The term sponsor of an ABCP means a savings association

that either:

(1) Establishes an ABCP program;

(2) Approves the sellers permitted to participate in the program;

(3) Approves the asset pools to be purchased by the program; or

(4) Administers the ABCP by monitoring the assets, arranging for

debt placement, compiling monthly reports, or ensuring compliance with

the program documents and with the program's credit and investment

policy.

* * * * *


 

0

3. Section 567.5 is amended by revising paragraph (a)(1)(iii) to read

as follows:



 

Sec. 567.5 Components of capital.


 

(a) * * *

(1) * * *

(iii) Minority interests in the equity accounts of subsidiaries

that are fully consolidated. However, minority interests in

consolidated ABCP programs sponsored by a savings association are

excluded from the association's core capital or total capital base if

the consolidated assets are excluded from risk-weighted assets pursuant

to Sec. 567.6 (a)(3). This capital treatment for minority interests in

consolidated ABCP programs will be effective from July 1, 2003 to April

1, 2004.

* * * * *


 

0

4. Amend Sec. 567.6 by adding new paragraphs (a)(3) and (4) to read as

follows:



 

Sec. 567.6 Risk-based capital credit risk-weight categories.


 

(a) * * *

(3) Asset-backed commercial paper programs. (i) A savings

association that qualifies as a primary beneficiary and must

consolidate an ABCP program that is defined as a variable interest

entity


 

[[Page 56537]]


 

under generally accepted accounting principles may exclude the

consolidated ABCP program assets from risk-weighted assets, provided

that the savings association is the sponsor of the ABCP.

(ii) If a savings association excludes such consolidated ABCP

program assets from risk-weighted assets, the savings association must

assess the appropriate risk-based capital requirement against any risk

exposures of the institution arising in connection with such ABCP

programs, including direct credit substitutes, recourse obligations,

residual interests, liquidity facilities, and loans, in accordance with

paragraphs (a)(1) and (2) and (b) of this section.

(iii) If a savings association either elects not to exclude

consolidated ABCP program assets from its risk-weighted assets in

accordance with paragraph (a)(3)(i) of this section, or otherwise is

not permitted to exclude consolidated ABCP program assets, the savings

association must assess a risk-based capital charge based on the

appropriate risk weight of the consolidated ABCP program assets in

accordance with paragraph (a)(1) of this section. Direct credit

substitutes and recourse obligations (including residual interests),

and loans that sponsoring savings associations provide to ABCP programs

are not subject to any capital charge under paragraphs (a)(2) and (b)

of this section.

(iv) This capital treatment for consolidated assets of certain ABCP

programs will be effective from July 1, 2003 to April 1, 2004.

(4) Other variable interest entities subject to consolidation. (i)

A savings association that is required to consolidate the assets of a

variable interest entity under generally accepted accounting principles

must assess a risk-based capital charge based on the appropriate risk

weight of the consolidated assets in accordance with paragraph (a)(1)

of this section. Direct credit substitutes and recourse obligations

(including residual interests), and loans that sponsoring savings

associations provide to ABCP programs are not subject to any capital

charge under paragraphs (a)(2) and (b) of this section.

(ii) This capital treatment for other variable interest entities

subject to consolidation will be effective from July 1, 2003 to April

1, 2004.

* * * * *



 

Dated: September 9, 2003.


 

By the Office of Thrift Supervision.


 

James E. Gilleran,

Director.


 

[FR Doc. 03-23756 Filed 9-30-03; 8:45 am]


 

BILLING CODE 4810-33-P

Last Updated: March 24, 2024