Comptroller of the Currency
Administrator of National Banks

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (the agencies) are seeking comment on a joint notice of proposed rulemaking (NPR) related to the Financial Accounting Standards Board’s (FASB) adoption of Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (FAS 166) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 167).

BACKGROUND

The agencies use generally accepted accounting principles (GAAP) as the initial basis for determining whether an exposure is treated as on- or off-balance sheet for regulatory capital purposes. On June 12, 2009, the FASB issued FAS 166 and FAS 167 (new accounting standards) which are effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. These accounting standards will make substantive changes to how banks account for many items, including securitized assets, that are currently excluded from these organizations’ balance sheets.

The agencies are issuing the proposed NPR to better align regulatory capital requirements with the actual risk of certain exposures. The agencies believe that the broader accounting consolidation requirements in the new accounting standards will result in a regulatory capital treatment that more appropriately reflects the risks to which banks are exposed. Accordingly, the agencies are proposing to continue to follow GAAP by using the new accounting standards in determining on-balance sheet exposures for regulatory capital.

Under the NPR, the agencies also propose to modify their general risk-based and advanced risk-based capital adequacy frameworks to eliminate the exclusion of certain consolidated asset-backed commercial paper programs from risk-weighted assets. The agencies also propose to provide a reservation of authority in their general risk-based and advanced risk-based capital adequacy frameworks to permit the agencies to require banking organizations to treat entities that are not consolidated under GAAP as if they were consolidated for risk-based capital purposes, commensurate with the risk relationship of the banking organization to the structure.

Banks affected by the new accounting standards generally will be subject to higher minimum regulatory capital requirements. The agencies’ proposal seeks comment and supporting data on whether a phase-in of the increase in regulatory capital requirements is needed. The agencies also seek comment and supporting data on a number of other matters, including policy alternatives to address any unique challenges the new accounting standards present with regard to the allowance for loan and lease losses provisioning process including, for example, the current constraint on the amount of provisions that are eligible for inclusion in tier 2 capital.

The NPR was published in the Federal Register on September 15, 2009. Comments on the NPR will be accepted through close of business, October 15, 2009.

FURTHER INFORMATION

You may direct questions or comments to Paul Podgorski, Risk Expert, Capital Policy Division, at (202) 874-4755; or Carl Kaminski, Senior Attorney, Legislative and Regulatory Activities Division, at (202) 874-5090.