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To: Chief Executive Officers of National Banks, Department and Division Heads, Licensing Managers, and All Examining Personnel

Description: Regulatory Capital and Accrued Interest Receivable Assets

The guidance attached to this bulletin continues to apply to federal savings associations.

The enclosed Interagency Advisory issued by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of Thrift Supervision clarifies the appropriate risk-based capital treatment for banking organizations that securitize credit card receivables and record an on-balance sheet asset commonly referred to as an Accrued Interest Receivable (AIR). The AIR consists of fees and finance charges that have been accrued on receivables that the banking organization has securitized and sold to other investors. In general, the AIR represents a subordinated retained interest in cash flows that are initially allocated to the investors' portion of a credit card securitization, which is subject to higher capital requirements under the agencies' capital standards than many institutions are currently applying to this asset.

The agencies expect institutions to hold capital for AIR assets consistent with the agencies' positions articulated in this advisory by no later than December 31, 2002, unless supervisory concerns warrant an institution's earlier application of this advisory. Institutions that have been properly reflecting the AIR as a credit enhancement for risk-based capital purposes are expected to continue to do so.

If you have AIR-related risk-based capital questions, please contact Amrit Sekhon, Capital Policy Division at (202) 874-5211. If you have AIR-related accounting questions, please contact Tom Rees, Office of the Chief Accountant at (202) 874-5411.

Michael L. Brosnan
Deputy Comptroller Risk Evaluation

Tommy Snow
Director Capital Policy

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