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FEDERAL R ESER VE BANK OF DALLAS
S t a tio n K, D a llas, T e x a s 7 5 2 2 2

C ir c u la r No. 84-38
March 7, 1984

TO:

All member banks, bank holding companies, edge and
agreement corp ora ti ons and ot her s concerned in the
Eleventh Federal Reserve D i s t r i c t

ATTENTION:

Chief Executive O f fi c e r

SUBJECT:

International Lending Supervision Act of 1983 and
Regulation K — International Banking Operations

SUWARY:

The Board of Governors of the Federal Reserve System
has
announced
an amendment to Regulation K to
implement several s e ct io ns of
the
International
Lending
Supervision
Act
of
1983.
The
amendments--applicable to s t a t e member banks, bank
holding companies, and edge and agreement corp ora ti on s
engaged in ban ki ng --r equ ire s these i n s t i t u t i o n s to
e s t a b l i s h an Allocated T ransfer Risk Reserve (ATRR)
f o r s p e c i f i e d i n t e r n a t i o n a l a s s e t s , p ri ma ril y loan s,
under c e r t a i n circumstances.
The amendment f u r t h e r
s p e c i f i e s a procedure f o r determination of when an
ATRR will be required and how lar ge an ATRR should be.
The amendment also s e t s f o r t h a
framework
for
req u i ri n g
country
exposure r e p o rt s
by
banking
institutions.
In a d d i t i o n , the Board of Governors issued f o r comment
d r a f t r e g u la t i o n s e s t a b l i s h i n g uniform
accounting
requirements
for
fees
on i n t e r n a t i o n a l
loans.
Comments are requested by March 9,
1984.
All
correspondence should be addressed to Mr. William W
.
Wiles, S e c r e t a r y , Board of Governors of the Federal
Reserve System, Washington, D.C., 20551 and should
r e f e r to Docket No. R-0509.

ATTACHMENTS:

Board's press r e l e a s e and Federal Re gis ter document

MORE INFORMATION:

Legal Department, Extension 6228

ADDITIONAL COPIES:

Public A f f a i r s Department, Extension 6289

Banks and others are encouraged to use the follow ing in coming W A T S numbers in contacting this Bank: 1-800-442-7140
(in trastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERA^ESERV^pr^s^Blease
For immediate r e l e a s e

February 9, 1984

The Federal Reserve Board today announced adoption of r u l e s

t o implement

several s e c t i o n s of the I n t e r n a t i o n a l Lending Supervision Act of 1983.
Two of the r ul es r eq ui re banking or ga n iza ti o n s to maintain special reserves
and a u th o r iz e th e Board t o r e q u i re

submission of q u a r t e r l y re por ts on

the fo rei gn

lending of banking i n s t i t u t i o n s , including p ub l i c a t i o n of material country exposure.
These r u le s will be e f f e c t i v e upon p u b l i c a t i o n .
In a d d i t i o n , t h e Board published f or comment proposed r u l e s respe cti ng the
accounting f o r fe es as soc iat ed with i n t e r n a t i o n a l loans.
The t h r e e fe deral banking r e g u l a t o r s — Federal Deposit Insurance Corporation,
Federal Reserve Board and Office of the Comptroller of th e Currency - - are i ss u i n g the
r u l e s and proposals j o i n t l y , as one f a c e t of a j o i n t program t o s t r e n g t h e n , under the
new law, the supervision and r e g u l a t i o n of f o re ig n lending by United S t at es banking
organizations.

The Board's r u l es apply t o s t a t e ch ar ter ed banks t h a t are members of

th e Federal Reserve System and t o bank holding companies and Edge and Agreement corpo­
r a t i o n s engaged in banking.

Nonmember banks and national banks are covered by the

ru l e s of the ot her agencies.
At the same time as i t published i t s r u l e s , the Board announced t h a t i t is
holding open the period f o r comment on ques tions whether th e U.S. branches or
agenices or commercial lending s u b s i d i a r i e s of fo rei gn banks should be su b je ct t o
th e s e provisions or ot he r prov ision s of the Act.

Therefore, the f i n a l r u le s being

published do not at t h i s time apply t o th e s e e n t i t i e s .
The Board adopted i t s f i n a l r u le s under Section 905(a) of the Act a f t e r
co n s id e ra ti o n of comment received on proposals published in December. Section 905(a)
r e q u i r e s banking i n s t i t u t i o n s to maintain special r e s e r v e s , out of cu r re n t
income, aga ins t the r i s k s pr esent in c e r t a i n i n t e r n a t i o n a l loans or ot her

-2 -

iinternational a s s e t s , when t h e federal banking agencies determine t h a t such reserves
are necessary.
The pr in cip al elements of the r u le s under t h i s section adopted by t he Board

--A banking i n s t i t u t i o n shall e s t a b l i s h an Allocated Tran sfe r Risk
Reserve (ATRR) f o r s p e c if i e d i n t e r n a t i o n a l a s s e t s ( p r i n c i p a l l y
loans) when required under th e s e r u l e s .
--At l e a s t annually, th e agencies shall j o i n t l y determine:
--Which i n t e r n a t i o n a l a s s e t s are subject t o r i s k s
warranting establishment of an ATRR;
--The s i z e of the ATRR;
--Whether an already e s t a b l i s h e d ATRR may be reduced.
The r ul es also s e t f o r t h th e c r i t e r i a t o be used in determining whether an
ATRR is re q u ire d , under two headings:
—Whether t h e q u a l i t y of i n t e r n a t i o n a l a s s e t s has been
impaired by p r o t r a c te d i n a b i l i t y of borrowers to
make payments on t h e i r o b l i g a t i o n s , and
--Whether t h e r e are no d e f i n i t e prospects f o r
r e s t o r i n g or d erl y debt s e r v i c e .
When r e q u i re d , t h e i n i t i a l y e a r ' s ATRR normally will be 10 percent of the
p ri nc ip al amount of the a s s e t on which reserves must be ke p t, or more, or l e s s , as
determined by th e fe deral banking age nci es , and, when required f o r subsequent y e a r s ,
normally will be 15 per cen t, or more, or l e s s , as the agencies determine.

The r u le s

spe cif y th e f a c t o r s according to which t h e s e amounts will be determined.
The Board will n o t i f y each banking i n s t i t u t i o n i t supe rvis es of
any ATRR, and i f an ATRRmay be reduced. A banking i n s t i t u t i o n may w r i t e
in l i e u of e s t a b l i s h i n g an ATRR.

t h e amount of
down an a s s e t

I f i t does so, i t must re p l en i sh i t s allowance

f o r p os si b le loan loss es t o t he ex t e n t necessary t o provide adequately f o r estimated
l o ss es in i t s loan p o r t f o l i o .

An i n s t i t u t i o n may at at any time reduce an ATRR

t o the ext ent of any write-down on i t s books of the value of the r e l e v a n t a s s e t .

-3 -

The Board al so adopted a r u l e s e t t i n g f o r t h th e framework f o r r eq u iri ng
country exposure re p o rt s by banking i n s t i t u t i o n s (under Section 907 of the Act).

This

r u l e provides t h a t t h e Board will p r es cr i b e j o i n t l y with the other fe deral banking
agencies t h e format, c o nt en t, re p o rt i n g and f i l i n g date of the r e p o r t s .

For t h i s purpose,

t h e agencies have i n i t i a t e d modifications in the cu rre nt Country Exposure Report form
(FFIEC-009).
Proposals
The Federal Reserve Board also issued d r a f t re g u l at i o n s f o r comment
e s t a b l i s h i n g uniform requirements f o r accounting f o r fee s on i n t e r n a t i o n a l loans (as
required by Section 906 of the Act).
The comment period on these fee accounting r ul es closes March 9.
are to be adopted

no l a t e r than March 29,

Final r ule s

1984.

The major pr ovisions of the proposed fe e accounting r ule s are:
1.

No banking i n s t i t u t i o n may charge any f ee
connection with the r e s t r u c t u r i n g of an
e x i s t i n g o b l i g a t i o n of the borrower unless
a l l fe es exceeding the banking i n s t i t u t i o n ' s
a d m i n is tr a t i v e co st s of the r e s t r u c t u r i n g are
de fe rre d and recognized over th e term of the
loan as an adjustment of the i n t e r e s t y i e l d .

2.

Fees on i n t e r n a t i o n a l loans t h a t rep res ent
y i e l d adjustments sha ll be recognized over the
expected loan period using t h e i n t e r e s t method
as an adjustment t o y i e l d .

3.

To th e ex t e n t fee s re pr es en t a reimbursement of
the banking i n s t i t u t i o n ' s i d e n t i f i a b l e admin­
i s t r a t i v e co s t s as so ci at ed with the loan
syndication or loan p rocessin g, a portion of the
fe e equal t o the s e co s ts shall be recognized as
income c u r r e n t l y .

4.

For managing banks in i n t e r n a t i o n a l syndicated
loans, t h e proposed r u l e s e s t a b l i s h the
following presumption:
That portion of the managing bank's fee s
( ot h er than commitment or agency f e e s ) t h a t is

in

-4 -

equal t o t h e proportion of fe es in r e l a t i o n t o
loan p ri nc ip al received by the l a r g e s t loan
p a r t i c i p a n t which i s not a manager in the
syndication shall be considered an adjustment t o
yield.
5.

Administrative co st s are defined as those costs
t h a t are s p e c i f i c a l l y i d e n t i f i e d with syndicating
or processing a loan (excluding general and non­
a s so ci at ed overhead-type c o s t s ) .

6.

Banking i n s t i t u t i o n s shall account f o r commitment
fees by recognizing th e fe e as revenue over the
combined commitment and loan period.

7.

Agency fe es sha ll be recorded as income a t the
time of loan closing or as t h e s e rv i c e i s
performed, i f l a t e r .

The Board's n ot ic e of t hes e ac ti on s and proposals may be obtained at t h e
D i s t r i c t Federal Reserve Banks.
-0 -

5586

Federal Register / Vol. 49, No. 30 / Monday, February 13,1984 / Rules and Regulations

DEPARTMENT OF THE TREASURY
Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 20,211, and 351
Reporting and Disclosure of
International Assets
AGENCY: Comptroller of the Currency,

Board of Governors of the Federal
Reserve System, and the Federal
Deposit Insurance Corporation.
action : Joint Notice of final rules.
SUMMARY: To implement section 907 of

the International Lending Supervision
Act of 1983, the rules require banking
institutions to submit, at least quarterly,
a report on the amounts and
composition of their international
assets. The report also would include
information to be made available to the
public concerning material foreign
country exposure. The format, contents
and reporting and filing dates of the
reports would be prescribed jointly by
the Federal banking agencies
(Comptroller of the Currency, Board of
Governors of the Federal Reserve
System and the Federal Deposit
Insurance Corporation).
date : Effective February 13,1984.
FOR FURTHER INFORMATION CONTACT:

Comptroller o f the Currency: Harold
Schuler, Director, International
Relations and Financial Evaluation
(202/447-1747); Leon S. Tarrant,
Manager, ICERC Secretariat (202/4471747); or Dorthy Sable, Senior Attorney
(202/447-1880). Federal R eserve System ;
Nancy P. Jacklin, Assistant General
Counsel (202/452-3428); Kathleen
O’Day, Senior Counsel, Legal Division
(202/452-3786); or Michael G. Martinson,
Projects Manager, International
Activities, Division of Banking
Supervision and Regulation (202/4523621). Federal D eposit Insurance
Corporation: Edward T. Lutz, Assistant
Director, Division of Bank Supervision
(202/389-4512) or Peter M. Kravitz,
Senior Attorney, Legal Division (202/
389-4171).
SUPPLEMENTARY INFORMATION: Since
1977, banking institutions have been
reporting their foreign country exposure
(international assets subject to transfer
risk categorized by country) on a
semiannual basis. Section 907 of the
International Lending Supervision Act of
1983 (Title IX, Pub. L. 98-181, 97 Stat.
1153) (“the Act”) requires the Federal
banking agencies to promulgate

regulations requiring banking
institutions with foreign country
exposure to submit, no fewer than four
times each calendar year, information
regarding such exposure. Under section
907(b) of the Act, the agencies’
regulations must also require that
information concerning banking
institutions’ material foreign country
exposure in relation to assets and to
capital be made available to the public.
The agencies are required to promulgate
regulations necessary to implement this
section of the Act on or before March 29.
1984.
The regulations set forth the
framework for implementation of the
reporting and disclosure requirements of
section 907 of the Act. Each banking
institution will submit to its primary
Federal banking supervisor, at least
quarterly, information on the amounts
and composition of its international
assets. Each institution also must submit
information on concentrations in its
international assets that are material in
relation to total assets and to capital;
this information will be made available
to the public on request. The format,
content, and reporting and filing dates of
the reports will be jointly determined by
the Federal banking agencies. For this
purpose, the agencies have initiated
modifications in the current Country
Exposure Report (Form FFIEC 009).
By notice published in the Federal
Register on December 23,1983,48 FR
56848, the Federal Financial Institutions
Examination Council (FFIEC) requested
comments on two proposed changes to
the Country Exposure Report. One of
these changes would add a new twopart summary to the form. Part A of the
summary would provide certain
information on exposures to any country
that exceed 1% of the reporting
institution’s assets. Part B would
provide less detailed information on
such exposures that exceed 0.75%, but
do not exceed 1%, of the reporting
institution’s assets. This summary
information would be disclosed to the
public on request. The comment period
closed on January 23,1984 and it is
intended that necessary procedures for
adopting changes in the Report will be
completed in order to affect reporting for
the first quarter of 1984.

affected by these regulations. The Act
requires a banking institution to disclose
information on material foreign country
exposure. Banking institutions with
minimal holdings on international assets
thus are generally exempt from the
disclosure mandated by the Act and
these regulations and will not be
required to file reports.

Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (Pub. L. 96354, 5 U.S.C. 601 et seq.) the agencies
certify that the regulations will not have
a significant economic impact on a
substantial number of small entities
since small banking institutions
generally do not have material foreign
country exposure and would not be

PART 20—[AMENDED]

Executive Order 12291
The Comptroller of the Currency has
determined that this regulation does not
constitute a "major rule’’ and therefore
does not require a regulatory impact
analysis.
List of Subjects in 12 CFR Parts 20,211
and 351
Banks, banking, Federal Reserve
System, Foreign banking, Investments.
Reporting and record keeping
requirements, Export trading companies,
Allocated transfer risk reserve, National
banks, International operations,
Reserves on certain international assets.
Reporting and disclosure of
international assets, State nonmember
banks.
Notice and Comment; Effective Date
The provisions of 5 U.S.C. 553 relating
to notice and public participation are
not followed in connection with the
adoption of these regulations because
the agencies find for good cause that
notice and public participation are
unnecessary. These regulations are
merely enabling provisions mandated by
statute that do not differ from the
statutory requirements in any material
respect. An immediate effective date is
necessary in order for banking
institutions to have sufficient advance
notice to prepare the reports required by
the Act for the first quarter of 1984.
Authority and Issuance
Accordingly, pursuant to their
respective authorities, the agencies have
amended Title 12 of the Code of Federal
Regulations, Parts 20, 211 and 351. as
follows:
COMPTROLLER OF THE CURRENCY
[Docket No. 84-4]

Title 12 CFR Part 20 is amended as
follows:
1. The authority citation for 12 CFR
Part 20 is as follows:
Authority: 12 U.S.C. 1 et seq. unless
otherwise noted.
2. Part 20 is amended by adding a new
§ 20.10 to read as follows:

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations_____ 5587
§20.10 Reporting and disclosure of
International assets.

(a) Requirem ents. (1) Pursuant to
section 907(a) of the International
Lending Supervision Act of 1983 (Title
IX, Pub. L. 98-181, 97 Stat. 1153) (“the
Act”) a banking institution shall submit
to the Comptroller of the Currency, at
least quarterly, information regarding
the amounts and composition of its
holdings of international assets.
(2) Pursuant to section 907(b) of the
Act, a banking institution shall submit to
the Comptroller of the Currency
information regarding concentrations in
its holdings of international assets that
are material in relation to total assets
and to capital of the institution, such
information to be made publicly
available by the Comptroller of the
Currency on request.
(b) Procedures. The format, content
and reporting and filing dates of the
reports required under paragraph (a) of
this section shall be determined jointly
by the Federal banking agencies. The
requirements to be prescribed by the
agencies may include changes to
existing reporting forms (such as the
Country Exposure Report, form FFIEC
No. 009) or such other requirements as
the agencies deem appropriate. The
agencies also may determine to exempt
from the requirements of paragraph (a)
of this section banking institutions that,
in the agencies’ judgment, have de
m inim is holdings of international assets.
(c) Reservation o f Authority. Nothing
contained in this rule shall preclude the
Comptroller of the currency from
requiring from a banking institution such
additional or more frequent information
on the institution’s holdings of
international assets as the office may
consider necessary.
Dated: February 8,1984.
C. T. Conover,
Comptroller o f the Currency.

FEDERAL RESERVE SYSTEM
[Regulation K; Docket No. R-0508]

PART 211—[AMENDED]
Pursuant to the Board’s authority
under sections 9, 25 and 25(a) of the
Federal Reserve Act (12 U.S.C. 221 et
seq., 601-604a, and 611 e t seq.), section 5
of the Bank Holding Company Act (12
U.S.C. 1844) and section 907 of the
International Lending Supervision Act of
1983 (Pub. L. 98-181, Title IX, 97 Stat.
1153), the board has amended 12 CFR

section 907(a) of the International
Lending Supervision Act of 1983 (Title
IX, Pub. L. 98-181, 97 Stat. 1153) (ILSA),
§ 211.44 Reporting and disclosure of
a banking institution shall submit to the
international assets.
FDIC, at least quarterly, information
(a) Requirements. (1) Pursuant to
regarding the amounts and composition
section 907(a) of the International
of its holdings of international assets.
Lending Supervision Act of 1983 (Title
(2) Pursuant to section 907(b) of ILSA,
IX, Pub. L. 98-181, 97 Stat. 1153) (ILSA),
a banking institution shall submit to the
a banking institution shall submit to the
FDIC information regarding
Board, at least quarterly, information
concentrations in its holdings of
regarding the amounts and composition
international assets that are material in
of its holdings of international assets.
relation to total assets and to capital of
(2) Pursuant to section 907(b) of ILSA, the institution, such information to be
a banking institution shall submit to the
made publicly available by the FDIC on
Board information regarding
request.
concentrations in its holdings of
(b) Procedures. The format, content
international assets that are material in
and reporting and filing dates of the
relation to total assets and to capital of
reports required under paragraph (a) of
the institution, such information to be
this section shall be determined jointly
made publicly available by the Board on by the Federal banking agencies. The
request.
requirements to be prescHbed by the
(b) Procedures. The format, content
Federal banking agencies may include
and reporting and filing dates of the
changes to existing forms (such as
reports required under paragraph (a) of
revisions to the Country Exposure
this section shall be determined jointly
Report, Form FFIEC No. 009) or such
by the Federal banking agencies. The
other requirements as the Federal
requirements to be prescribed by the
banking agencies deem appropriate. The
agencies may include changes to
Federal banking agencies also may
existing reporting forms (such as the
determine to exempt from the
Country exposure Report, form FFIEC
requirements of paragraph (a) of this
No. 009) or such other requirements as
section banking institutions that, in the
the agencies deem appropriate. The
Federal banking agencies’ judgment,
agencies also may determine to exempt
have de m inim is holdings of
from the requirements of paragraph (a)
international assets.
of this section banking institutions that,
(c) Reservation o f Authority. Nothing
in the agencies’ judgment, have de
contained in this rule shall preclude the
m inim is holdings of international assets. FDIC from requiring from a banking
(c) Reservation o f Authority. Nothing
institution such additional or more
contained in this rule shall preclude the
frequent information on the institution’s
Board from requiring from a banking
holdings of international assets as the
institution such additional or more
agency may consider necessary.
frequent information on the institution’s
By Order of the Board of Directors,
holding of international assets as the
Dated: February 6,1984.
Board may consider necessary.
Part 211, Subpart D by adding a new
§ 211.44 to read as follows:

William W. Wiles,

Alan J. Kaplan,
Deputy Executive Secretary, Federal Deposit
Insurance Corporation.

Secretary, Board o f Governors o f the Federal
Reserve System.

BILLING CODE 4810-33-M

Dated: February 8,1984.

FEDERAL DEPOSIT INSURANCE
CORPORATION

[FR Doc. 84-3961 F iled 2-»-84; 2:39 pm ]

12 CFR Parts 20,211 and 351

PART 351—[AMENDED]
1. The authority citation for 12 CFR
Part 351 is as follows:
Authority: Title IX, Pub. L 98-181,97 Stat.
1153.

2. Part 351 is amended by adding new
!§ 351.2 and 351.3 to read as follows:
§ 351.2 [Reserved]
§ 351.3 Reporting and disclosure of
international assets.

(a) Requirem ents. (1) Pursuant to

Allocated Transfer Risk Reserve
Comptroller of the Currency,
Board of Governors of the Federal
Reserve System and Federal Deposit
Insurance Corporation.
ACTION: joint notice of final rules and
request for additional comments.
agen cies :

These regulations require
banking institutions to establish special
reserves against the risks presented in
certain international assets when the
summary :

5588

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations

Federal banking agencies (Board of
Governors of the Federal Reserve
System (“Board”), Comptroller of the
Currency and Federal Deposit Insurance
Corporation) determine that such
reserves are necessary. In particular,
they are intended to require banking
institutions to recognize uniformly the
transfer risk and diminished value of
international assets which have not
been serviced over a protracted period
of time. These regulations implement
one aspect of the joint program of the
Federal banking agencies to strengthen
the supervisory and regulatory
framework relating to foreign lending by
U.S. banking institutions, incorporated
in section 905(a) of the International
Lending Supervision Act of. 1983.
It is important that this provision of
law be implemented expeditiously for
banking regulatory and supervisory
purposes. Accordingly, the regulations
will be effective upon publication.
Further regulations implementing
other provisions of the International
Lending Supervision Act of 1983 will be
issued separately.
EFFECTIVE DATE: February 13,1984.
ADDRESS: Comptroller o f the Currency:
Comments, which should refer to Docket
No. 84-3, should be sent to
Communications Division, 3rd Floor,
Office of the Comptroller of the
Currency, 490 East L'Enfant Plaza, SW..
Washington, D.C. 20219. Attention:
Lynette Carter. Comments will be
available for public inspection and
copying. Federal R eserve System : All
comments, which should refer to Docket
No. R-0498, should be mailed to William
W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System. Washington, D.C. 20551, or
delivered to the C Street entrance, 20th
and Constitution Avenue NW„
Washington, D.C., between the hours of
8:45 a.m. and 5:15 p.m. weekdays. All
comments received will be available for
inspection in room B-1122 between 8:45
a.m. and 5:15 p.m. weekdays. Federal
D eposit Insurance Corporation:
Comments should be sent to Hoyle L.
Robinson, Executive Secretary, Federal
Deposit Insurance Corporation, 55017th
Street, NW., Washington, D.C. 20429.
Comments may be hand delivered to
room 6108 between the hours of 8:30
a.m. and 5:00 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT:

Comptroller o f the Currency: Harold
Schuler, Director, International
Relations and Financial Evaluation
(202/447-1747); William Ryback,
Director, International Banking Activity
(202/447-0413); or Dorothy Sable, Senior
Attorney (202/447-1880).

Board: Nancy P. Jacklin, Assistant
General Counsel (202/452-3428);
Kathleen O’Day, Senior Counsel, Legal
Division (202/452-3786); or Michael G.
Martinson, Projects Manager,
International Activities, Division of
Banking Supervision and Regulation
(202/452-3621).
FDIC: Edward T. Lutz, Assistant
Director, Division of Bank Supervision
(202/389-4512) or Peter M. Kravitz,
Senior Attorney, Legal Division (202/
389-4171).
SUPPLEMENTARY INFORMATION: In
December, 1983, the agencies published
for comment regulations to implement
section 905(a) of the International
Lending Supervision Act of 1983 (Title
IX, Pub. L. 98-181, 97 Stat. 1153) ("the
Act’*), which requires banking
institutions to maintain a special
transfer risk reserve against certain
foreign loans or other international
assets.
The agencies received comments as
follows: The Board received a total of 39
comments (17 comments from U.S.
banks and bank holding companies; 5
from trade or professional associations;
8 from foreign banks; 8 from Federal
Reserve banks; and one from the New
York State Banking Department); the
Comptroller of the Currency received 17
comments, principally from national
banks: and the Federal Deposit
Insurance Corporation received 6
comments.
In the explanatory materials
accompanying the proposed regulation,
the agencies specifically requested
comments on: (1) The percentage norms
for the special reserves; (2) the factors to
be used in determining the amount of
reserves; (3) the appropriate treatment
of new loans where comparable
outstanding loans are subject to
reserves required by this regulation; and
(4) the extent and manner in which to
apply the reserves and other provisions
of the Act to U.S. branches and agencies
and commercial lending company
subsidiaries of foreign banks. Those
submitting comments addressed
themselves to these and other issues. In
light of the comments received, the
agencies have made revisions to clarify
and improve the proposed regulations.
Following are the major topics raised
in the comments and the agencies’
responses thereto:

assets” to mean those assets included in
Country Exposure Report forms (FFIEC
No. 009). Numerous commenters
suggested clarification of the definition
of international assets or exemption for
certain categories of assets or for
specific assets.
The agencies intend that an ATRR
will be required only for international
assets subject to transfer risk.
International assets subject to transfer
risk associated with the country of
residence of the obligor normally do not
include, for example, (1) assets
guaranteed by a resident of a foreign
country different from that of the direct
obligor; (2) certain collateralized assets;
(3) commitments; and (4) assets of a
foreign office of the banking institution
payable in local currency for which the
foreign office has equivalent local
currency liabilities. (The foregoing
examples are described in more detail in
the Instructions to Country Exposure
Report forms.)
The banking agencies also will
consider whether the performance
characteristics of certain categories of
assets are such that no ATRR is
w arranted against those assets [e.g.,
assets on which debt service has been
maintained with little or no
interruption.)
In this connection, in line with the
suggestions of several commenters on
the treatment of new loans, an ATRR
normally would not be required initially
for net new lending when the additional
loans are made in countries
implementing economic adjustment
programs, such as programs approved
by the International Monetary Fund,
designed to correct the countries’
economic difficulties in an orderly
manner. Such new lending under
appropriate circumstances may
strengthen the functioning of the
adjustment process, help to improve the
quality of outstanding credit, and thus
be consistent with the objectives of the
program of improved supervision of
international lending. Whether an ATRR
subsequently is required for those new
loans would be determined by the
agencies on the basis of performance
and continued inapplicability generally
of the criteria for establishment of an
ATRR.

(1) Assets to be covered by the
Allocated Transfer Risk Reserve
(ATRR)
The proposed regulations required
banking institutions to establish an
ATRR for "specified international
assets,” and defined "international

The proposed regulations would apply
to a banking institution and its
subsidiaries, and "subsidiary” was
defined to mean an organization of
which a banking institution has control
or holds 25 percent or more of the voting
shares. Two issues raised by the

(2) Applicability to nonbank and foreign
subsidiaries

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations
comments were (1) whether the
provision should apply to minorityowned nonbank subsidiaries; and (2)
whether it should apply to foreign bank
subsidiaries of banking institutions.
On the issue of whether minorityowned subsidiaries should be covered,
several of the commenters reasoned that
a banking institution with a 25 percent
interest in an entity may not be able to
compel that entity to comply with the
regulation and should not be held
responsible for the entity’s accounting
methods. Several commenters proposed
that the regulations cover only those
nonbank subsidiaries that are
consolidated with the parent banking
institution under Generally Accepted
Accounting Principles (GAAP).
Objections also were raised to applying
the regulations to foreign subsidiaries.
In light of these comments, the
agencies determined that each “banking
institution" is subject to the regulations
on a consolidated basis. “Banking
institution” is defined in the regulations
as a domestic bank, Edge or Agreement
corporation engaged in banking, and
bank holding company. Other than the
foregoing banking institutions,
subsidiaries need not separately comply
with these regulations. The effect of this
rule for foreign bank subsidiaries is that
specific reserves against, or write­
downs of, international assets, taken
from current earnings of the foreign
bank, will be incorporated in the parent
banking institution’s consolidated
financial statement.
For banks, consolidation should be in
accordance with the procedures and
tests of significance set forth in the
instructions for preparation of
C onsolidated Reports o f Condition and
Income (currently, FFIEC Nos. 031, 032,
033, 034). For bank holding companies,
the consolidation shall be in accordance
with the principles set forth in the
“Instructions to the Bank Holding
Company Financial Supplement to
Report F.R. Y-6” (Form F.R. Y-9). Edge
and Agreement Corporations should file
in accordance with the “Instructions for
the Preparation of Report of Condition
for Edge and Agreement Corporations"
(Form F.R. 2886b).
In applying the foregoing rules to bank
holding companies under section
910(a)(2) of the act, the Board has
deemed such action appropriate to
promote uniform application of section
905(a) of the Act and to prevent
evasions thereof.
(3) Criteria for Requiring an ATRR
In determining whether an ATRR is
w arranted for particular international
assets, the agencies are directed by
statute to apply the following factors: (1)

W hether the quality of a banking
institution’s assets has been impaired by
a protracted inability of public or
private obligors to pay or (2) whether no
definite prospects exist for the orderly
restoration of debt service. Some
commenters urged more specific criteria;
others were concerned that the criteria
were not flexible enough. Most of the
commenters, however, generally agreed
that the statutory criteria are
reasonable. The agencies consider the
statutory criteria to be appropriate
because they provide guidance as to
when an ATTRR is required, while
allowing the agencies to take into
account a sufficient range of factors in
making their determinations.
(4) Percentage Norms
Under the proposed regulations, the
initial year’s provision for the ATRR
would be ten percent of the principal
amount of the specified international
assets, or a greater or lesser percentage
as determined by the banking agencies.
In subsequent years, the agencies would
review the assets concerned and
determine whether additional reserves
are required. The proposal provided for
a reserve based on such review in the
subsequent periods of 15 percent, or a
higher or lower percentage as
determined necessary by the banking
agencies. In the preamble to the
proposed regulation, the agencies
specifically asked for comment on these
percentages.
Some commenters thought the
percentages were too low, and some
considered them too high. Several were
opposed to the establishment of any
percentage norms, primarily on the
ground that the appropriate percentages
should be determined by the agencies in
each case and that agency flexibility in
making this determination should be
preserved. However, a substantial
number of comments supported the
proposed percentages as reasonable.
The agencies believe that the norms
contained in the regulations provide
reasonable guidance to banking
institutions of the likely ATRR
requirements, yet the regulations give
the agencies discretion to modify these
percentages on a case-by-case basis as
factors warrant.
(5) Treatment of ATRR Accounting
The provision in the proposed
regulations eliciting most comment was
the section allowing banking institutions
to write down an asset in the same
amount as required for the ATRR,
instead of setting up the ATRR, but
requiring the banking institution, in that
case, to replenish the Allowance for
Possible Loan Losses (APLL) out of

5589

current earnings by the amount written
down. Commenters suggested that if a
banking institution chooses to write
down an asset instead of establishing an
ATRR, the APLL should be replenished
only to the extent necessary to restore it
to a level adequate to reflect the
remaining risks in the loan portfolio.
The commenters pointed out several
problems they see with the
replenishment provision as it was
proposed: it could put banks that
already have charged earnings at a
disadvantage vis-a-vis those banks that
have made no comparable provisions;, it
could thus discourage conservative
practices; and, as a result of
inconsistency with GAAP, it could
distort financial statements and cause
them to be qualified by accountants.
In light of these comments, the
agencies have determined that,
consistent with prudent banking
practices and GAAP, replenishment of
the APLL will be required to the extent
necessary to restore it to a level which
adequately provides for the estimated
losses inherent in the loan portfolio. The
agencies wish to emphasize, however,
that it remains the responsibility of bank
management and external auditors to
recognize, and management to provide
adequately for, any significant
deterioration in the value of assets and
this responsibility is in no way lessened
as a result of the agencies’ adoption of
this recommendation.
Several commenters also sought
further clarification of the alternative
accounting treatment under which an
ATRR would not be required if
comparable amounts of the assets had
been written down. Some comments
stated that the regulations should clarify
the treatment of interest payments
which have been applied to the loan
balance. They suggested that the
regulations specify that such reductions
of principal should be considered write­
downs for purposes of the regulations.
Another issue was the treatment of
write-downs of assets in prior reporting
periods. The final regulations clarify
that write-downs in prior periods, as
well as reductions in principal as
described above, which are tantamount
to write-downs, are acceptable
alternatives to establishment of an
ATRR.
Another issue raised in connection
with the alternative accounting
treatment w as whether a write-down of
an asset for commercial risk will be
treated the same as a write-down for
transfer risk reasons. The final
regulations have been clarified to state
that an ATRR applies to the principal
amount of each specified international

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Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations

asset in the percentage required.
Accordingly, a write-down of any such
asset for commercial risk can be
included in the amount of a write-down
which satisfies a required ATRR for that
particular asset but not for specified
assets in the aggregate.
One commenter suggested that the
regulations be clarified to indicate that a
banking institution may transfer to the
ATRR any amount specifically allocated
in the APLL for the assets subject to the
ATRR. The agencies consider this
approach an acceptable method of
implementing the ATRR requirement,
particularly since a banking institution
could in any event write down an asset
by a charge to its APLL rather than a
charge to current earnings in the period
the write-down is taken. However, in
either instance, the APLL must be
replenished to the extent necessary to
restore it to a level that adequately
provides for the estimated losses
inherent in the loan portfolio.
Finally, clarification was sought, and
the agencies have so provided in the
final regulations, that a banking
institution may reduce an established
ATRR not only if the banking agencies
determine it may be reduced, but also
where the institution decides to write
down the assets involved.
(6) Timing of ATRR implementation
Several commenters requested that
notifications of ATRR requirements be
made on a timely basis relative to
hanking institutions' reporting and filing
dates for their financial statements. The
banking agencies intend to make every
effort, in providing notice of ATRR
requirements, to accommodate these
concerns, recognizing the importance,
however, of prompt implementation of
section 905(a) of the Act and initial
establishment of the ATRR.
(7) Consultation with banking
institutions
Several commenters stressed the
importance of regular consultation with
the affected banking institutions by the
agencies before establishing the ATRR.
One commenter suggested that concerns
about a particular country should be
discussed in the course of the normal
bank examination process to evaluate
all factors concerning the obligors'
ability to pay. Discussions of foreign
country exposure and transfer risk are a
part of the ongoing examination process
and efforts will be made by the agencies
to strengthen consultations in this
context.

(8) Applicability of the Act to U.S.
branches and agencies of foreign banks
Comment was requested on whether
and the extent to which foreign banks
should be subject to this and other
provisions of the Act. The period for
comment on these general issues
remains open to permit foreign banks
adequate time to respond, and the final
regulations do not apply to U.S.
branches, agencies or commercial
lending company subsidiaries of foreign
banking organizations.
(9) Other comments
Questions were raised concerning the
confidentiality of the agencies’
determinations of the international
assets specified as subject to the ATRR
and the applicable reserve percentages.
As is customary, such notifications are
conveyed as confidential examination
information to each affected U.S.
banking institution by its primary
federal banking supervisor.
Several commenters stated that the
regulation should not govern disclosures
under the federal securities laws. In this
connection, the federal banking agencies
understand that the staff of the
Securities and Exchange Commission
will provide guidance to registrants
concerning appropriate disclosure of
ATRR requirements in filings with the
SEC.
Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (Pub. L. 96354, 5 U.S.C. 601 et seq.), the agencies
certify that the proposed regulation will
not have a significant economic impact
on a substantial number of small entities
since small banking institutions
generally do not have significant
holdings of international assets and
would not be affected by these
regulations.
Executive Order 12291
The Comptroller of the Currency has
determined that this regulation does not
constitute a “major rule" and therefore
does not require a regulatory impact
analysis.
List of Subjects in 12 CFR Parts 20,211
and 351
Banks, banking. Federal Reserve
System, Foreign banking, Investments,
Reporting and recordkeeping
requirements, Export trading companies.
Allocated transfer risk reserve, National
banks. International operations,
Reserves on certain international assets.
Reporting and disclosure of
international assets, State nonmember
banks.

Effective Date
The provision of 5 U.S.C. 553 requiring
a 30-day delay in the effective date of a
regulation is not followed in connection
with the adoption of these regulations
for bank supervisory and regulatory
reasons and because the agencies find
for good cause that an immediate
effective date is necessary in order for
banking institutions to have sufficient
advance notice of the reserves to be
required under these regulations to
accomplish their financial planning for
the first quarter of 1984.
Authority and Issuance
Accordingly, pursuant to their
respective authorities, the agencies have
determined to amend Title 12 of the
Code of Federal Regulations, Parts 20,
211 and 351, as follows:
COMPTROLLER OF THE CURRENCY
(Docket No. 84-31

PART 20—[AMENDED]
The Comptroller of the Currency has
amended 12 CFR Part 20 as follows:
1.12 CFR Part 20 is amended by
revising the Table of Contents to read as
follows:
Subpart A—International and Foreign
Exchange Activities
Sec

20.1 Authority and policy.
20.2 Definitions and terms.
20.3 Prior notification of international
activities.
20.4 Reporting of international activities
20.5 Reporting of foreign exchange
activities.
Subpart B—International Lending
Supervision
20.6 Authority.
20.7 Definitions.
20.8 Allocated transfer risk reserve.

2. The authority citation for 12 CFR
Part 20 is revised to read as follows:
Authority: 12 U.S.C. 1 et seq. unless
otherwise noted.

3. Part 20 is amended by revising
i 20.1(a) and revising the introductory
text of § 20.2 to read as follows:
§ 20.1 Authority and policy.

(a) Authority. This subpart is issued
under the authority of the national
banking laws. 12 U.S.C. 1 et seq. and
93a.
♦

*

*

*

*

§ 20.2 Definitions and term s.

For the purpose of this subpart:
*
*
*
*
4. Part 20 is amended by adding a new
Subpart B to read as follows:
*

Federal Register j Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations
Subpart B—International Lending
Supervision

(2) Such obligors have failed to
comply with the terms of any
restructured indebtedness; or
§ 20.6 Authority.
(3) A foreign country has failed to
This subpart is issued under the
comply with any International Monetary
authority of 12 U.S.C. 1 e t seq., 93a, 181,
Fund or other suitable adjustment
and 1818; and the International Lending
program; or
Supervision Act of 1983 {Pub. L. 98-181.
(B) Whether no definite prospects
Title IX. 97 Stat. 1153).
exist for the orderly restoration of debt
service.
§ 20.7 Definition*.
(ii) D etermination o f amount o f ATRR.
For the purposes of this subpart:
(A) In determining the amount of the
(a) “Banking institution" means a
ATRR, the Federal banking agencies
national banking association or a
shall consider:
(1) The length of time the quality of
District of Columbia bank.
the asset has been impaired;
(b) “Federal banking agencies” means
(2) Recent actions taken to restore
the Board of Governors of the Federal
debt service capability;
Reserve System, the Comptroller of the
(3) Prospects for restored asset
Currency, and the Federal Deposit
quality; and
Insurance Corporation.
(4) Such other factors as the Federal
(c) "International assets" means those
banking agencies may consider relevant
assets required to be included in
to the quality of the asset.
banking institutions' “Country Exposure
(B) TTie initial year’s provision for the
Report” forms (FFIEC No. 009).
ATRR shall be ten percent of the
(d) “Transfer risk” means the
principal amount of each specified
possibility that an asset cannot be
international asset, or such gfeater or
serviced in the currency of payment
lesser percentage determined by the
because of a lack of, or restraints on the
Federal banking agencies. Additional
availability of, needed foreign exchange
provision, if any, for the ATRR in
in the country of the obligor.
subsequent years shall be fifteen
percent of the principal amount of each
§ 20.8 Allocated transfer risk reserve.
specified international asset, or such
(a) Establishm ent o f A llocated
greater or lesser percentage determined
Transfer R isk Reserve. A banking
by the Federal banking agencies.
institution shall establish an allocated
(3) N otification. Based on the joint
transfer risk reserve (ATRR) for
agency determinations under paragraph
specified international assets when
(b)(1) of this section, the Comptroller
required by the Comptroller in
shall notify each banking institution
accordance with this section.
holding assets subject to an ATRR:
(b) Procedures and Standards.—(1)
(1) Of the amount of the ATRR to be
Joint agency determination. At least
established by the institution for
annually, the Federal banking agencies
specified international assets; and
shall determine jointly, based on the
(ii) That an ATRR to be established
standards set forth in subparagraph
for specified assets may be reduced.
(b)(2) of this section, the following:
(c) Accounting treatm ent o f A TR R .—
(1) Which international assets subject
(1) Charge to current income. A banking
to transfer risk warrant establishment of institution shall establish an ATRR by a
an ATRR;
charge to current income and the
(ii) The amount of the ATRR for the
amounts so charged shall not be
specified assets; and
included in the banking institution's
(iii) W hether an ATRR established for
capital or surplus.
specified assets may be reduced.
(2) Separate accounting. A banking
(2) Standards fo r requiring ATRR—(i)
institution shall account for an ATRR
Evaluation o f assets. The Federal
separately from the Allowance for
banking agencies shall apply the
Possible Loan Losses, and shall deduct
following criteria in determining
the ATRR from “gross loans and leases”
whether an ATRR is required for
to arrive at “net loans and leases.” The
particular international assets:
ATRR must be established for each
(A) W hether the quality of a banking asset subject to the ATRR in the
institution’s assets has been impaired by percentage amount specified.
a protracted inability of public or
(3) Consolidation. A banking
private obligors in a foreign country to
institution shall establish an ATRR, as
make payments on their external
required, on a consolidated basis.
indebtedness as indicated by such
Consolidation should be in accordance
factors, among others, a s whether:
with the procedures and tests of
(7) Such obligors have failed to make significance set forth in the instructions
full interest payments on external
for preparation of Consolidated Reports
indebtedness;
o f Condition and Incom e (FFIEC Nos.

5591

031, 032,033 and 034). For bank holding
companies, the consolidation shall be in
accordance with the principles set forth
in the "Instructions to the Bank Holding
Company Financial Supplement to
Report F.R. Y-6” (Form F.R. Y-9). Edge
and Agreement corporations engaged in
banking shall report in accordance with
instructions for preparation of the
Report of Condition for Edge and
Agreement Corporations (Form F.R.
2888b).
(4) A lternative accounting treatment.
A banking institution need not establish
an ATRR if it writes down in the period
in which the ATRR is required, or has
written down in prior periods, the value
of the specified international assets in
the requisite amount for each such asset.
For purposes of this paragraph,
international assets may be written
down by a charge to the Allowance for
Possible Loan Losses or a reduction in
the principal amount of the asset by
application of interest payments or other
collections on the asset. However, the
Allowance for Possible Loan Losses
must be replenished in such amount
necessary to restore it to a level which
adequately provides for the estimated
losses inherent in the banking
institution's loan portfolio.
(5) Reduction o f ATRR. A banking
institution may reduce an ATRR when
notified by the Comptroller or, at any
time, by writing down such amount of
the international asset for which the
ATRR was established.
Dated: February 8,1984.
C. T. Conover,
Comptroller o f the Currency.

FEDERAL RESERVE SYSTEM
| Regulation K; Docket No. R-0498)

PART 211—[AMENDED]
1. The table of contents of 12 CFR Part
211 is amended by adding entries for
Subpart D and revising the authority
citation to read as follows:
Subpart D—International Lending
Supervision
Sec.

211.41 Authority, purpose and scope.
211.42 Definitions.
211.43 Allocated Transfer Risk Reserve.
Authority: Federal Reserve Act (12 U.S.C.
211 et seq.y, Bank Holding Company Act of
1956, as amended (12 U.S.C 1841 et seq.y, the
International Banking Act of 1978 (Pub. L 95369; 92 Stat. 607; 12 U.S.C. 3101 et seq.y, the
Bank Export Services Act (Title II, Pub. L 97290, 96 S tat 1235): and the International
Lending Supervision Act (Title IX, Pub. L. 98181. 97 Stat. 1153).

5592

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations

2.12 CFR Part 211 is amended by
adding a new Subpart D, reading as
follows:
Subpart D—International Lending
Supervision
§ 211.41 Authority, purpose, and scope.

(a) Authority: This subpart is issued
by the Board of Governors of the
Federal Reserve System (“Board") under
the authority of the International
Lending Supervision Act of 1983 (Pub. L.
98-181, Title IX, 97 Stat. 1153]
(“International Lending Supervision
Act”); the Federal Reserve Act (12
U.S.C. 221 etseq .) (“FRA”), and the
Bank Holding Company Act of 1956, as
amended (12 U.S.C. 1841 et seq.) ("BHC
Act”).
(b) Purpose and scope. This subpart is
issued in furtherance of the purposes of
the International Lending Supervision
Act. It applies to State banks that are
members of the Federal Reserve System
(“State member banks”); corporations
organized under section 25(a) of the
FRA (12 U.S.C. 611-631) (“Edge
Corporations”); corporations operating
subject to an agreement with the Board
under section 25 of the FRA (12 U.S.C.
601-604a) (“Agreement Corporations”);
and bank holding companies (as defined
in section 2 of the BHC Act (12 U.S.C.
1841(a)) but not including a bank holding
company that is a foreign banking
organization as defined in § 211.23(a)(2)
of this regulation.
§211.42 Definitions.

For the purposes of this subpart:
(a) "Banking institution” means a
State member bank; bank holding
company; Edge Corporation and
Agreement Corporation engaged in
banking. “Banking institution” does not
include a “foreign banking organization”
as defined in § 211.23(a)(2).
(b) “Federal banking agencies” means
the Board of Governors of the Federal
Reserve System, the Comptroller of the
Currency, and the Federal Deposit
Insurance Corporation.
(c) “International assets” means those
assets required to be included in
banking institutions’ "Country Exposure
Report” forms (FFIEC No. 009).
(d) “Transfer risk” means the
possibility that an asset cannot be
serviced in the currency of payment
because of a lack of, or restraints on the
availability of, needed foreign exchange
in the country of the obligor.
§ 211.43 Allocated transfer risk reserve.

(a) E stablishm ent o f A llocated
Transfer R isk Reserve. A banking
institution shall establish an allocated
transfer risk reserve (ATRR) for

specified international assets when
required by the Board in accordance
with this section.
(b) Procedures and Standards.—(1)
Joint agency determ ination. At least
annually, the Federal banking agencies
shall determine jointly, based on the
standards set forth in paragraph (b)(2) of
this section, the following:
(1) Which international assets subject
to transfer risk w arrant establishment of
an ATRR;
(ii) The amount of the ATRR for the
specified assets; and
(iii) W hether an ATRR established for
specified assets may be reduced.
(2) Standards fo r requiring A TRR.—(i)
Evaluation o f assets. The Federal
banking agencies shall apply the
following criteria in determining
whether an ATRR is required for
particular international assets:
(A) W hether the quality of a banking
institution’s assets has been impaired by
a protracted inability of public or
private obligors in a foreign country to
make payments on their external
indebtedness as indicated by such
factors, among others, as whether:
(2) Such obligors have failed to make
full interest payments on external
indebtedness;
(2) Such obligors have failed to
comply with the terms of any
restructured indebtedness; or
(3) A foreign country has failed to
comply with any International Monetary
Fund or other suitable adjustment
program; or
(B) W hether no definite prospects
exist for the orderly restoration of debt
service.
(ii) D eterm ination o f am ount o f ATRR.
(A) In determining the amount of the
ATRR, the Federal banking agencies
shall consider:
(1) The length of time the quality of
the asset has been impaired;
[2] Recent actions taken to restore
debt service capability;
(3) Prospects for restored asset
quality; and
[4] Such other factors as the Federal
banking agencies may consider relevant
to the quality of the asset.
(B) The initial year’s provision for the
ATRR shall be ten percent of the
principal amount of each specified
international asset, or such greater or
lesser percentage determined by the
Federal banking agencies. Additional
provision, if any, for the ATRR in
subsequent years shall be fifteen
percent of the principal amount of each
specified international asset, or such
greater or lesser percentage determined
by the Federal banking agencies.
(3) Board notification. Based on the
joint agency determinations under

paragraph (b)(1) of this section, the
Board shall notify each banking
institution holding assets subject to an
ATRR:
(1) Of the amount of the ATRR to be
established by the institution for
specified international assets; and
(ii) That an ATRR established for
specified assets may be reduced.
(c) Accounting treatm ent o f A TR R .—
(1) Charge to current income. A banking
institution shall establish an ATRR by a
charge to current income and the
amounts so charged shall not be
included in the banking institution’s
Capital or surplus.
(2) Separate accounting. A banking
institution shall account for an ATRR
separately from the Allowance for
Possible Loan Losses, and shall deduct
the ATRR from “gross loans and leases”
to arrive at "net loans and leases.” The
ATRR must be established for each
asset subject to the ATRR in the
percentage amount specified.
(3) Consolidation. A banking
institution shall establish an ATRR, as
required, on a consolidated basis. For
banks, consolidation should be in
accordance with the procedures and
tests of significance set forth in the
instructions for preparation of
Consolidated Reports o f Condition and
Income (FFIEC Nos. 031, 032, 033 and
034). For bank holding companies, the
consolidation shall be in accordance
with the principles set forth in the
"Instructions to the Bank Holding
Company Financial Supplement to
Report F.R. Y-6” (Form F.R. Y-9). Edge
and Agreement corporations engaged in
banking shall report in accordance with
instructions for preparation of the
Report of Condition for Edge and
Agreement Corporations (Form F.R.
2886b).
(4) A lternative accounting treatment.
A banking institution need not establish
an ATRR if it writes down in the period
in which the ATRR is required, or has
written down in prior periods, the value
of the specified international assets in
the requisite amount for each such asset.
For purposes of this paragraph,
international assets may be written
down by a charge to the Allowance for
Possible Loan Losses or a reduction in
the principal amount of the asset by
application of interest payments or other
collections on the asset. However, the
Allowance for Possible Loan Losses
must be replenished in such amount
necessary to restore it to a level which
adequately provides for the estimated
losses inherent in the banking
institutions’s loan portfolio.
(5) Reduction o f ATRR. A banking
institution may reduce an ATRR when

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Rules and Regulations
notified by the Board or, at any time, by
writing down such amount of the
international asset for which the ATRR
w as established.
Board of Governors of the Federal Reserve
System, February 8,1984.
William W. Wiles,
Secretary o f the Board.

FEDERAL DEPOSIT INSURANCE
CORPORATION
In consideration of the foregoing, the
FDIC hereby adopts a new Part 351 to
its rules and regulations (12 CFR Part
351).
PART 351—INTERNATIONAL
OPERATIONS
Authority: Title IX, Pub. L. 98-181,97 Stat.
1153.
§ 351.1 Allocated transfer risk reserve.

(a) D efinitions. For the purposes of
this subpart
(1) “Banking institution" means an
insured state nonmember bank.
(2) “Federal banking agencies’*means
the Board of Governors of the Federal
Reserve System, the Comptroller of the
Currency, and the Federal Deposit
Insurance Corporation.
(3) “International assets’’ means those
assets required to be included in
banking institutions’ “Country Exposure
Report” forms (FFIEC No. 009).
(4) “Transfer risk” means the
possibility that an asset cannot be
serviced in the currency of payment
because of a lack of, or restraints on the
availability of, needed foreign exchange
in the country of the obligor.
(b) A llocated Transfer R iskTieserve—
(1) Establishm ent o f A llocated Transfer
R isk Reserve. A banking institution
shall establish an allocated transfer risk
reserve (ATRR) for specified
international assets when required by
the FDIC in accordance with this
section.
(2) Procedures and Standards.—(i)
Joint agency determ ination. At least
annually, the Federal banking agencies
shall determine jointly, based on the
standards set forth in paragraph
(b)(2)(ii) of this section, the following:
(A) Which international assets subject
to transfer risk warrant establishment of
an ATRR;
(B) The amount of the ATRR for the
specified assets: and
(C) W hether an ATRR established for
specified assets may be reduced.

(ii) Standards fo r requiring A TRR.—
(A) Evaluation o f assets. The Federal
banking agencies shall apply the
following criteria in determining
whether an ATRR is required for
particular international assets:
(2) Whether the quality of a banking
institution’s assets has been impaired by
a protracted inability of public or
private obligors in a foreign country to
make payments on their external
indebtedness as indicated by such
factors, among others, as w hether
(/) Such obligors have failed to make
full interest payments on external
indebtedness;
(//) Such obligors have failed to
comply with the terms of any
restructured indebtedness; or
[iii] A foreign country has failed to
comply with any International Monetary
Fund or other suitable adjustment
program; or
[2] W hether no definite prospects
exist for the orderly restoration of debt
service.
(B) Determination o f amount o f ATRR.
(1) In determining the amount of the
ATRR, the Federal banking agencies
shall consider:
(;■) the length of time the quality of the
asset has been impaired;
(//) recent actions taken to restore
debt service capability;
[iii] prospects for restored asset
quality; and
(/V) such other factors as the Federal
banking agencies may consider relevant
to the quality of the asset.
[2] The initial year’s provision for the
ATRR shall be ten percent of the
principal amount of each specified
international asset, or such greater or
lesser percentage determined by the
Federal banking agencies. Additional
provision, if any, for the ATRR in
subsequent years shall be fifteen
percent of the principal amount of each
specified international asset, or such
greater or lesser percentage
determinined by the Federal banking
agencies.
(iii) FDIC notification. Based on the
joint agency determinations under
paragraph (b)(2)(i) of this section, the
FDIC shall notify each banking
institution holding assets subject to an
ATRR:
(A) Of the amount of the ATRR to be
established by the institution for
specified international assets; and
(B) That an ATRR established for
specified assets may be reduced.

5593

(3) Accounting treatm ent o f A TR R .—
(i) Charge to current income. A banking
institution shall establish an ATRR by a
charge to current income and the
amounts so charged shall not be
included in the banking institution’s
capital or surplus.
(ii) Separate accounting. A banking
institution shall account for an ATRR
separately from the Allowance for
Possible Loan Losses, and shall deduct
the ATRR from “gross loans and leases”
to arrive at “net loans and leases.” The
ATRR must be established for each
asset subject to the ATRR in the
pertcentage amount specified.
(iii) Consolidation. A banking
institution shall establish an ATRR, as
required, on a consolidated basis. For
banks, consolidation should be in
accordance with the procedures and
tests of significance set forth in the
instructions for preparation of
Consolidated Reports o f Condition and
Income (FFIEC Nos. 031, 032, 033 and
034).
(iv) A lternative accounting treatment.
A banking institution need not establish
an ATRR if it writes down in the period
in which the ATRR is required, or has
written down in prior periods, the value
of the specified international assets in
the requisite amount for each such asset.
For purposes of this paragraph,
international assets may be written
down by a charge to the allowance for
Possible Loan Losses or a reduction in
the principal amount of the asset by
application of interest payments or other
collections on the asset. However, the
Allowance for Possible Loan Losses
must be replenished in such amount
necessary to restore it to a level which
adequately provides for the estimated
losses inherent in the banking
institution’s loan portfolio.
(v) Reduction o f ATRR. A banking
institution may reduce an ATRR when
notified by the FDIC or, at any time, by
writing down such amount of the
international asset for which the ATRR
was established.
By Order of the Board of Directors.
February 6,1984.
Federal Deposit Insurance Corporation.

Alan J. Kaplan,
Deputy Executive Secretary.
|FR D oc. S t-3962 F iled 2-0-84; 2:40 pm ]

BILLING CODE 6210-01-M

5594

Federal Register / Vol. 49, No. 30 / Monday, February 13,1984 / Proposed Rules

DEPARTMENT OF THE TREASURY
Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 20, 211, and 351
Accounting for International Loan
Fees
AGENCIES: Comptroller of the Currency

(Treasury), Board of Governors of the
Federal Reserve System, and Federal
Deposit Insurance Corporation.
action : Joint notice of proposed
rulemaking.
S ummary: This proposal would

establish uniform requirements for the
accounting for fees associated with
restructuring of international lending
arrangements and nonrefundable fees
charged by banking institutions in
connection with other international
loans. This proposal would implement
one aspect of the joint program of the
Federal banking agencies to strengthen
the supervisory and regulatory
framework relating to foreign lending by
U.S. banking institutions, incorporated
in section 906 of the International
Lending Supervision Act of 1983.
Regulations implementing this provision
of law are required to be issued by the
agencies no later than March 29,1984.
date : Wirtten comments must be
submitted to the Comptroller of the
Currency on or before March 5,1984 and
to Federal Reserve Board and the
Federal Deposit Insurance Corporation
on or before March 9,1984.
ADDRESS: Comptroller o f the Currency:
Comments should be directed to Docket
No. 84-5; Communications Division, 3rd
Floor, Office of the Comptroller of the
Currency, 490 East L’Enfant Plaza, SW„
Washington, D.C. 20219, Attention:
Lynette Carter. Comments will be
available for public inspection and
copying.
Federal R eserve System : All
comments, which should refer to Docket
No. R-0509, should be mailed to William
W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, Washington, D.C. 20551, or
delivered to C Street entrance, 20th and
Constitution Ave., NW., Washington,
D.C. between the hours of 8:45 a.m. and
5:15 p.m. weekdays. All comments
received will be available for inspection
in Room B-1122 between 8:45 a.m. and
5:15 p.m. weekdays.
Federal D eposit Insurance
Corporation: Comments should be

directed to: Hoyle L. Robinson,
Executive Secretary, Federal Deposit
Insurance Corporation, 55017th NW.,
Washington, D.C. 20429. Comments may
be hand delivered to Room 6108
between the hours of 8:30 a.m. and 5:00
p.m. weekdays.
FOR FURTHER INFORMATION CONTACT:

Comptroller o f the Currency: Zane D.
Blackburn, Director, Bank Accounting or
Eugene Green, Senior Accountant, Bank
Accounting (202/447-0471); Harold
Schuler, Director, International
Relations & Financial Evaluation (202/
447-1747); Dorothy Sable, Senior
Attorney (202/447-1880).
Federal R eserve System : Michael G.
Martinson, Projects Manager,
International Activities, Division of
Banking Supervision and Regulation,
(202/452-3621); or Stanley C. Weidman,
Senior Accountant-Analyst, Division of
Banking Supervision and Regulation
(202/452-3502); or Nancy P. Jacklin,
Assistant General Counsel (202/4523428); Kathleen O’Day, Senior Counsel,
Legal Division (202/452-3786).
Federal D eposit Insurance
Corporation: Paul L. Sachtleben,
Planning and Program Development
Branch, Division of Bank Supervision
(202/389-4761) or Peter M. Kravitz,
Senior Attorney, Legal Division (202/
389-4171).
SUPPLEMENTARY INFORMATION:

Purpose
The banking agencies are jointly
proposing for public comment
regulations which would specify the
accounting for international loan fees in
order to achieve uniformity among
banking institutions in accounting for
such fees and to assure that the
appropriate portion of such fees is
accrued in income over the effective life
of the relevant loan. The proposed rules
implement section 906 of the
International Lending Supervision Act of
1983 (Title IX, Pub. L. 98-181, 97 Stat.
1153) (“Act”), directing the Federal
banking agencies to promulgate
regulations on the accounting for
various fees received by banking
institutions when restructuring and
making international loans.
Background
In connection with international loan
agreements, including agreements to
restructure prior loans, banking
institutions often receive various
nonrefundable fees in addition to
interest charges. These fees are
identified by a variety of terms, and are
intended for a variety of purposes: For
example, a flat fee added specifically to
increase the yield of the loan; a fee

designed to cover costs associated with
syndicating a loan (e.g., for structuring
and negotiating a loan package,
underwriting a syndicated loan, advising
the borrower); a fee to cover the costs of
committing funds on the prescribed
terms for a fixed period of time; or a fee
for serving as agent in administering a
syndicated loan. In addition, the loan
agreement frequently provides that the
managing bank(s) is (are) to be
reimbursed for all out-of-pocket
expenses incidental to the arrangement
of a credit facility. Similar provision is
made for the agent bank for loan
collection or enforcement costs.
As discussed further below, the
existing accounting literature provides
only tfery general guidance on the
accounting for such fees. As a result,
there are differences in the manner in
which banks have accounted for various
fees associated with international loans.
For example, some banks have deferred
fees and amortized them to income over
the life of the loan while others have
recognized in income an amount equal
to direct costs incurred and deferred the
remainder. Still others have recognized
such fees as current income when the
loan is made.
General guidance as to the accounting
recognition of loan fees is provided in
the recent revision of the American
Institute of Certified Public Accountants
(AICPA) Industry Audit Guide, A udits o f
Banks ("Bank Audit Guide”) (1983) at
pages 52-55. As to commitment fees, the
Bank Audit Guide in part states:
Banks have recorded income from
commitment fees in a variety of ways
including recognition:
(a) in full when received.
(b) when the commitment period has
expired or the loan has been drawn down.
(c) ratably over the commitment period.
(d) ratably over the combined commitment
and loan period.
The accounting for recognition of income
from commitment fees should be based on
the nature and substance of the transactions.
However, a bank’s method of accounting
should ensure that any income that
represents an adjustment to the interest yield
is deferred until the loan is drawn down and
then amortized over the expected life of the
loan in relation to the outstanding balance.
Fees representing compensation for a
binding commitment or for rendering a
service in issuing the commitment should be
deferred and amortized over the commitment
period using the straight-line method.

The Guide does not directly address
questions of fees for international loans,
but discusses "origination fees” as
follows:
Banks also receive fees for originating
loans in-house. The normal origination fee
(generally referred to as points) is essentially

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Proposed Rules
a reimbursement For the expenses of the
underwriting process, that is, processing the
loan application, reviewing legal title to the
collateral, obtaining appraisals, and other
procedures. Origination fees, to the extent
they are a reimbursement for such costs,
should be recognized as income at the time of
loan closing. Loan origination fees that are
not reimbursements of such costs should be

amortized to income over the expected loan
period by application of the interest method.
Because existing generally accepted
accounting principles (GAAP) do not
provide explicit requirements for fees
received in connection with a loan, the
AICPA formed a task force to prepare
an issues paper addressing the
accounting for such fees. The issues
paper was presented to and considered
by the AICPA’s Accounting Standards
Executive Committee (“AcSEC”), which
voted on the task force
recommendations and forwarded this
information on September 21,1983 to the
Financial Accounting Standards Board
(FASB) for consideration. The FASB,
which establishes GAAP, has not yet
acted on these recommendations.
In the event either the FASB issues a
final pronouncement or standard or the
AICPA issues a Statement of Position on
the subject, the banking agencies will
reexamine their regulations to assess the
need for modification.
The Federal banking agencies and the
Congress have considered the lack of
consistency among banking institutions
in accounting for fees associated with
international loans and determined that
more explicit and uniform guidance is
desirable. In particular, accounting
practices should not result in artificial
incentives for banking institutions to
make international loans premised on
the immediate recognition of all fee
income. As a result of Congressional
consideration of these matters, the
Federal banking agencies are directed
under section 906 of the Act to issue
regulations to establish the accounting
treatment of such fees and assure that
an appropriate portion is accrued as
income over the effective life of each
such loan. Section 906(a) of the Act also
prohibits certain fees in connection with
international loan restructurings unless
such fees are recognized as a yield
adjustment over the effective life of the
loan.
The effective life of the loan is
generally meant to be the term of the
loan. This may, however, differ from the
stated loan period, where, for example,
a short-term loan is expected to be
rolled-over at maturity. The Federal
banking agencies intend, through the
examination process, to oversee good
faith compliance with the Act and these
regulations.

The proposed regulations are
designed to carry out the objectives of
section 906 and provide more specific
and uniform accounting guidance
relating to international loan fees.
Proposal
The Federal Financial Institutions
Examination Council (FFIEC) recently
has adopted revisions to banking
institution Reports of Condition and
Income (Call Reports) which include
specific reporting requirements
applicable to loan fees. The accounting
rules contained in the proposed
regulations are generally consistent with
the existing requirements set forth in the
Call Report Instructions (FFIEC Nos.
031, 032, 033 and 034). However, these
instructions do not specifically address
the appropriate accounting treatment for
fees received in connection with
international loans or loan
restructurings. This proposal, therefore,
specifies the required accounting
treatment with respect to such fees.
In addition to the Call Report
Instructions, the agencies considered the
existing diversified practice of
accounting for these fees; current
accounting literature on the subject; and
the recent recommendations of AcSEC
and the AICPA task force referred to
earlier.
The agencies also considered whether
the accounting treatment for fees should
vary depending on w hether or not the
fees are associated with a restructuring
rather than any other international loan.
It was decided that the rules should be
identical for both loan situations. First,
the fees are similar in substance and
therefore, should be treated in the same
fashion. Secondly, distinguishing
between a restructuring, particularly one
involving a “new money” component,
and other international loans, including
routine refinancings, would involve an
undue regulatory burden on both
banking institutions and the agencies.
Accordingly, the proposed rules would
apply to all international loans
uniformly.
The proposed regulations apply to
"banking institutions” which are defined
to include banks, bank holding
companies, and Edge and Agreement
Corporations engaged in banking. The
regulations apply to these institutions on
a consolidated basis. In applying the
rules to bank holding companies under
section 910(a)(2) of the Act, the Board
has deemed such action appropriate to
promote uniform application of section
906 of the Act and to prevent evasions
thereof.
The banking agencies, in issuing
regulations implementing section 905(a)
of the Act, have requested comment

5595

generally on whether and the extent to
which any provision of the Act should
apply to die U.S. branches, agencies and
commerical lending company
subsidiaries of foreign banks.
The significant provisions of the
proposed regulations are:
1. No banking institution shall charge
any fee in connection with the
restructuring of an existing international
obligation of the borrower unless all
fees exceeding the banking institution’s
administrative cost of the restructuring
are deferred and recognized over the
term of the loan as an interest yield
adjustment. In determining what costs
should be regarded as administrative
costs, reference should be made to the
discussion below of administrative
costs.
2. The accounting treatment of
administrative costs associated with
originating and processing international
loans and loan fees related to the
activity of generating such loans is as
follows:
a. Fees on international loans that
represent yield adjustments shall be
recognized over the expected loan
period using the interest method as an
adjustment of the yield on the loan.
However, to the extent these fees
represent a reimbursement of the
banking institution’s identifiable
administrative costs associated with the
loan processing, a portion of the fee
equal to these costs shall be recognized
as income currently.
b. Administrative costs are defined as
those costs which are specifically
identified with processing and
consummating a loan (excluding general
and non-associated overhead-type
costs). These costs include, but are not
necessarily limited to: Legal fees; costs
of preparing and processing loan
documents; an allocable portion of
salaries and related benefits of
employees engaged in the international
lending function; and directly allocable
occupancy and other similar
administrative costs.
3. For managing banking institutions
in international syndicated loans, the
proposed regulations establish a
presumption that a portion of a
managing banking institution’s fees
(other than commitment or agency fees
for which accounting rules are otherwise
set forth in the regulations) shall be
considered an adjustment to yield. The
interest yield portion is specified as
equal to the proportion of fees in
relation to loan principal received by the
largest loan participant that is not a
manager in the syndication. The
remainder of the managing banking
institution’s fee shall be presumed to be

5596

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Proposed Rules

a loan syndication fee. This remaining
portion may be recognized as revenue
w hen received only to the extent it
equals administrative costs directly
identifiable with syndication processing,
with the excess deferred and amortized
over the term of the loan.
a. The portion of the syndication fee
representing an adjustment of yield shall
be accounted for as described in 2(a)
above.
b. Administrative costs include those
costs which are specifically identified
with negotiating and consummating
such lending arrangements (excluding
general and non-associated overheadtype costs). These costs include, but are
not necessarily limited to: legal fees;
costs of preparing and processing loan
documents; an allocable portion of
salaries and related benefits of
employees engaged in the international
loan syndication function; and directly
allocable occupancy and other similar
administrative costs.
4. Consistent with the requirements of
the Bank Audit Guide, the proposal
takes the view that a loan commitment
is a separate transaction that provides
distinct services to customers for which
the lending institution is entitled to
compensation, and that a commitment
fee may have two components: One
relating to commitments and one related
to lending money. In order to achieve
uniformity in accounting practice and
because the components generally
cannot be separately identified, the
banking institution should account for
the commitment fee by recognizing the
fee as revenue over the combined
commitment and loan period.
Reimbursement of any direct
processing costs will be recognized as
income at closing. Then the straight line
method, based on the combined life of
the commitment and loan period, shall
be applied to the remaining fee to
recognize income during the
commitment period. W hen the loan is
disbursed, the interest method shall be
applied to the balance of the fee to
recognize income over the life of the
loan. If the loan is not funded,
unamortized commitment fees will be
recognized as income at the end of the
commitment period.
5. The proposed regulations provide
that agency fees—normally as annual
fee paid to an Agent Bank by the
borrower to reimburse the bank for the
performance of its administrative duties
and out-of-pocket expenses [e.g., telex,
telephone, postage, printing and travel)
incurred in the performance of such
duties—shall be recorded as income at
the time of loan closing or as the service
is performed, if later.

The proposed rules differ in two
respects from the accounting
recommended in the AICPA issues
paper submitted to the FASB for
consideration.
First, the proposed rules would
require that loan processing/origination
costs be expensed as incurred with fees
equal to the banking institution’s
directly identifiable administrative costs
recognized in income in the same period.
Both the AICPA Task Force and AcSEC
believe that such costs should be
capitalized and amortized over the loan
period; however, the Task Force
concluded (although AcSEC disagreed)
that expensing all such administrative
costs offset by an equal amount of
revenue was an acceptable alternative.
The method proposed of immediately
expensing all loan processing costs
offset by an equal amount of revenue is
a long established practice in the
banking industry. Additionally,
recognition of a portion of the fees gives
the same income result as deferring
administrative costs and amortizing
them over the life of the loan, and thus
would appear to be equally consistent
with the objectives of section 906 of the
Act.
The AICPA issues paper did not
specify accounting treatment of
syndication and similar fees. However,
the presumption is that such fees should
be deferred and recognized over the life
of the loan. The proposed regulations
are similar except for treatment of the
associated syndication costs. The
proposal treats syndication costs
consistently with loan processing costs.
In each case, the income result is the
same as deferring both the costs and fee
revenue and amortizing them over the
life of the loan.
Secondly, AcSEC believes that a loan
commitment is an integral part of
lending money and therefore loan
commitment fees should be deferred and
recognized over the expected loan priod
as a yield adjustment. However, the
proposed rules would allow commitment
fees to be recognized over the combined
commitment and loan period. This
proposal parallels the accounting
prescribed in the Call Report Instruction
and does not differ significantly from the
requirements in the Bank Audit Guide.
The AICPA Task Force endorses such
treatment of commitment fees.
Comments are requested on the
proposal and specifically on the
following issues:
(1) Should the rules differentiate
between fees related to restructured
loans and other international loans, and
if so, how should restructured loans be
defined?

(2) Should all or certain costs be
capitalized rather than expensed as
incurred?
(3) Should commitment fees always be
deferred and recognized over the
combined commitment and expected
loan period as adjustments to yield?
(4) How should banking institutions
account for the costs of, and fee income
attributable to, their merchant banking
activities?
(5) Is any aspect of the proposed rules
inconsistent with the accounting
treatment for domestic loans?
Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (Pub. L. 96354, 5 U.S.C. 601 e t seq.) the agencies
have certified that the proposed
regulations, if adopted, will not have a
significant economic impact on a
substantial number of small entities
since small banks generally do not
engage extensively in international
lending and would not be affected by
these regulations.
Executive Order 12291
The Comptroller of the Currency has
determined that the proposed regulation
does not constitute a “major rule" and
therefore does not require a regulatory
impact analysis.
List of Subjects in 12 CFR Parts 20,211
and 351
Accounting for international loan fees,
Banks, banking. Federal Reserve
System, Foreign banking, investments.
Reporting and recordkeeping
requirements, Export trading companies,
Allocated transfer risk reserve, National
banks, International operations.
Reserves oti certain international assets.
Reporting and disclosure of
international assets, State nonmember
banks.
Authority and Issuance
Pursuant to their respective
authorities, the agencies propose to
amend Title 12 of the Code of Federal
Regulations, Parts 20, 211 and 351, as
follows:
COMPTROLLER OF THE CURRENCY
[Docket No. 84-5]
PART 2 0 -{ AMENDED]
The Comptroller of the Currency
proposes to amend 12 CFR Part 20 as
follows:
1.
The authority citation for 12 CFR
PArt 20 reads as follows:
Authority: 12 U.S.C. 1 e t seq. unless
otherwise noted.

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Proposed Rules________ 5597
2. Part 20 is amended by redesignating
paragraph (d) of § 20.7 as paragraph (f)
and by adding new paragraphs (d) and
(e) to read as follows:
§20.7 Definitions.

*

*

*

*

*

(d) “International loan" means a loan
as defined in the instructions to the
“Report of Condition and Income” for
the respective banking institution
(FFIEC Nos. 031,032.033 and 034) and
made to a foreign government, or to an
individual, a corporation, or other entity
not a citizen of, resident in, or organized
or incorporated in the United States.
(e) “International syndicated loan”
means a loan characterized by the
formation of a group of “managing”
banking institutions, assumption by
them of underwriting commitments, and
in the usual case, participation in the
loan by other banking institutions.
(f) “Transfer risk” * * *
3. Part 20 is amended by adding a new
§ 20.9 to read as follows:
§ 20.9 Accounting for fees on
international loans.

(a) R estrictions on certain fees for
restructured international loans. No
banking institution shall charge any fee
in connection with the restructuring of
an existing obligation of the borrower
unless all fees exceeding the banking
institution’s administrative costs of the
restructuring are deferred and
recognized over the term of the loan as
an interest yield adjustment.
Administrative costs are described in
paragraph (b)(3)(ii) of this section.
(b) Accounting treatm ent o f
international loan adm inistrative costs
and corresponding fees—(1) Am ortizing
fees. Except as otherwise provided by
this section, fees received on
international loans shall be deferred and
amortized over the term of the loan. The
interest method should be used during
the loan period to recognize the deferred
fee revenue in relation to the
outstanding loan balance.
(2) Loan com m itm ent fees. Loan
commitment fees shall be deferred and
amortized over the term of the combined
commitment and loan period. The
straight-line method of amortization
should be used during the commitment
period to recognize fee revenue. The
interest method should be used during
the loan period to recognize the
remaining fee revenue in relation to the
outstanding balance. When any loan
amounts are not funded during the
commitment period, a portion of the fee
income deferred may be recognized as
income at the end of the commitment
period.

(3) Adm inistrative costs and
corresponding fees, (i) Administrative
costs for international loans shall be
expensed as incurred. A portion of the
fee income equal to the banking
institution’s administrative costs shall
be recognized as income in the same
period such costs are expensed.
(ii) The administrative costs of
originating or restructuring an
international loan include those costs
which are specifically identified with
processing and consummating the loan.
These costs include, but are not
necessarily limited to: legal fees; costs
of preparing and processing loan
documents; an allocable portion of
salaries and related benefits of
employees engaged in the international
lending function; and an allocable
portion of occupancy and other similar
administrative costs.
(4) Fees received by and
adm inistrative costs o f managing
banking institutions in an international
syndicated loan, (i) Fees received on
international syndicated loans
representing an adjustment of the yield
on the loan shall be recognized over the
loan period using the interest method. A
portion of the syndication fee shall be
recognized as revenue when received to
the extent it equals administrative costs
of the managing banking institution with
the excess deferred and amortized over
the term of the loan.
(ii) If the interest yield portion of a fee
received on an international syndicated
loan by a managing banking institution
is unstated or differs materially from the
pro rata portion of loan and commitment
fees paid other participants in the
syndication, an amount necessary for an
interest yield adjustment shall be
provided. This amount shall at least be
equivalent (on a pro rata basis) to that
received by the largest loan participant
in the syndication that is not a managing
banking institution.
(iii) The administrative costs of a
managing banking institution in an
international syndicated loan shall be
expensed as incurred. Such costs are
those which are specifically identified
with negotiating and consummating
such lending arrangements. These costs
include, but are not necessarily limited
to: Legal fees; costs of preparing and
processing loan documents; an allocable
portion of salaries and related benefits
of employees engaged in the syndication
function; and an allocable portion of
occupancy and other similar
administrative costs.
(5) Accounting treatm ent o f A gency
fees. Fees paid to an agent banking
institution for administrative services in
an international syndicated loan shall
be recognized at the time of the loan

closing or as the service is performed, if
later.
Dated: February 8,1984.

C. T. Conover,
Comptroller o f the Currency.

FEDERAL RESERVE SYSTEM
[Regulation K; Docket No. R-0509]

PART 211—[AMENDED]
Pursuant to the Board’s authority
under sections 9, 25 and 25(a) of the
Federal Reserve Act (12 U.S.C. 221 et
seq., 601-604a, and 611 e t seq.), section 5
of the Bank Holding Company Act (12
U.S.C. 1844) and section 906 of the
International Lending Supervision Act of
1983 (Pub. L. 98-181, Title IX, 97 Stat.
1153), the Board proposes to amend 12
CFR Part 211, Subpart D, as follows:
1. Section 211.42 is amended by
redesignating paragraph (d) as
paragraph (f) and by adding new
paragraphs (d) and (e), to read as
follows:
211.42 Definitions.

*

* * * *
(d) “International loan” means a loan
as defined in the instructions to the
“Report of Condition and Income” for
the respective banking institution
(FFIEC Nos. 031, 032, 033 and 034) and
made to a foreign government, or to an
individual, a corporation, or other entity
not a citizen of, resident in, or organized
or incorporated in the United States.
(e) “International syndicated loan"
means a loan characterized by the
formation of a group of “managing’*
banking institutions, assumption by
them of underwriting commitments, and
in the usual case, participation in the
loan by other banking institutions.
* * * * *
2. By adding a new § 211.45, to read as
follows:
§ 211.45 Accounting for fees on
international loans.

(a) R estrictions on certain fees fo r
restructured international loans. No
banking institution shall charge any fee
in connection with the restructuring of
an existing obligation of the borrower
unless all fees exceeding the banking
institution’s administrative costs of the
restructuring are deferred and
recognized over the term of the loan as
an interest yield adjustment.
Administrative costs are described in
paragraph (b)(3)(ii) of this section.
(b) Accounting treatm ent o f
international loan adm inistrative costs
and corresponding fees—(1) Am ortizing
fees. Except as otherwise provided by
this section, fees received on

5598

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Proposed Rules

international loans shall be deferred and
amortized over the term of the loan. The
interest method should be used during
the loan period to recognize the deferred
fee revenue in relation to the
outstanding loan balance.
(2) Loan com m itm ent fees. Loan,
commitment fees shall be deferred and
amortized over the term of the combined
commitment and loan period. The
straight-line method of amortization
should be used during the commitment
period to recognize fee revenue. The
interest method should be used during
the loan period to recognize the
remaining fee revenue in relation to the
outstanding balance. When any loan
amounts are not funded during the
commitment period, a portion of the fee
income deferred may be recognized as
income at the end of the commitment
period.
(3) A dm inistrative costs and
corresponding fees, (i) Administrative
costs for international loans shall be
expensed as incurred. A portion of the
fee income equal to the banking
institution’s administrative costs shall
be recognized as income in the same
period such costs are expensed.
(ii) The administrative costs of
originating or restructuring an
international loan include those costs
which are specifically identified with
processing and consummating the loan.
These costs include, but are not
necessarily limited to: legal fees; costs
of preparing and processing loan
documents; an allocable portion of
salaries and related benefits of
employees engaged in the international
lending function; and an allocable
portion of occupancy and other similar
administrative costs.
(4) Fees received by and
adm inistrative costs o f managing
banking institutions in an international
syndicated loan, (i) Fees received on
international syndicated loans
representing an adjustment of the yield
on the loan shall be recognized over the
loan period using the interest method. A
portion of the syndication fee shall be
recognized as revenue when received to
the extent it equals administrative costs
of the managing banking institution with
the excess deferred and amortized over
the term of the loan.
(ii) If the interest yield portion of a fee
received on an international syndicated
loan by a managing banking institution
is unstated or differs materially from the
pro rata portion of loan and commitment
fees paid other participants in the
syndication, an amount necessary for an
interest yield adjustment shall be
provided. This amount shall at least be
equivalent (on a pro rata basis) to that
received by the largest loan participant

in the syndication that is not a managing
banking institution.
(iii) The administrative costs of a
managing banking institution in an
international syndicated loan shall be
expensed as incurred. Such costs are
those which are specifically identified
with negotiating and consummating
such lending arrangements. These costs
include, but are not necessarily limited
to: Legal fees; costs of preparing and
processing loan documents; an allocable
portion of salaries and related benefits
of employees engaged in the syndication
function; and an allocable portion of
occupancy and other similar
administrative costs.
(5) Accounting treatm ent o f A gency
fees. Fees paid to an agent banking
institution for administrative services in
an international syndicated loan shall
be recognized at the time of the loan
closing or as the service is performed, if
later.
Dated: February 8,1984.
William W. Wiles,
Secretary, Board o f Governors o f the Federal
Reserve System.

FEDERAL DEPOSIT INSURANCE
CORPORATION
PART 351—[AMENDED]
1. The authority citation for 12 CFR
Part 351 is as follows:
Authority: Title D Pub. L. 98-181, 97 Stat.
C,
1153.

2. The FDIC proposes to amend Part
351 by adding a new § 351.2 to read as
follows:
§ 351.2 Accounting for international loans
fees.

(a) D efinitions. (1) “International
loan’*means a loan as defined in the
instructions to the “Report of Condition
and Income” for the respective banking
institution (FFIEC Nos. 031, 032, 033 and
034) and made to a foreign government,
or to an individual, a corporation, or
other entity not a citizen of, resident in,
or organized or incorporated in the
United States.
(2) “International syndicated loan”
means a loan characterized by the
formation of a group of “managing”
banking institutions, assumption by
them of underwriting commitments, and
in the usual case, participation in the
loan by other banking institutions.
(b) R estrictions on certain fees fo r
restructured international loans. No
banking institution shall charge any fee
in connection with the restructuring of
an existing obligation of the borrower
unless all fees exceeding the banking
institution’s administrative costs of the
restructuring are deferred and

recognized over the term of the loan as
an interest yield adjustment.
Administrative costs are described in
paragraph (c)(3)(ii) of this section.
(c) Accounting treatm ent o f
international loan adm inistrative costs
and corresponding fees.—(1) Am ortizing
fees. Except as otherwise provided by
this section, fees received on
international loans shall be deferred and
amortized over the term of the loan. The
interest method should be used during
the loan period to recognize the deferred
fee revenue in relation to the
outstanding loan balance.
(2) Loan com m itm ent fees. Loan
commitment fees shall be deferred and
amortized over the term of the combined
commitment and loan period. The
straight-line method of amortization
should be used during the commitment
period to recognize fee revenue. The
interest method should be used during
the loan period to recognize the
remaining fee revenue in relation to the
outstanding balance. When any loan
amounts are not funded during the
commitment period, a portion of the fee
income deferred may be recognized as
income at the end of the commitment
period.
(3) A dm inistrative costs and
corresponding fees, (i) Administrative
costs for international loans shall be
expensed as incurred. A portion of the
fee income equal to the banking
institution’s administrative costs shall
be recognized as income in the same
period such costs are expensed.
(ii) The administrative costs of
originating or restructuring an
international loan include those costs
which are specifically identified with
processing and consummating the loan.
These costs include, but are not
necessarily limited to: legal fees; costs
of preparing and processing loan
documents; an allocable portion of
salaries and related benefits of
employees engaged in the international
lending function; and an allocable
portion of occupancy and other similar
administrative costs.
(4) Fees received b y and
adm inistrative costs o f managing
banking institutions in an international
syndicated loan, (i) Fees received on
international syndicated loans
representing an adjustment of the yield
on the loan shall be recognized over the
loan period using the interest method. A
portion of the syndication fee shall be
recognized as revenue when received to
the extent it equals administrative costs
of the managing banking institution with
the excess deferred and amortized over
the term of the loan.

Federal Register / Vol. 49, No. 30 / Monday, February 13, 1984 / Proposed Rules
(ii) If the interest yield portion of a fee
received on an internationl syndicated
loan by a managing banking institution
is unstated or differs materially from the
pro rata portion of loan and commitment
fees paid other participants in the
syndication, an amount necessary for an
interest yield adjustment shall be
provided. This amount shall at least be
equivalent (on a pro rata basis) to that
received by the largest loan participant
in the syndication that is not a managing
banking institution.
(iii) The administrative costs of a
managing banking institution in an

international syndicated loan shall be
expensed as incurred. Such costs are
those which are specifically identified
with negotiating and consummating
such lending arrangements. These costs
include, but are not necessarily limited
to: Legal fees; costs of preparing and
processing loan documents: an allocable
portion of salaries and related benefits
of employees engaged in the syndication
function; and an allocable portion of
occupancy and other similar
administrative costs.
(5) Accounting Treatm ent o f Agency
fees. Fees paid to an agent banking

5599

institution for administrative services in
an international syndicated loan shall
be recognized at the time of the loan
closing or as the service is performed, if
later.
Dated: February 6,1984.
By Order of the Board of Directors.
Alan J. Kaplan,
Deputy Executive Secretary. Federal Deposit
Insurance Corporation.
[FR Doc. 84-3963 Filed 2-9-84; 2:40 pmj
BILLING CODE 4 810-33-M


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102