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February 27, 1984
To the Addressee:
As indicated in our Circular No, 9638, dated February 17,
1984, the Board of Governors of the Federal Reserve System has amended
its Regulation K, "International Banking Operations," with regard to
(1) the reporting and disclosure of international assets, and (2) the
establishment of an Allocated Transfer Risk Reserve (ATRR) for certain
specified international assets,,
Enclosed is a copy of the text of those amendments, effective
February 13, 1984, which have been reprinted from the Federal Register,
Questions thereon may be directed to Thomas P„ HcQueeney, Assistant
Chief Examiner (Tel, No, 212“791ra7934)„
Circulars Division
FEDERAL RESERVE BANK OF NEW YORK
Board of Governors of the Federal Reserve System
fj--/ % <■
IN T ER N A T IO N A L BANKING O PERATIONS
AMENDMENTS TO REGULATION K
(effective February 13, 1984)
DEPARTMENT OF TOE TREASURY
Comptroller ©f the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CPR Parts 20,211, and 351
Reporting and Disclosure ©f
International Assets
AGENCY: Comptroller of the Currency,
Board of Governors of the Federal
Reserve System, and the Federal
Deposit Insurance Corporation.
ACTQ0N: 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 9NFORMATION CONTACT:
Comptroller of the Currency: Harold
Schuler, Director, International
Relations and Financial Evaluation
(202/447-1747); Leon S. Tarrant,
Manager, ICERC Secretariat (202/447-
1747); or Dorthy Sable, Senior Attorney section 907 of the Act. Each banking
(202/447-1880). Federal Reserve System: institution will submit to its primary
Nancy P. Jacklin, Assistant General
Federal banking supervisor, at least
Counsel (202/452-3428); Kathleen
quarterly, information on the amounts
O’Day, Senior Counsel, Legal Division
and composition of its international
(202/452-3786); or Michael G. Martinson, assets. Each institution also must submit
Projects Manager, International
information on concentrations in its
Activities, Division of Banking,
international assets that are material in
Supervision and Regulation (202/452relation to total assets and to capital;
3621). Federal Deposit Insurance
this information will be made available
Corporation: Edward T. Lutz, Assistant to the public on request. The format,
Director, Division of Bank Supervision
content, and reporting and filing dates of
(202/389-4512) or Peter M. Kravitz,
the reports will be jointly determined by
Senior Attorney, Legal Division (202/
the Federal banking agencies. For this
389-4171).
purpose, the agencies have initiated
modifications in the current Country
SUPPLEMENTARY SNF0RMATION: Since
Exposure Report (Form FFIEC 009).
1977, banking institutions have been
By notice published in the Federal
reporting their foreign country exposure Register on December 23,1983, 48 FR
(international assets subject to transfer 56848, the Federal Financial Institutions
risk categorized by country) on a
Examination Council (FFIEC) requested
semiannual basis. Section 907 of the
comments on two proposed changes to
International Lending Supervision Act of the Country Exposure Report. One of
1983 (Title IX, Pub. L. 98-181, 97 Stat.
these changes would add a new two1153) (“the Act”) requires the Federal
part summary to the form. Part A of the
banking agencies to promulgate
summary would provide certain
regulations requiring banking
information on exposures to any country
institutions with foreign country
that exceed 1% of the reporting
exposure to submit, no fewer than four institution’s assets. Part B would
times each calendar year, information
provide less detailed information on
regarding such exposure. Under section such exposures that exceed 0.75%, but
907(b) of the Act, the agencies’
do not exceed 1%, of the reporting
regulations must also require that
institution’s assets. This summary
information concerning banking
information would be disclosed to the
institutions’ material foreign country
public on request. The comment period
exposure in relation to assets and to
closed on January 23,1984 and it is
capital be made available to the public. intended that necessary procedures for
The agencies are required to promulgate adopting changes in the Report will be
regulations necessary to implement this completed in order to affect reporting for
section of the Act on or before March 29, the first quarter of 1984.
1984.
Regulatory Flexibility Act
The regulations set forth the
framework for implementation of the
Pursuant to section 605(b) of the
reporting and disclosure requirements of Regulatory Flexibility Act (Pub. L. 96-
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 49, NO. 30
For this Regulation to be complete retain:
1) Regulation K pamphlet, as amended effective July 8, 1983.
2) Amendments effective December 20, 1983.
3) This slip sheet.
f. Cir. No. 9638]
IX, Pub. L. 98-181, 97 Stat. 1153) (ILSA),
a banking institution shall submit to the
Board, at least quarterly, information
regarding the amounts and composition
of its holdings of international assets.
(2)
Pursuant to section 907(b) of ILSA,
a banking institution shall submit to the
Board 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 Board on
request.
Accordingly, pursuant to their
(b) Procedures. The format, content
respective authorities, the agencies have and reporting and filing dates of the
amended Title 12 of the Code of Federal reports required under paragraph (a) of
Regulations, Parts 20, 211 and 351. as
Executive Order 12291
this section shall be determined jointly
follows:
by
the Federal banking agencies. The
The Comptroller of the Currency has
requirements to be prescribed by the
determined that this regulation does not FEDERAL RESERVE SYSTEM
agencies may include changes to
constitute a “major rule” and therefore
existing reporting forms (such as the
[Regulation
K;
D
ocket
No.
R-0508]
does not require a regulatory impact
Country exposure Report, form FF1EC
analysis.
PART 211— [A M EN D ED ]
No. 009) or such other requirements as
the agencies deem appropriate. The
List of Subjects in 12 CFR Parts 20, 211
Pursuant to the Board’s authority
agencies also may determine to exempt
and 351
under sections 9, 25 and 25(a) of the
from the requirements of paragraph (a)
Federal Reserve Act (12 U.S.C. 221 et
Banks, banking, Federal Reserve
of this section banking institutions that,
seq.,
601-604a,
and
611
et
seq.),
section
5
System, Foreign banking, Investments,
in the agencies’ judgment, have de
of the Bank Holding Company Act (12
Reporting and record keeping
minimis holdings of international assets.
U.S.C.
1844)
and
section
907
of
the
requirements, Export trading companies.
(c) Reservation of Authority. Nothing
Allocated transfer risk reserve, National International Lending Supervision Act of contained in this rule shall preclude the
1983
(Pub.
L.
98-181,
Title
IX,
97
Stat.
banks, International operations,
Board from requiring from a banking
Reserves on certain international assets. 1153), the board has amended 12 CFR
institution such additional or more
Reporting and disclosure of
Part 211, Subpart D by adding a new
frequent information on the institution’s
international assets, State nonmember
§ 211.44 to read as follows:
holding of international assets as the
banks.
Board may consider necessary.
§ 211.44 Reporting and disclosure of
Notice and Comment; Effective Date
Dated: February 8,1984.
international assets.
354, 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
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.
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
(a) Requirements. (1) Pursuant to
The provisions of 5 U.S.C. 553 relating
section 907(a) of the International
to notice and public participation are
Lending Supervision Act of 1983 (Title
not followed in connection with the
System (“Board”), Comptroller of the
Currency and Federal Deposit Insurance
Corporation) determine that such
Allocated Transfer Risk Reserve
reserves are necessary. In particular,
A G E N C IE S : Comptroller of the Currency, they are intended to require banking
Board of Governors of the Federal
institutions to recognize uniformly the
Reserve System and Federal Deposit
transfer risk and diminished value of
Insurance Corporation.
international assets which have not
A C T IO N : Joint notice of final rules and
been serviced over a protracted period
request for additional comments.
of time. These regulations implement
one aspect of the joint program of the
S U M M A R Y : These regulations require
Federal banking agencies to strengthen
banking institutions to establish special the supervisory and regulatory
reserves against the risks presented in framework relaiing to foreign lending by
certain international assets when the
U.S. banking institutions, incorporated
in section 905(a) of the International
Federal banking agencies (Board of
Lending Supervision Act of 1983.
Governors of the Federal Reserve
12 C FR Parts 20, 211 and 351
2
W illia m W . W ile s,
Secretary, Board of Governors of the Federal
Reserve System.
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.
February 13,1984.
Comptroller of 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.,
E F F E C T IV E D A T E :
AD DR ESS:
Washington, D.C. 20219. Attention:
Lynette Carter. Comments will be
available for public inspection and
copying. Federal Reserve 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
Deposit Insurance Corporation:
Comments should be sent to Hoyle L.
Robinson, Executive Secretary, Federal
Deposit Insurance Corporation, 550 17th
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.
F O R F U R T H E R IN F O R M A T IO N C O N T A C T :
Comptroller of 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).
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:
(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
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.
S U P P L E M E N T A R Y IN F O R M A T IO N : In
International assets subject to transfer
December, 1883, the agencies published risk associated with the country of
for comment regulations to implement
residence of the obligor normally do not
section 905(a) of the International
include, for example, (1) assets
Lending Supervision Act of 1983 (Title
guaranteed by a resident of a foreign
IX, Pub. L. 98-181, 97 Stat. 1153) (“the
country different from that of the direct
Act”), which requires banking
obligor; (2) certain collateralized assets;
institutions to maintain a special
(3) commitments; and (4) assets of a
transfer risk reserve against certain
foreign office of the banking institution
foreign loans or other international
payable in local currency for which the
assets.
foreign office has equivalent local
The agencies received comments as
currency liabilities. (The foregoing
follows: The Board received a total of 39 examples are described in more detail in
comments (17 comments from U.S.
the Instructions to Country Exposure
banks and bank holding companies; 5
Report forms.)
from trade or professional associations;
The banking agencies also wall
8 from foreign banks; 8 from Federal
consider whether the performance
Reserve banks; and one from the New
characteristics of certain categories of
York State Banking Department); the
assets are such that no ATRR is
3
warranted 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.
(2) Applicability to nonbank and foreign
subsidiaries
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
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
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.
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
Consolidated Reports of Condition and
this recommendation.
Income (currently, FFIEC Nos. 031, 032,
Several commenters also sought
033, 034]. For bank holding companies,
further clarification of the alternative
the consolidation shall be in accordance
accounting treatment under which an
with the principles set forth in the
ATRR would not be required if
“Instructions to the Bank Holding
comparable amounts of the assets had
Company Financial Supplement to
been written down. Some comments
Report F.R. Y-6" (Form F.R. Y-9). Edge
stated that the regulations should clarify
and Agreement Corporations should file
the treatment of interest payments
in accordance with the “Instructions for
which have been applied to the loan
the Preparation of Report of Condition
balance. They suggested that the
for Edge and Agreement Corporations"
regulations specify that such reductions
(Form F.R. 2886b].
of principal should be considered write
In applying the foregoing rules to bank
downs for purposes of the regulations.
holding companies under section
Another issue was the treatment of
910(a)(2) of the act, the Board has
write-downs of assets in prior reporting
deemed such action appropriate to
periods. The final regulations clarify
promote uniform application of section
that write-downs in prior periods, as
905(a] of the Act and to prevent
well as reductions in principal as
evasions thereof.
(5) Treatment of ATRR Accounting
described above, which are tantamount
The provision in the proposed
(3) Criteria for Requiring an ATRR
to write-downs, are acceptable
In determining whether an ATRR is regulations eliciting most comment was alternatives to establishment of an
warranted for particular international the section allowing banking institutions ATRR.
to write dowm an asset in the same
Another issue raised in connection
assets, the agencies are directed by
amount
as required for the ATRR,
with the alternative accounting
statute to apply the following factors:
instead of setting up the ATRR, but
treatment was whether a write-down of
(1] Whether the quality of a banking
institution’s assets has been impaired by requiring the banking institution, in that an asset for commercial risk will be
case, to replenish the Allowance for
treated the same as a write-down for
a protracted inability of public or
transfer risk reasons. The final
private obligors to pay or (2] whether no Possible Loan Losses (APLL] out of
definite prospects exist for the orderly current earnings by the amount written regulations have been clarified to state
down. Commenters suggested that if a
that an ATRR applies to the principal
restoration of debt service. Some
amount of each specified international
commenters urged more specific criteria; banking institution chooses to write
others were concerned that the criteria down an asset instead of establishing an asset in the percentage required.
ATRR, the APLL should be replenished Accordingly, a write-down of any such
were not flexible enough. Most of the
commenters, however, generally agreed only to the extent necessary to restore it asset for commercial risk can be
to a level adequate to reflect the
included in the amount of a write-down
that the statutory criteria are
reasonable. The agencies consider the remaining risks in the loan portfolio.
which satisfies a required ATRR for that
The commenters pointed out several
statutory criteria to be appropriate
particular asset but not for specified
problems they see with the
because they provide guidance as to
assets in the aggregate.
replenishment provision as it was
when an ATRR is required, while
One commenter suggested that the
proposed: it could put banks that
allowing the agencies to take into
regulations
be clarified to indicate that a
account a sufficient range of factors in already have charged earnings at a
disadvantage vis-a-vis those banks that banking institution may fransfer to the
making their determinations.
have made no comparable provisions; it ATRR any amount specifically allocated
in the APLL for the assets subject to the
(4) Percentage Norms
could thus discourage conservative
ATRR. The agencies consider this
Under the proposed regulations, the practices; and, as a result of
approach an acceptable method of
inconsistency with GAAP, it could
initial year’s provision for the ATRR
implementing the ATRR requirement,
would be ten percent of the principal
distort financial statements and cause
4
aa/m ssm eassm
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) T im in g o f A T R R im p le m e n ta tio n
Several commenters requested that
notifications of ATRR requirements be
made on a timely basis relative to
banking 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) C o n s u lta tio n w ith b a n k in g
in s titu tio n s
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.
A p p lic a b ility o f th e A c t to U .S.
b r a n d i e s a n d a g e n c ie s o f fo re ig n b a n k s
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.
(S) O th e r c o m m e n ts
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.
R e g u la to ry F le x ib ility A c t
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.
E x e c u tiv e O r d e r 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.
L ist o f S u b je c ts in 12 C FK P a rts 20, 211
a n d 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.
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:
FEDERAL RESERVE SYSTEM
[Regulation K; D ocket 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 Landing
Supervision
Sec.
211.41
211.42
211.43
Authority, purpose and scope.
D efinitions.
A llocated Transfer Risk Reserve.
Authority: Federal R eserve A ct (12 U.S.C.
211 et seq.)\ Bank H olding C om pany A ct of
1956, as am ended (12 U.S.C. 1841 et seq.); the
International Banking A ct of 1978 (Pub. L. 95369; 92 Stat. 607; 12 U.S.C. 3101 et seq.); the
Bank Export S ervices A ct (Title II, Pub. L. 9 7 290, 96 Stat. 1235): and the International
Lending Supervision A ct (Title IX, Pub. L. 9 8 181, 97 Stat. 1153).
2.12 CFR Part 211 is amended by
adding a new Subpart D, reading as
follows:
Sufopart D— International Lending
Supervision
§ 211.41 Authority, purpose, and
(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 e tse q .) (“FRA”), and the
E ffe c tiv e D a te
Bank Holding Company Act of 1958, as
The provision of 5 U.S.C. 553 requiring amended (12 U.S.C. 1841 etseq.) ("BHC
a 30-day delay in the effective date of a Act”).
(b) Purpose and scope. This subpart is
regulation is not followed in connection
issued in furtherance of the purposes of
with the adoption of these regulations
the International Lending Supervision
for bank supervisory and regulatory
Act. It applies to State banks that are
reasons and because the agencies find
members of the Federal Reserve System
for good cause that an immediate
effective date is necessary in order for (“State member banks”); corporations
organized under section 25(a) of the
banking institutions to have sufficient
FRA (12 U.S.C. 611-831) (“Edge
advance notice of the reserves to be
5
35S3S
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.
institution's assets has been impaired by institution shall account for an ATRR
separately from the Allowance for
a protracted inability of public or
private obligors in a foreign country to Possible Loan Losses, and shall deduct
the ATRR from “gross loans and leasee"
make payments on their external
to arrive at “net loans and leases.” The
indebtedness as indicated by such
ATRR must be established for each
factors, among others, as whether:
[1] Such obligors have failed to make asset subject to the ATRR in the
percentage amount specified.
full interest payments on external
indebtedness;
(3) Consolidation. A banking
[2] Such obligors have failed to
institution shall establish an ATRR, as
comply with the terms of any
§ 211.42 Definitions.
required, on a consolidated basis. For
restructured indebtedness; or
banks, consolidation should be in
For the purposes of this subpart:
[3] A foreign country has failed to
(a) “Banking institution” means a
comply with any International Monetary accordance with the procedures and
tests of significance set forth in the
State member bank; bank holding
Fund or other suitable adjustment
instructions for preparation of
company; Edge Corporation and
program; or
Consolidated Reports of Condition and
Agreement Corporation engaged in
(B) Whether no definite prospects
banking. “Banking institution” does not exist for the orderly restoration of debt Income (FFIEC Nos. 031, 032, 033 and
034). For bank holding companies, the
include a "foreign banking organization” service.
consolidation shall be in accordance
as defined in § 211.23(a)(2).
(ii)
Determination of amount of ATRR.
with the principles set forth in the
(b) “Federal banking agencies” means (A) In determining the amount of the
“Instructions to the Bank Holding
the Board of Governors of the Federal
ATRR, the Federal banking agencies
Company Financial Supplement to
Reserve System, the Comptroller of the shall consider:
Report F.R. Y-6” (Form F.R. Y-9). Edge
Currency, and the Federal Deposit
[1] The length of time the quality of
and Agreement corporations engaged in
Insurance Corporation.
the asset has been impaired;
banking shall report in accordance with
(c) “International assets” means those
[2] Recent actions taken to restore
instructions for preparation of the
assets required to be included in
debt service capability;
Report of Condition for Edge and
banking institutions’ "Country Exposure
[3] Prospects for restored asset
Agreement Corporations (Form F.R.
Report” forms (FFIEC No. 009).
quality; and
(d) “Transfer risk” means the
[4] Such other factors as the Federal 2886b).
possibility that an asset cannot be
banking agencies may consider relevant
(4) Alternative accounting treatment.
serviced in the currency of payment
to the quality of the asset.
A banking institution need not establish
because of a lack of, or restraints on the
(B) The initial year’s provision for the an ATRR if it writes down in the period
availability of, needed foreign exchange ATRR shall be ten percent of the
in which the ATRR is required, or has
in the country of the obligor.
principal amount of each specified
written down in prior periods, the value
international asset, or such greater or
of the specified international assets in
§ 2 f 11.43 Allocated transfer risk reserve.
lesser percentage determined by the
the requisite amount for each such asset.
(a) Establishment o f Allocated
Federal banking agencies. Additional
For
purposes of this paragraph,
Transfer Risk Reserve. A banking
provision, if any, for the ATRR in
international assets may be written
institution shall establish an allocated subsequent years shall be fifteen
down by a charge to the Allowance for
transfer risk reserve (ATRR) for
percent of the principal amount of each Possible Loan Losses or a reduction in
specified international assets when
specified international asset, or such
the principal amount of the asset by
required by the Board in accordance
greater or lesser percentage determined application of interest payments or other
with this section.
by the Federal banking agencies.
collections on the asset. However, the
(b) Procedures and Standards.—(1)
(3)
Board notification. Based on the
Allowance for Possible Loan Losses
Joint agency determination. At least
joint agency determinations under
must be replenished in such amount
annually, the Federal banking agencies paragraph (b)(1) of this section, the
necessary to restore it to a level which
shall determine jointly, based on the
Board shall notify each banking
adequately provides for the estimated
standards set forth in paragraph (b)(2) of institution holding assets subject to an
losses inherent in the banking
this section, the following:
ATRR:
institutions’s loan portfolio.
(1) Which international assets subject
(1) Of the amount of the ATRR to be
to transfer risk warrant establishment of established by the institution for
(5) Reduction of ATRR. A banking
an ATRR;
institution may reduce an ATRR when
specified international assets; and
(ii) The amount of the ATRR for the
(ii) That an ATRR established for
notified by the Board or, at any time, by
specified assets; and
specified
assets
may
be
reduced.
writing
down such amount of the
(iii) Whether an ATRR established for
(c)
Accounting treatment of ATRR.—international asset for which the ATRR
specified assets may be reduced.
(2) Standards for requiring A TRR.—(i) (1) Charge to current income. A banking was established.
institution shall establish an ATRR by a
Evaluation of assets. The Federal
charge to current income and the
banking agencies shall apply the
Board of Governors of the Federal Reserve
amounts so charged shall not be
following criteria in determining
System , February 8,1984.
included in the banking institution's
whether an ATRR is required for
William W. Wiles,
capital or surplus.
particular international assets:
Secretary of the Board.
(2) Separate accounting. A banking
(A) Whether the quality of a banking
6
@FedFRASER