[Federal Register Volume 60, Number 169 (Thursday, August 31, 1995)]
[Rules and Regulations]
[Pages 45606-45609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21567]



      

[[Page 45605]]

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Part V





Federal Deposit Insurance Corporation





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12 CFR Part 325



Capital Maintenance; Interim Rule

  Federal Register / Vol. 60, No. 169 / Thursday, August 31, 1995 / 
Rules and Regulations   

[[Page 45606]]


FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AB57


Capital Maintenance

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comment.

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SUMMARY: The FDIC is amending its capital adequacy standards for FDIC-
supervised banks with regard to the regulatory capital treatment of 
certain transfers with recourse. This amendment is being adopted to 
implement section 208 of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (Riegle Act). Section 208 provides 
that a qualifying insured depository institution that transfers small 
business loans and leases on personal property with recourse need 
include only the amount of retained recourse in its risk-weighted 
assets when calculating its capital ratios, provided that certain 
conditions are met. This rule will have the effect of lowering the 
capital requirements for small business loans and leases on personal 
property that have been transferred with recourse by qualifying insured 
depository institutions that are supervised by the FDIC.

DATES: The interim rule is effective August 31, 1995. Comments on this 
interim rule must be received by October 30, 1995.

ADDRESSES: All comments should be submitted to Office of the Executive 
Secretary, Federal Deposit Insurance Corporation, 550 17th Street, 
N.W., Washington, D.C. 20429. Comments may be hand delivered to Room F-
402, 1776 F Street, N.W., Washington, D.C. 20429, on business days 
between 8:30 a.m. and 5:00 p.m. (Fax number: (202)898-3838; Internet 
address: [email protected]) Comments will be available for inspection 
at the FDIC's Reading Room, Room 7118, 550 17th Street, N.W., 
Washington, D.C. between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: For supervisory issues, Stephen G. 
Pfeifer, Examination Specialist, Accounting Section, Division of 
Supervision (202/898-8904); for legal issues, Dirck A. Hargraves, 
Attorney, Legal Division (202/898-7049).

SUPPLEMENTARY INFORMATION:

I. Background

    The FDIC's current regulatory capital standards are intended to 
ensure that insured depository institutions that transfer assets and 
retain the credit risk inherent in those assets maintain adequate 
capital to support that risk. This is generally accomplished by 
requiring that assets transferred with recourse continue to be reported 
on the institution's balance sheet when the institution files its 
quarterly Reports of Condition and Income (Call Report) with the FDIC. 
Thus, these amounts are included in the calculation of the risk-based 
and leverage capital ratios for FDIC-supervised institutions.
    This regulatory reporting and capital treatment differs from how 
sales of assets with recourse are reported under generally accepted 
accounting principles (GAAP), which generally permit most such 
transactions to be reported as sales, thereby allowing the assets to be 
removed from the balance sheet.1

    \1\ The GAAP treatment focuses on the transfer of benefits 
rather than the retention of risk and, thus, allows a transfer of 
receivables with recourse to be accounted for as a sale if the 
transferor: (1) Surrenders control of the future economic benefits 
of the assets, (2) is able to reasonably estimate its obligations 
under the recourse provision, and (3) is not obligated to repurchase 
the assets except pursuant to the recourse provision. In addition, 
the transferor must establish a separate liability account equal to 
the estimated probable losses under the recourse provision (GAAP 
recourse liability account).
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    Section 208 of the Riegle Act, which Congress enacted last year, 
directs the federal banking agencies to revise the current regulatory 
capital treatment applied to depository institutions engaging in 
recourse transactions involving small business obligations. 
Specifically, the Riegle Act indicates that a qualifying insured 
depository institution that transfers small business loans and leases 
on personal property with recourse need include only the amount of 
retained recourse in its risk-weighted assets when calculating its 
capital ratios, provided two conditions are met. First, the transaction 
must be treated as a sale under GAAP and, second, the depository 
institution must establish a non-capital reserve sufficient to meet the 
institution's reasonably estimated liability under the recourse 
arrangement. The aggregate amount of recourse retained in accordance 
with the provisions of the Riegle Act may not exceed 15 percent of an 
institution's total risk-based capital or a greater amount established 
by the appropriate federal banking agency. The Act also states that the 
preferential capital treatment set forth in section 208 is not to be 
applied for purposes of determining an institution's status under the 
prompt corrective action statute (section 38 of the Federal Deposit 
Insurance Act (12 U.S.C. 1831o) (FDI Act)).
    The Riegle Act defines a small business as one that meets the 
criteria for a small business concern established by the Small Business 
Administration under section 3(a) of the Small Business Act.2 This 
Act also defines a qualifying institution as one that is well 
capitalized or, with the approval of the appropriate federal banking 
agency, adequately capitalized, as these terms are set forth in the 
prompt corrective action statute. For purposes of determining whether 
an institution is qualifying, its capital ratios must be calculated 
without regard to the preferential capital treatment that section 208 
sets forth for small business obligations.

    \2\  See 15 U.S.C. 631. The Small Business Administration has 
implemented regulations setting forth the criteria for a small 
business concern at 13 C.F.R. 121.101 through 121.2106. For most 
industry categories, the regulation defines a small business concern 
as one with 500 or fewer employees. For some industry categories, a 
small business concern is defined in terms of a greater or lesser 
number of employees or in terms of a specified threshold of annual 
receipts.
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II. Interim Rule

    To implement the requirements of section 208 of the Riegle Act, the 
FDIC is amending its risk-based and leverage capital standards. In 
general, the FDIC's interim rule reduces the amount of capital that 
some depository institutions are required to hold against recourse 
transactions involving small business obligations.
    Under the FDIC's interim rule, qualifying institutions that 
transfer small business obligations with recourse are required to 
maintain capital only against the amount of recourse retained (rather 
than against the full amount of assets transferred with recourse), 
provided two conditions are met. First, the transactions must be 
treated as sales under GAAP and, second, the transferring institutions 
must establish, pursuant to GAAP, a non-capital reserve sufficient to 
meet the reasonably estimated liability under their recourse 
arrangements. Consistent with section 208 of the Riegle Act, the 
interim rule applies only to transfers of obligations of small 
businesses that meet the criteria for a small business as established 
by the Small Business Administration. The FDIC also notes that the 
capital treatment specified in section 208 and in this interim rule for 
transfers of small business obligations with recourse takes 

[[Page 45607]]
precedence over the capital requirements recently implemented for 
transactions involving low level recourse (60 FR 15858, March 28, 1995) 
to the extent that they also involve small business obligations. In 
this regard, the capital requirements under Section 208 for qualifying 
institutions that transfer small business obligations with recourse are 
more preferential than those specified in the low level recourse rule.
    The FDIC's interim rule extends the preferential capital treatment 
for transfers of small business obligations with recourse only to 
qualifying institutions. An institution will be considered qualifying 
if, pursuant to the FDIC's prompt corrective action regulation (12 CFR 
part 325--subpart B),3 it is well capitalized. By order of the 
FDIC, a bank that is adequately capitalized also may be deemed a 
qualifying institution. In determining whether a bank meets the 
qualifying institution criteria, the well capitalized and adequately 
capitalized definitions set forth in the FDIC's prompt corrective 
action regulation will be used, except that the bank's capital ratios 
must be calculated without taking into consideration the preferential 
capital treatment the interim rule provides for transfers of small 
business obligations with recourse.

    \3\ Under 12 CFR Part 325--Subpart B, an institution is deemed 
to be well capitalized if it: (1) Has a total risk-based capital 
ratio of 10.0 percent or greater; (2) has a Tier 1 risk-based 
capital ratio of 6.0 percent or greater; (3) has a leverage ratio of 
5.0 percent or greater; and (4) is not subject to any written 
agreement, order, capital directive or prompt corrective action 
directive issued by the FDIC pursuant to section 8 of the FDI Act 
(12 U.S.C. 1818), the International Lending Supervision Act of 1983 
(12 U.S.C. 3907), or section 38 of the FDI Act (12 U.S.C. 1831o) or 
any regulation thereunder, to meet and maintain a specific capital 
level for any capital measure. An institution is deemed to be 
adequately capitalized if it: (1) has a total risk-based capital 
ratio of 8.0 percent or greater; (2) has a Tier 1 risk-based capital 
ratio of 4.0 percent or greater; (3) has a leverage ratio of 4.0 
percent or greater or a leverage ratio of 3.0 percent or greater if 
the institution is rated composite 1 under the CAMEL rating system 
in its most recent examination and is not experiencing or 
anticipating significant growth; and (4) does not meet the 
definition of a well capitalized institution.
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    Under the interim rule, the total outstanding amount of recourse 
retained by a qualifying institution on transfers of small business 
obligations receiving the preferential capital treatment cannot exceed 
15 percent of the institution's total risk-based capital.4 By 
order, the FDIC may approve a higher limit. If an institution is no 
longer a qualifying institution (e.g., it becomes less than well 
capitalized) or exceeds the established limit, the institution will not 
be able to apply the preferential capital treatment to any new 
transfers of small business loans and leases of personal property with 
recourse. However, those transfers of small business obligations with 
recourse that were completed while the institution was qualified and 
before it exceeded the established limit of 15 percent of total risk-
based capital will continue to receive the preferential capital 
treatment even if the institution is no longer qualified or the amount 
of retained recourse on such transfers subsequently exceeds the capital 
limitation.

    \4\ Thus, a transfer of small business loans with recourse that 
results in a qualifying institution retaining recourse in an amount 
greater than 15 percent of its total risk-based capital would not be 
eligible for the preferential capital treatment, even though the 
institution's amount of retained recourse before the transfer was 
less than 15 percent of capital.
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    Section 208(f) of the Riegle Act provides that the capital of an 
insured depository institution shall be computed without regard to 
section 208 when determining whether an institution is adequately 
capitalized, undercapitalized, significantly undercapitalized, or 
critically undercapitalized under section 38 of the FDI Act.
    The caption to section 208(f), ``Prompt Corrective Action Not 
Affected'', and the legislative history indicate section 208 was not 
intended to affect the operation of the prompt corrective action 
system. See S. Rep No. 103-169, 103d Cong., 1st Sess. 38, 69 (1993). 
However, the statute does not include ``well capitalized'' in the list 
of capital categories not affected. The prompt corrective action system 
under section 38 of the FDI Act deals primarily with imposing 
corrective sanctions on institutions that are less than adequately 
capitalized. Therefore, allowing an institution that is adequately 
capitalized without regard to the section 208 preferential capital 
treatment to use section 208 for purposes of determining whether the 
bank is well capitalized generally would not affect the application of 
the prompt corrective action sanctions to the institution.5 Other 
statutes and regulations treat an institution more favorably if it is 
well capitalized as defined under the prompt corrective action statute, 
but these provisions are not part of the prompt corrective action 
system of sanctions. Permitting an institution to be treated as well 
capitalized for purposes of these other provisions also will not affect 
the imposition of prompt corrective action sanctions.

    \5\ It is very unlikely but theoretically possible for a bank 
that is undercapitalized without using the preferential capital 
treatment in section 208 to become well capitalized if the section 
208 capital treatment is applied. Section 208 was not intended to 
affect prompt corrective action, and allowing an undercapitalized 
institution (without regard to section 208) to be treated as well 
capitalized (with regard to section 208) would affect prompt 
corrective action. The FDIC therefore believes it is inappropriate 
to allow an undercapitalized institution to use the section 208 
preferential capital treatment to become well capitalized for prompt 
corrective action purposes. Accordingly, such an institution would 
continue to be treated as undercapitalized for purposes of applying 
the prompt corrective action sanctions.
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    There is one provision of the prompt corrective action system that 
could be affected by treating an institution as well capitalized rather 
than as adequately capitalized. In this regard, if the institution is 
in an unsafe and unsound condition or is engaging in an unsafe or 
unsound practice, Sec. 325.103(d) of the FDIC's regulations (12 CFR 
325.103(d)) authorizes the FDIC to: (1) Reclassify a well capitalized 
institution as adequately capitalized; and (2) require an adequately 
capitalized institution to comply with certain prompt corrective action 
provisions as if that institution were undercapitalized. Because the 
text and legislative history of section 208 of the Riegle Act indicate 
that it was not intended to affect prompt corrective action sanctions, 
the FDIC believes that the provisions of section 208 do not affect the 
capital calculation for purposes of reclassifying an institution from 
one capital category to a lower capital category, regardless of the 
bank's capital level.
    Thus, in general, an institution may use the capital treatment 
described in section 208 of the Riegle Act when determining whether it 
is well capitalized for purposes of prompt corrective action as well as 
for other regulations that reference the well capitalized capital 
category.6 An institution may not use the capital treatment 
described in section 208 when determining whether it is adequately 
capitalized, undercapitalized, significantly undercapitalized, or 
critically undercapitalized for purposes of prompt corrective action or 
other regulations that directly or indirectly reference the prompt 
corrective action capital categories.7 Furthermore, the 

[[Page 45608]]
capital ratios of an institution are to be determined without regard to 
the preferential capital treatment described in section 208 of the 
Riegle Act for purposes of applying the reclassification provisions set 
forth in Sec. 325.103(d).

    \6\ An institution that is subject to a written agreement or 
capital directive as discussed in the FDIC's prompt corrective 
action regulation would not be considered well capitalized. Also, an 
institution that is undercapitalized without regard to the 
preferential Section 208 capital treatment would continue to be 
treated as undercapitalized for purposes of prompt corrective action 
(see footnote 5).
    \7\ Under the provisions of section 208, the capital calculation 
used to determine whether an institution is well capitalized differs 
from the calculation used to determine whether an institution is 
adequately capitalized. As a result, it is possible that an 
institution could be well capitalized using one calculation (i.e., 
one that considers the preferential capital treatment under section 
208) and adequately capitalized using the other (i.e., one that is 
calculated ``without regard'' to section 208). In this situation, 
the institution would be considered well capitalized. This 
preferential capital treatment will be applied in a similar fashion 
for purposes of determining whether an institution is well 
capitalized under the FDIC's brokered deposit (12 CFR 337.6) and 
insurance assessment (12 CFR part 327) regulations. These rules have 
definitions for well capitalized and adequately capitalized 
institutions that employ the same capital ratios that are used in 
the FDIC's prompt corrective action regulation.
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    Section 208(g) of the Riegle Act directed the federal banking 
agencies to promulgate final regulations implementing section 208 not 
later than 180 days after the date of the statute's enactment--that is, 
not later than March 22, 1995. It can be fairly implied from the 
statutory directive that Congress intended for qualifying institutions 
to reap the benefits of the Section 208 capital treatment no later than 
March 22, 1995. In order to meet the spirit of the statute, the FDIC 
will raise no objection if an FDIC-supervised bank that is a qualifying 
institution under the interim rule hereafter chooses to apply the 
provisions of this interim rule to small business obligations that were 
transferred with recourse between March 22, 1995, and the effective 
date of this interim rule.
    The FDIC also notes that section 208(a) of the Riegle Act provides 
that accounting principles applicable to the transfer of small business 
obligations with recourse contained in reports or statements required 
to be filed with the Federal banking agencies by a qualified insured 
depository institution shall be consistent with GAAP.8 The FDIC, 
in consultation with the other agencies and under the auspices of the 
Federal Financial Institutions Examination Council, intends to ensure 
that appropriate revisions are made to the Call Report and the Call 
Report instructions to implement Section 208(a) of the Riegle Act.

    \8\ Transfers of small business obligations with recourse that 
are consummated at a time when the transferring institution does not 
qualify for the preferential capital treatment will continue to be 
reported in accordance with the instructions of the Consolidated 
Reports of Condition and Income (Call Reports) for sales of assets 
with recourse. These instructions generally require banks 
transferring assets with recourse to continue to report the assets 
on their balance sheets.
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    The FDIC is seeking comments on all aspects of this interim rule.

III. Regulatory Flexibility Act

    This interim rule reduces the regulatory capital requirement on 
transfers with recourse of small business loans and leases on personal 
property and there will be no adverse economic effect on small business 
entities from the adoption of this interim rule.
    The Board of Directors of the FDIC hereby certifies that adoption 
of this amendment to part 325 will not have a significant economic 
impact on a substantial number of small business entities within the 
meaning of the Regulatory Flexibility Act requirements (5 U.S.C. 601 et 
seq.).
    This amendment will not necessitate the development of 
sophisticated recordkeeping or reporting systems by small institutions 
nor will small institutions need to seek out the expertise of 
specialized accountants, lawyers, or managers to comply with this 
regulation. In light of this certification, the Regulatory Flexibility 
Act requirements (at 5 U.S.C. 603, 604) to prepare initial and final 
regulatory flexibility analyses do not apply.

IV. Administrative Procedure Act

    Section 208(g) of the Riegle Act requires that the federal bank 
regulatory agencies promulgate final rules implementing Section 208 no 
later than March 22, 1995. The FDIC Board of Directors (Board) has 
determined that the notice and public participation that are ordinarily 
required by the Administrative Procedure Act (5 U.S.C. 553) before a 
regulation may take effect would, in this case, be impracticable due to 
the time constraints imposed by Section 208(g). In addition, in the 
Board's view, advanced public notice and comment is unnecessary, as the 
interim rule merely restates the statute. Further, the interim rule 
would permit qualifying institutions to reduce their capital levels, 
thereby providing these institutions with greater lending flexibility. 
Consequently, the added delay that would result from seeking advanced 
notice and public participation could potentially adversely impact 
credit availability.
    The interim rule will be immediately effective upon publication in 
the Federal Register. This action is being taken pursuant to section 
553(d) of the Administrative Procedure Act which permits the waiver of 
the 30-day delayed effective date requirement for good cause and/or 
where a rule relieves a restriction. The Board views the limitations of 
time and the potential loss of benefit to affected parties during the 
pendency of this rulemaking as good cause to waive the customary 30-day 
delayed effective date. In addition, as the rule relieves a 
restriction, the 30-day delayed effective date may be waived. 
Nevertheless, the Board desires to have the benefit of public comment 
before adoption of a permanent final rule on this subject. Accordingly, 
the Board invites interested persons to submit comments during a 60-day 
comment period. In adopting a final regulation, the Board will make 
such revisions to the interim rule as may be appropriate based on the 
comments received on the interim rule.

V. Paperwork Reduction Act and Regulatory Burden

    The FDIC has determined that this interim rule will not increase 
the regulatory paperwork burden of state nonmember banks pursuant to 
the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). 
Consequently, no information has been submitted to the Office of 
Management and Budget for review.
    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) requires that 
new regulations and amendments to regulations which impose additional 
reporting, disclosures, or other new requirements take effect on the 
first day of the calendar quarter following publication of the rule 
unless, among other things, the agency determines, for good cause, that 
the regulation should become effective on a day other than the first 
day of the next quarter. The FDIC believes that an immediate effective 
date is appropriate since the interim rule relieves a regulatory burden 
on qualifying FDIC-supervised institutions that transfer small business 
obligations with recourse by significantly reducing the capital 
requirements on such obligations. This immediate effective date will 
permit qualifying institutions to reduce the amount of capital they 
must maintain to support the risk retained in these sales. Moreover, 
the FDIC does not anticipate that immediate application of the rule 
will present a hardship to qualifying institutions in terms of 
compliance. Also, there is a statutory requirement for the banking 
agencies to promulgate final regulations implementing the provisions of 
section 208 by March 22, 1995. For these reasons, the FDIC has 
determined that an immediate effective date is appropriate.
List of Subjects in 12 CFR Part 325

    Bank deposit insurance, Banks, banking, Capital adequacy, Reporting 
and recordkeeping requirements, 

[[Page 45609]]
Savings associations, State nonmember banks.

    For the reasons set forth in the preamble, the Board of Directors 
of the Federal Deposit Insurance Corporation amends part 325 of title 
12 of the Code of Federal Regulations as follows:

PART 325--CAPITAL MAINTENANCE

    1. The authority citation for Part 325 is revised to read as 
follows:

    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 105 Stat. 
1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 
2236, 2355, 2386 (12 U.S.C. 1828 note).

    2. In part 325, Sec. 325.3 is amended by adding a new paragraph (e) 
to read as follows:


Sec. 325.3  Minimum leverage capital requirement.

* * * * *
    (e) Small business loans and leases on personal property 
transferred with recourse. (1) Notwithstanding other provisions of this 
part, for purposes of calculating its leverage ratio, a qualifying 
institution that has transferred small business loans and leases on 
personal property (small business obligations) with recourse shall 
exclude from its total assets the outstanding principal amount of the 
loans and leases transferred with recourse, provided two conditions are 
met. First, the transaction must be treated as a sale under generally 
accepted accounting principles (GAAP) and, second, the qualifying 
institution must establish pursuant to GAAP a non-capital reserve 
sufficient to meet the institution's reasonably estimated liability 
under the recourse arrangement. Only loans and leases to businesses 
that meet the criteria for a small business concern established by the 
Small Business Administration under section 3(a) of the Small Business 
Act (12 U.S.C. 631) are eligible for this capital treatment.
    (2) For purposes of this part, a qualifying institution is a bank 
that is well capitalized. In addition, by order of the FDIC, a bank 
that is adequately capitalized may be deemed a qualifying institution. 
In determining whether a bank meets the qualifying institution 
criteria, the prompt corrective action well capitalized and adequately 
capitalized definitions set forth in Sec. 325.103 shall be used, except 
that the bank's capital ratios must be calculated without regard to the 
preferential capital treatment for transfers of small business 
obligations with recourse specified in paragraph (e)(1) of this 
section. The total outstanding amount of recourse retained by a 
qualifying institution on transfers of small business obligations 
receiving the preferential capital treatment cannot exceed 15 percent 
of the institution's total risk-based capital. By order, the FDIC may 
approve a higher limit.
    (3) If a bank ceases to be a qualifying institution or exceeds the 
15 percent of capital limit under paragraph (e)(2) of this section, the 
preferential capital treatment will continue to apply to any transfers 
of small business obligations with recourse that were consummated 
during the time the bank was a qualifying institution and did not 
exceed such limit.
    (4) The leverage capital ratio of a bank shall be calculated 
without regard to the preferential capital treatment for transfers of 
small business obligations with recourse specified in paragraph (e)(1) 
of this section for purposes of:
    (i) Determining whether a bank is adequately capitalized, 
undercapitalized, significantly undercapitalized, or critically 
undercapitalized under the prompt corrective action capital category 
definitions specified in Sec. 325.103; and
    (ii) Applying the prompt corrective action reclassification 
provisions specified in Sec. 325.103(d), regardless of the bank's 
capital level.
* * * * *
    3. Appendix A to part 325 is amended by adding a new paragraph 6 to 
section II.B. to read as follows:

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

* * * * *
    II. * * *
    B. * * *
    6. Small Business Loans and Leases on Personal Property 
Transferred with Recourse.--(a) Notwithstanding other provisions of 
this appendix A, a qualifying institution that has transferred small 
business loans and leases on personal property (small business 
obligations) with recourse shall include in risk-weighted assets 
only the amount of retained recourse, provided two conditions are 
met. First, the transaction must be treated as a sale under 
generally accepted accounting principles (GAAP) and, second, the 
qualifying institution must establish pursuant to GAAP a non-capital 
reserve sufficient to meet the institution's reasonably estimated 
liability under the recourse arrangement. Only loans and leases to 
businesses that meet the criteria for a small business concern 
established by the Small Business Administration under section 3(a) 
of the Small Business Act are eligible for this capital treatment.
    (b) For purposes of this appendix A, a qualifying institution is 
a bank that is well capitalized. In addition, by order of the FDIC, 
a bank that is adequately capitalized may be deemed a qualifying 
institution. In determining whether a bank meets the qualifying 
institution criteria, the prompt corrective action well capitalized 
and adequately capitalized definitions set forth in Sec. 325.103 
shall be used, except that the bank's capital ratios must be 
calculated without regard to the preferential capital treatment for 
transfers of small business obligations with recourse specified in 
section II.B.6.(a) of this appendix A. The total outstanding amount 
of recourse retained by a qualifying institution on transfers of 
small business obligations receiving the preferential capital 
treatment cannot exceed 15 percent of the institution's total risk-
based capital. By order, the FDIC may approve a higher limit.
    (c) If a bank ceases to be a qualifying institution or exceeds 
the 15 percent of capital limit under section II.B.6.(b) of this 
appendix A, the preferential capital treatment will continue to 
apply to any transfers of small business obligations with recourse 
that were consummated during the time the bank was a qualifying 
institution and did not exceed such limit.
    (d) The risk-based capital ratios of a bank shall be calculated 
without regard to the preferential capital treatment for transfers 
of small business obligations with recourse specified in paragraph 
(a) of this section for purposes of:
    (i) Determining whether a bank is adequately capitalized, 
undercapitalized, significantly undercapitalized, or critically 
undercapitalized under the prompt corrective action capital category 
definitions specified in Sec. 325.103; and
    (ii) Applying the prompt corrective action reclassification 
provisions specified in Sec. 325.103(d), regardless of the bank's 
capital level.
* * * * *
    By the order of the Board of Directors.

    Dated at Washington, D.C. this 25th day of August, 1995.

Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 95-21567 Filed 8-30-95; 8:45 am]
BILLING CODE 6714-01-P