[Federal Register Volume 63, Number 65 (Monday, April 6, 1998)]
[Proposed Rules]
[Pages 16708-16709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8864]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Comptroller of the Currency

12 CFR Part 28

[Docket No. 98-06]
RIN 1557-AB58


International Banking Activities

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to amend its regulation governing international lending, by 
simplifying the discussion concerning the accounting for fees on 
international loans to make the regulation consistent with generally 
accepted accounting principles (GAAP). This proposal also makes other 
changes to subpart C that are intended to clarify and simplify the 
rule.

DATES: Comments must be received on or before June 5, 1998.

ADDRESSES: Written comments should be submitted to Docket No. 98-06, 
Communications Division, Third Floor, Office of the Comptroller of the 
Currency, 250 E Street, S.W., Washington, D.C. 20219. In addition, 
comments may be sent by facsimile transmission to FAX number (202)-874-
5274, or by electronic mail to [email protected]. Comments 
will be available for inspection and photocopying at that address.

FOR FURTHER INFORMATION CONTACT: Tom Rees, Professional Accounting 
Fellow, Bank Supervision Policy, (202) 874-5180; John Abbott, Deputy 
Comptroller, International Banking & Finance, (202) 874-4730; Raija 
Bettauer, Counselor for International Activities, (202) 874-0680; or 
Saumya R. Bhavsar, Attorney, Legislative and Regulatory Activities, 
(202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background

    The International Lending Supervision Act of 1983 (ILSA) , 12 
U.S.C. 3901 et seq., requires each Federal banking agency to evaluate 
the foreign country exposure and transfer risk of banks within its 
jurisdiction for use in the examination and supervision of these banks. 
To implement this provision, the Federal banking agencies, through the 
Interagency Country Exposure Review Committee (ICERC), assess and 
categorize countries based on economic, social, and political 
conditions that may lead to increased transfer risk. ``Transfer risk'' 
arises from an obligor's inability to perform on its debt obligations 
using the agreed-upon currency due to the actions of the government 
that controls that currency. These actions include instances where a 
country is unable or unwilling to provide the necessary foreign 
exchange, because of, for example, a balance of trade deficit or 
currency restrictions.
    In addition, ILSA directs each Federal banking agency to require 
banks to establish and maintain a special reserve whenever the agency 
determines either that the quality of a bank's international assets 
(i.e., those assets included on a bank's Country Exposure Report, form 
FFIEC 009) has been impaired by the protracted inability of public or 
private borrowers in a foreign country to make payments on their 
external indebtedness, or that there are no definite prospects for the 
orderly restoration of debt service. 12 U.S.C. 3904(a)(1). ILSA also 
requires that these reserves be charged against current income and not 
considered as part of capital and surplus or allowances for possible 
loan losses. 12 U.S.C. 3904(a)(2).
    Subpart C of 12 CFR part 28 implements ILSA and requires national 
banks and District of Columbia banks to establish reserves, referred to 
as allocated transfer risk reserves (ATRR), against potential losses on 
banks' foreign loans due to certain countries' transfer risk. Subpart C 
also sets forth the accounting treatment for various fees received by 
banks when making international loans and contains explicit 
requirements for the reporting and disclosure of international assets.
    On July 5, 1995 (60 FR 34907), the OCC published proposed changes 
to 12 CFR parts 20 and 28, which set out the OCC's rules governing the 
international operations of domestic branches and Federal branches and 
agencies of foreign banks. The proposed changes included substantive 
modifications to part 28 and a consolidation of all the provisions 
relating to international banking that were previously contained in 
parts 20 and 28 into one CFR part, part 28. These proposed changes were 
part of the OCC's Regulation Review Program to update and streamline 
regulations and to eliminate requirements that impose inefficient and 
costly regulatory burdens on national banks. At that time the OCC did 
not propose changes to subpart C of part 28 but invited public comment 
on subpart C in order to bring to the OCC's attention issues that could 
warrant consideration in a subsequent rulemaking.
    On May 2, 1996 (61 FR 19524), the OCC published a final rule on 
part 28. In the preamble to the final rule, the OCC noted that it had 
received one comment on subpart C of part 28 and that the commenter 
recommended that the accounting provisions be amended to be uniform 
among the Federal banking agencies and consistent with GAAP. In 
response, the OCC stated in the preamble that it would address the 
issue raised by the commenter after further review of the rules in 
question.
    For the reasons discussed below, the OCC is proposing to amend 
subpart C consistent with the commenter's suggestion. This proposal 
does not, however, amend the other two substantive provisions in 
subpart C dealing with the ATRR and reporting and disclosure of 
international assets. The OCC invites comment on any aspect of this 
proposal.

Discussion of Proposal

Accounting Treatment for Fees on International Loans (Sec. 28.53)

    Current Sec. 28.53 provides a lengthy discussion on the separate 
accounting treatment for each type of fee charged by banks in 
connection with their international lending. This proposal revises that 
section by replacing the discussion of the accounting treatment with a 
statement that banks are to account for fees on international loans in 
accordance with GAAP.
    ILSA requires the Federal banking agencies to issue regulations for 
accounting for fees charged by banks in connection with international 
loans. (12 U.S.C. 3905(a)(2)(A)). In order to avoid excessive debt 
service burden on debtor countries, section 906(a) of ILSA (12 U.S.C. 
3905(a)) prohibits a bank, in connection with restructuring an 
international loan, from charging fees in an amount that exceeds the 
administrative costs of restructuring the loan, unless the fee is 
amortized over the life of the loan. Section 906(b) of ILSA (12 U.S.C. 
3905(b)) requires the Federal banking agencies to issue regulations 
prescribing the accounting treatment for agency, commitment, 
management, and other fees in connection with international loans to 
assure that the appropriate portion of such fees is accrued in income 
over the effective life of each such loan.
    When ILSA was enacted in 1983 and the Federal banking agencies' 
final rule

[[Page 16709]]

on accounting for international loan fees was first published in 1984, 
Congress and the Federal banking agencies considered that the 
application of the broad fee accounting principles for banks contained 
in GAAP did not ensure the desired uniformity in how banks account for 
international loan fees. The preamble to the 1984 rule stated that the 
Federal banking agencies would reexamine the need for a discussion of 
accounting treatment if the Financial Accounting Standards Board (FASB) 
were to issue a final pronouncement or standard on this subject. 49 FR 
12192 (March 29, 1984).
    Since that time, FASB has revised the GAAP rules for fee accounting 
for international loans in a manner that accommodates the specific 
requirements of section 906 of ILSA (12 U.S.C. 3905). In addition, 
although there are some differences between Sec. 28.53 and the GAAP 
standard (Financial Accounting Standard No. 91), they are relatively 
minor. For instance, GAAP requires different accounting methods than 
Sec. 28.53 in the recognition of fees and administrative costs of 
originating, restructuring or syndicating international loans. However, 
adoption of the GAAP standard would not impose additional burden on 
banks, but would reduce burden in some instances.
    Therefore, to reduce the regulatory burden of banks and simplify 
the rule, the OCC is proposing to eliminate the detailed discussion 
concerning the particular accounting method to be followed in 
accounting for various fees on international loans. The OCC proposes to 
require instead that national banks follow GAAP in accounting for such 
fees, subject to the amortization requirement for fees charged in 
connection with restructuring an international loan that exceed the 
administrative cost of the restructuring.1 In the event that 
FASB changes the GAAP rules on fee accounting for international loans, 
the OCC will reexamine its rule in light of ILSA to assess the need for 
further revision to the regulation.
---------------------------------------------------------------------------

    \1\ The proposed change in this rulemaking is substantively 
identical to the change proposed by the Federal Deposit Insurance 
Corporation. (See 62 FR 37748 (July 15, 1997).)
---------------------------------------------------------------------------

    This proposal does not affect, in any way, the standards by which a 
bank recognizes loss on international assets affected by transfer risk, 
nor does it change the accounting treatment of a bank's transfer risk 
reserve. As discussed earlier, the proposal does, however, change the 
accounting treatment of fees that banks collect on international loans 
by adopting GAAP accounting requirements for fee income on loans.
    The change summarized above removes the need for the definitions of 
``international syndicated loan'' and ``loan agreement'' which are used 
only in the discussion in current Sec. 28.53. Accordingly, the proposal 
amends Sec. 28.51 by removing the definitions of ``international 
syndicated loan'' and ``loan agreement'' from Secs. 28.51(e) and (f), 
respectively, and redesignating the remaining definitions accordingly.

Regulatory Flexibility Act

    It is hereby certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
As is explained in greater detail in the preamble to this proposal, 
there is only one substantive change and this change would simplify the 
regulation to make it consistent with generally accepted accounting 
principles. The proposed rule will reduce the regulatory burden on 
national banks, regardless of size. Accordingly, a regulatory 
flexibility analysis is not required.

Executive Order 12866

    The OCC has determined that this proposed rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

    The OCC has determined that the proposed rule will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of more than $100 million in any one year. Accordingly, 
consistent with section 202 of the Unfunded Mandates Act of 1995 (2 
U.S.C. 1532), the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered. As 
discussed in the preamble, the proposed rule simplifies the discussion 
concerning the accounting for fees on international loans to make the 
regulation consistent with generally accepted accounting principles. 
The proposed rule also makes other nonsubstantive changes to subpart C 
that are intended to clarify and simplify the rule.

List of Subjects in 12 CFR Part 28

    Foreign banking, National banks, Reporting and recordkeeping 
requirements.

Authority and Issuance

    For the reasons set out in the preamble, the OCC proposes to amend 
part 28 of chapter I of title 12 of the Code of Federal Regulations as 
set forth below:

PART 28--INTERNATIONAL BANKING ACTIVITIES

    1. The authority citation for part 28 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 93a, 161, 602, 1818, 3102, 3108, 
and 3901 et seq.

Subpart C--International Lending Supervision


Sec. 28.51  [Amended]

    2. Section 28.51 is amended by removing paragraphs (e) and (f), and 
redesignating paragraphs (g) and (h) as paragraphs (e) and (f).
    3. Section 28.53 is revised to read as follows:


Sec. 28.53  Accounting for fees on international loans.

    (a) Restrictions on fees for restructured international loans. No 
banking institution shall charge, in connection with the restructuring 
of an international loan, any fee exceeding the administrative costs of 
the restructuring unless it amortizes the amount of the fee exceeding 
the administrative cost over the effective life of the loan.
    (b) Accounting treatment. Subject to paragraph (a) of this section, 
banking institutions shall account for fees in accordance with 
generally accepted accounting principles.

    Dated: March 30, 1998.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 98-8864 Filed 4-3-98; 8:45 am]
BILLING CODE 4810-33-P