[Federal Register Volume 63, Number 80 (Monday, April 27, 1998)]
[Notices]
[Pages 20633-20637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11028]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Differences in Capital and Accounting Standards Among the Federal 
Banking and Thrift Agencies; Report to Congressional Committees

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Report to the Committee on Banking and Financial Services of 
the U.S. House of Representatives and to the Committee on Banking, 
Housing, and Urban Affairs of the United States Senate Regarding 
Differences in Capital and Accounting Standards Among the Federal 
Banking and Thrift Agencies.

SUMMARY: This report has been prepared by the FDIC pursuant to Section 
37(c) of the Federal Deposit Insurance Act (12 U.S.C. 1831n(c)). 
Section 37(c) requires each federal banking agency to report to the 
Committee on Banking and Financial Services of the House of 
Representatives and to the Committee on Banking, Housing, and Urban 
Affairs of the Senate any differences between any accounting or capital 
standard used by such agency and any accounting or capital standard 
used by any other such agency. The report must also contain an 
explanation of the reasons for any discrepancy in such accounting and 
capital standards and must be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Robert F. Storch, Chief, Accounting 
Section, Division of Supervision, Federal Deposit Insurance 
Corporation, 550 17th Street, NW., Washington, D.C. 20429, telephone 
(202) 898-8906.

SUPPLEMENTARY INFORMATION: The text of the report follows:

Report to the Committee on Banking and Financial Services of the 
U.S. House of Representatives and to the Committee on Banking, 
Housing, and Urban Affairs of the United States Senate Regarding 
Differences in Capital and Accounting Standards Among the Federal 
Banking and Thrift Agencies

A. Introduction

    This report has been prepared by the Federal Deposit Insurance 
Corporation (FDIC) pursuant to Section 37(c) of the Federal Deposit 
Insurance Act, which requires the agency to submit a report to 
specified Congressional Committees describing any differences in 
regulatory

[[Page 20634]]

capital and accounting standards among the federal banking and thrift 
agencies, including an explanation of the reasons for these 
differences. Section 37(c) also requires the FDIC to publish this 
report in the Federal Register. This report covers differences existing 
during 1997 and developments affecting these differences.
    The FDIC, the Board of Governors of the Federal Reserve System 
(FRB), and the Office of the Comptroller of the Currency (OCC) 
(hereafter, the banking agencies) have substantially similar leverage 
and risk-based capital standards. While the Office of Thrift 
Supervision (OTS) employs a regulatory capital framework that also 
includes leverage and risk-based capital requirements, it differs in 
several respects from that of the banking agencies. Nevertheless, the 
agencies view the leverage and risk-based capital requirements as 
minimum standards and most institutions are expected to operate with 
capital levels well above the minimums, particularly those institutions 
that are expanding or experiencing unusual or high levels of risk.
    The banking agencies, under the auspices of the Federal Financial 
Institutions Examination Council (FFIEC), have developed uniform 
Reports of Condition and Income (Call Reports) for all commercial banks 
and FDIC-supervised savings banks. Effective with the March 31, 1997, 
report date, the FFIEC and the banking agencies adopted generally 
accepted accounting principles (GAAP) as the reporting basis for the 
balance sheet, income statement, and related schedules in the Call 
Report. Prior to 1997, the reporting standards for the bank Call Report 
were substantially consistent with GAAP. In the limited number of cases 
where the bank Call Report standards differed from GAAP, the regulatory 
reporting requirements were intended to be more conservative than GAAP. 
Adopting GAAP as the reporting basis for recognition and measurement 
purposes in the basic schedules of the Call Report was designed to 
eliminate these differences, thereby producing greater consistency in 
the information collected in bank Call Reports and general purpose 
financial statements and reducing regulatory burden.
    The OTS requires each savings association to file the Thrift 
Financial Report (TFR), the reporting standards for which are 
consistent with GAAP. Thus, through year-end 1996, the reporting 
standards applicable to the bank Call Report differed in some respects 
from the reporting standards applicable to the TFR. However, with the 
banking agencies' move to GAAP for Call Report purposes in 1997, the 
most significant differences in reporting standards among the agencies 
that were cited in previous reports have been eliminated.1
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    \1\ In the following areas, differences in reporting standards 
between the banking agencies and the OTS were eliminated in 1997: 
sales of assets with recourse, futures and forward contracts, excess 
servicing fees, offsetting of assets and liabilities, and in-
substance defeasance of debt.
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    Section 303 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (12 U.S.C. 4803) requires the banking agencies 
and the OTS to conduct a systematic review of their regulations and 
written policies in order to improve efficiency, reduce unnecessary 
costs, and eliminate inconsistencies. It also directs the four agencies 
to work jointly to make uniform all regulations and guidelines 
implementing common statutory or supervisory policies. The results of 
these efforts must be ``consistent with the principles of safety and 
soundness, statutory law and policy, and the public interest.'' The 
four agencies' efforts to eliminate existing differences among their 
regulatory capital standards as part of the Section 303 review are 
discussed in the following section.

B. Differences in Capital Standards Among the Federal Banking and 
Thrift Agencies

B.1. Minimum Leverage Capital
    The banking agencies have established leverage capital standards 
based upon the definition of Tier 1 (or core) capital contained in 
their risk-based capital standards. These standards require the most 
highly-rated banks (i.e., those with a composite rating of ``1'' under 
the Uniform Financial Institutions Rating System (UFIRS)) to maintain a 
minimum leverage capital ratio of at least 3 percent if they are not 
anticipating or experiencing any significant growth and meet certain 
other conditions. All other banks must maintain a minimum leverage 
capital ratio that is at least 100 to 200 basis points above this 
minimum (i.e., an absolute minimum leverage ratio of not less than 4 
percent).
    The OTS has a 3 percent core capital and a 1.5 percent tangible 
capital leverage requirement for savings associations. However, the 
OTS' Prompt Corrective Action rule requires a savings association to 
have a 4 percent leverage capital ratio (or a 3 percent leverage 
capital ratio if it is rated a composite ``1'' under the UFIRS) in 
order for the association to be considered ``adequately capitalized.'' 
Consequently, the 4 percent leverage capital ratio is, in effect, the 
controlling leverage capital standard for savings associations other 
than those rated a composite ``1.''
    As a result of the agencies' Section 303 review of their regulatory 
capital standards, the agencies issued a proposal for public comment on 
October 27, 1997, that, among other provisions, would establish a 
uniform leverage requirement. As proposed, institutions rated a 
composite 1 under the Uniform Financial Institutions Rating System 
would be subject to a minimum 3 percent leverage ratio and all other 
institutions would be subject to a minimum 4 percent leverage ratio. 
This change would simplify and streamline the agencies' leverage rules 
and make them uniform. The comment period for the proposal ended on 
December 26, 1997.
B.2. Interest Rate Risk
    Section 305 of the Federal Deposit Insurance Corporation 
Improvement Act of 1991 mandates that the agencies' risk-based capital 
standards take adequate account of interest rate risk. In August 1995, 
each of the banking agencies amended its capital standards to 
specifically include an assessment of a bank's interest rate risk, as 
measured by its exposure to declines in the economic value of its 
capital due to changes in interest rates, in the evaluation of bank 
capital adequacy. In June 1996, the banking agencies issued a Joint 
Agency Policy Statement on Interest Rate Risk which provides guidance 
on sound practices for managing interest rate risk. This policy 
statement does not establish a standardized measure of interest rate 
risk nor does it create an explicit capital charge for interest rate 
risk. Instead, the policy statement identifies the standards that the 
banking agencies will use to evaluate the adequacy and effectiveness of 
a bank's interest rate risk management.
    In 1993, the OTS adopted a final rule which adds an interest rate 
risk component to its risk-based capital standards. Under this rule, 
savings associations with a greater than normal interest rate exposure 
must take a deduction from the total capital available to meet their 
risk-based capital requirement. The deduction is equal to one half of 
the difference between the institution's actual measured exposure and 
the normal level of exposure. The OTS has partially implemented this 
rule by formalizing the review of interest rate risk; however, no 
deductions from capital are being made. As described above, the 
approach adopted by the banking agencies differs from that of the OTS.

[[Page 20635]]

B.3. Subsidiaries
    The banking agencies generally consolidate all significant 
majority-owned subsidiaries of the parent bank for regulatory capital 
purposes. The purpose of this practice is to assure that capital 
requirements are related to all of the risks to which the bank is 
exposed. For subsidiaries which are not consolidated on a line-for-line 
basis, their balance sheets may be consolidated on a pro-rata basis, 
bank investments in such subsidiaries may be deducted entirely from 
capital, or the investments may be risk-weighted at 100 percent, 
depending upon the circumstances. These options for handling 
subsidiaries for purposes of determining the capital adequacy of the 
parent bank provide the banking agencies with the flexibility necessary 
to ensure that institutions maintain capital levels that are 
commensurate with the actual risks involved.
    Under the OTS' capital guidelines, a statutorily mandated 
distinction is drawn between subsidiaries engaged in activities that 
are permissible for national banks and subsidiaries engaged in 
``impermissible'' activities for national banks. For regulatory capital 
purposes, subsidiaries of savings associations that engage only in 
permissible activities are consolidated on a line-for-line basis, if 
majority-owned, and on a pro rata basis, if ownership is between 5 
percent and 50 percent. For subsidiaries that engage in impermissible 
activities, investments in, and loans to, such subsidiaries are 
deducted from assets and capital when determining the capital adequacy 
of the parent.
B.4. Servicing Assets and Intangible Assets
    The banking agencies' rules permit mortgage servicing assets and 
purchased credit card relationships to count toward capital 
requirements, subject to certain limits. These two categories of assets 
are in the aggregate limited to 50 percent of Tier 1 capital. In 
addition, purchased credit card relationships alone are restricted to 
no more than 25 percent of an institution's Tier 1 capital. Any 
mortgage servicing assets and purchased credit card relationships that 
exceed these limits, as well as all other intangible assets such as 
goodwill and core deposit intangibles, are deducted from capital and 
assets in calculating an institution's Tier 1 capital.
    The OTS's capital treatment of servicing assets and intangible 
assets is generally consistent with the banking agencies' rules. 
However, the OTS rule grandfathers core deposit intangibles acquired 
before February 1994 up to 25 percent of core capital and all purchased 
mortgage servicing rights acquired before February 1990.
B.5. Capital Requirements for Recourse Arrangements
    B.5.a. Leverage Capital Requirements--With certain exceptions, the 
banking agencies required full leverage capital charges on assets sold 
with recourse through December 31, 1996. This leverage capital 
treatment applied to most assets sold with recourse because the banking 
agencies' pre-1997 regulatory reporting rules generally did not permit 
such assets to be removed from a bank's balance sheet. As a result, 
assets sold with recourse were included in the asset base used to 
calculate a bank's leverage capital ratio.
    As a result of the adoption of GAAP as the reporting basis for bank 
Call Reports in 1997, banks have now joined savings associations in 
being able to remove assets transferred with recourse from their 
balance sheets if the transfers qualify for sale treatment under GAAP. 
Thus, banks, like savings associations, are not required to hold 
leverage capital against assets sold with recourse and this difference 
in capital standards was eliminated in 1997.
    B.5.b. Senior-Subordinated Structures--Some asset securitization 
structures involve the creation of senior and subordinated classes of 
securities. When a bank originates such a transaction and retains the 
subordinated interest, the banking agencies generally require that the 
bank maintain risk-based capital against the entire amount of the asset 
pool unless the low-level recourse rule applies.2 However, 
when a bank acquires a subordinated interest in a pool of assets that 
it did not own, the banking agencies assign the investment in the 
subordinated security to the 100 percent risk weight category.
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    \2\ When assets are sold with limited recourse, the banking and 
thrift agencies' risk-based capital standards limit the amount of 
capital that must be maintained against this exposure to the lesser 
of the amount of the recourse retained (e.g., through the retention 
of a subordinated interest) or the amount of risk-based capital that 
would otherwise be required to be held against the assets, i.e., the 
full effective risk-based capital charge. This is known as the 
``low-level recourse'' rule.
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    In general, the OTS requires a thrift that holds the subordinated 
interest in a senior-subordinated structure to maintain capital against 
the entire amount of the underlying asset pool regardless of whether 
the subordinated interest has been retained or has been purchased.
    On November 5, 1997, the banking and thrift agencies issued a 
proposal that, among other provisions, generally would treat both 
retained and purchased subordinated interests similarly for risk-based 
capital purposes, i.e., banks and thrifts would be required to hold 
capital against the subordinated interest plus all more senior 
interests unless the low-level recourse rule applies. The proposal also 
includes a multi-level approach to capital requirements for asset 
securitizations. The multi-level approach would vary the risk-based 
capital requirements for positions in securitizations, including 
subordinated interests, according to their relative risk exposure. For 
positions that are traded, the risk-based capital treatment would be 
based on credit ratings from nationally recognized rating agencies. For 
positions that are not traded, the proposal presents three alternative 
approaches for determining the risk-based capital requirements. In 
general, these alternative approaches would use ratings from two rating 
agencies, benchmark guidelines developed by the banking and thrift 
agencies, and statistical evaluations of historical loss data. The 
comment period for the proposal ended on February 3, 1998.
    B.5.c. Recourse Servicing--The right to service loans and other 
financial assets may be retained when the assets are sold. This right 
also may be acquired from another entity. Regardless of whether 
servicing rights are retained or acquired, recourse is present whenever 
the servicer must absorb credit losses on the assets being serviced. 
The banking agencies and the OTS require risk-based capital to be 
maintained against the full amount of assets upon which a selling 
institution, as servicer, must absorb credit losses. Additionally, the 
OTS applies a capital charge to the full amount of assets being 
serviced by a thrift that has purchased the servicing from another 
party and is required to absorb credit losses on the assets being 
serviced.
    The agencies' November 1997 risk-based capital proposal would 
require banking organizations that purchase loan servicing rights which 
provide loss protection to the owners of the serviced loans to begin to 
hold capital against those loans, thereby making the risk-based capital 
treatment of these servicing rights uniform for banks and savings 
associations.
B.6. Collateralized Transactions
    The FRB and the OCC assign a zero percent risk weight to claims 
collateralized by cash on deposit in the institution or by securities 
issued or guaranteed by the U.S. Government or the central governments 
of countries that are members of the Organization of

[[Page 20636]]

Economic Cooperation and Development (OECD), provided a positive margin 
of collateral protection is maintained daily.
    The FDIC and the OTS assign a 20 percent risk weight to claims 
collateralized by cash on deposit in the institution or by securities 
issued or guaranteed by the U.S. Government or OECD central 
governments.
    As part of the Section 303 review of their capital standards, the 
banking and thrift agencies issued a joint proposal in August 1996 that 
would permit collateralized claims that meet criteria that are uniform 
among all four agencies to be eligible for a zero percent risk weight. 
In general, this proposal would allow institutions supervised by the 
FDIC and the OTS to hold less capital for transactions collateralized 
by cash or U.S. or OECD government securities. The proposal would 
eliminate the differences among the agencies regarding the capital 
treatment of collateralized transactions.
B.7. Presold Residential Construction Loans
    The four agencies assign a 50 percent risk weight to loans that a 
builder has obtained to finance the construction of one-to-four family 
residential properties. These properties must be presold, and the 
lending relationship must meet certain other criteria. The OTS and the 
OCC rules indicate that the property must be presold before the 
construction loan is made in order for the loan to qualify for the 50 
percent risk weight. The FDIC and FRB permit loans to builders for 
residential construction to qualify for the 50 percent risk weight once 
the property is presold, even if that event occurs after the 
construction loan has been made.
    As a result of their Section 303 review, the agencies' previously 
mentioned October 27, 1997, regulatory capital proposal includes a 
provision under which the OTS and the OCC would adopt the treatment of 
presold residential construction loans followed by the FDIC and the 
FRB. This would make the agencies' rules in this area uniform.
B.8. Junior Liens on One-to-Four Family Residential Properties
    In some cases, a bank may make two loans on a single residential 
property, one secured by a first lien, the other by a second lien. In 
this situation, the FRB and the OTS view both loans as a single 
extension of credit secured by a first lien and assign the combined 
loan amount a 50 percent risk weight if this amount represents a 
prudent loan-to-value ratio. If the combined amount exceeds a prudent 
loan-to-value ratio, the loans are assigned to the 100 percent risk 
weight category. The FDIC also combines the first and second liens to 
determine the appropriateness of the loan-to-value ratio, but it 
applies the risk weights differently than the FRB and the OTS. If the 
combined loan amount represents a prudent loan-to-value ratio, the FDIC 
risk weights the first lien at 50 percent and the second lien at 100 
percent; otherwise, both liens are risk-weighted at 100 percent. This 
combining of first and second liens is intended to avoid possible 
circumvention of the capital requirement and to capture the risks 
associated with the combined loans.
    The OCC treats all first and second liens separately. It assigns 
the loan secured by the first lien, if it has been prudently 
underwritten, to the 50 percent risk weight category; otherwise, it 
assigns the loan to the 100 percent risk weight category. In all cases, 
the OCC assigns the loan secured by the second lien to the 100 percent 
risk weight category.
    As a result of the Section 303 review of their capital standards, 
the agencies' October 27, 1997, proposal would extend the OCC's 
treatment of junior liens on one-to-four family residential properties 
to all four agencies and thereby eliminate this difference among the 
agencies.
B.9. Mutual Funds
    The banking agencies assign the entire amount of a bank's holdings 
in a mutual fund to the risk category appropriate to the highest risk 
asset that a particular mutual fund is permitted to hold under its 
operating rules. Thus, the banking agencies take into account the 
maximum degree of risk to which a bank may be exposed when investing in 
a mutual fund because the composition and risk characteristics of the 
fund's future holdings cannot be known in advance. In no case, however, 
may a risk-weight of less than 20 percent be assigned to an investment 
in a mutual fund.
    The OTS applies a capital charge appropriate to the riskiest asset 
that a mutual fund is actually holding at a particular time, but not 
less than 20 percent. In addition, both the OTS and the OCC guidelines 
also permit, on a case-by-case basis, investments in mutual funds to be 
allocated on a pro rata basis. However, the OTS and the OCC apply the 
pro rata allocation differently. While the OTS applies the allocation 
based on the actual holdings of the mutual fund, the OCC applies it 
based on the highest amount of holdings the fund is permitted to hold 
as set forth in its prospectus.
    As part of the agencies' Section 303 review of their regulatory 
capital standards, one provision of their October 27, 1997, proposal 
would apply the banking agencies' treatment of mutual funds to all 
institutions. However, the proposal also would permit institutions, at 
their option, to adopt the OCC's pro rata allocation alternative for 
risk weighting investments in mutual funds. This proposal would make 
the agencies' risk-based capital rules in this area uniform, thereby 
eliminating this capital difference.
B.10. Noncumulative Perpetual Preferred Stock
    Under the banking and thrift agencies' capital standards, 
noncumulative perpetual preferred stock is a component of Tier 1 
capital. The FDIC's capital standards define noncumulative perpetual 
preferred stock as perpetual preferred stock where the issuer has the 
option to waive the payment of dividends and where the dividends so 
waived do not accumulate to future periods and do not represent a 
contingent claim on the issuer. Under the FRB's capital standards, 
perpetual preferred stock is noncumulative if the issuer has the 
ability and legal right to defer or eliminate preferred dividends. For 
these two agencies, for a perpetual preferred stock issue to be 
considered noncumulative, the issue may not permit the accruing or 
payment of unpaid dividends in any form, including the form of 
dividends payable in common stock. Thus, if the issuer of perpetual 
preferred stock is required to pay dividends in a form other than cash 
when cash dividends are not or cannot be paid, the issuer does not have 
the option to waive or eliminate dividends and the stock would not 
qualify as noncumulative. The OCC's capital standards do not explicitly 
define noncumulative perpetual preferred stock, but the OCC normally 
has not considered perpetual preferred stock issues with this type of 
dividend requirement to be noncumulative.
    The OTS defines as noncumulative those issues of perpetual 
preferred stock where the unpaid dividends are not carried over to 
subsequent dividend periods. This definition does not address the 
issuer's ability to waive dividends. As a result, the OTS has permitted 
perpetual preferred stock issues that require the payment of dividends 
in the form of stock in the issuer when cash dividends are not paid to 
qualify as noncumulative.

[[Page 20637]]

B.11. Limitation on Subordinated Debt and Limited-Life Preferred Stock
    Consistent with the Basle Accord, the banking agencies limit the 
amount of subordinated debt and intermediate-term preferred stock that 
may be treated as part of Tier 2 capital to an amount not to exceed 50 
percent of Tier 1 capital. In addition, all maturing capital 
instruments must be discounted by 20 percent in each of the last five 
years before maturity. The banking agencies adopted this approach in 
order to emphasize equity versus debt in the assessment of capital 
adequacy.
    The OTS has no limitation on the ratio of maturing capital 
instruments as part of Tier 2 capital. Also, for all maturing 
instruments issued on or after November 7, 1989 (those issued before 
are grandfathered with respect to the discounting requirement), thrifts 
have the option of using either (a) the discounting approach used by 
the banking regulators, or (b) an approach which allows for the full 
inclusion of all such instruments provided that the amount maturing in 
any one year does not exceed 20 percent of the thrift's total capital.
B.12. Privately-Issued Mortgage-Backed Securities
    The banking agencies, in general, place privately-issued mortgage-
backed securities in either the 50 percent or 100 percent risk-weight 
category, depending upon the appropriate risk category of the 
underlying assets. However, privately-issued mortgage-backed 
securities, if collateralized by government agency or government-
sponsored agency securities, are generally assigned to the 20 percent 
risk weight category.
    The OTS assigns privately-issued high-quality mortgage-related 
securities to the 20 percent risk weight category. These are, 
generally, privately-issued mortgage-backed securities with AA or 
better investment ratings.
B.13. Other Mortgage-Backed Securities
    The banking agencies and the OTS automatically assign to the 100 
percent risk weight category certain mortgage-backed securities, 
including interest-only strips, principal-only strips, and residuals. 
However, once the OTS' interest rate risk amendments to its risk-based 
capital standards take effect, stripped mortgage-backed securities will 
be reassigned to the 20 percent or 50 percent risk weight category, 
depending upon these securities' characteristics. Residuals will remain 
in the 100 percent risk weight category.
B.14. Nonresidential Construction and Land Loans
    The banking agencies assign loans for nonresidential real estate 
development and construction purposes to the 100 percent risk weight 
category. The OTS generally assigns these loans to the same 100 percent 
risk category. However, if the amount of the loan exceeds 80 percent of 
the fair value of the property, the excess portion is deducted from 
capital.
B.15. ``Covered Assets''
    The banking agencies generally place assets subject to guarantee 
arrangements by the FDIC or the former Federal Savings and Loan 
Insurance Corporation in the 20 percent risk weight category. The OTS 
places these ``covered assets'' in the zero percent risk-weight 
category.
B.16. Pledged Deposits and Nonwithdrawable Accounts
    Instruments such as pledged deposits, nonwithdrawable accounts, 
Income Capital Certificates, and Mutual Capital Certificates do not 
exist in the banking industry and are not addressed in the banking 
agencies' capital standards.
    The OTS' capital standards permit savings associations to include 
pledged deposits and nonwithdrawable accounts that meet OTS criteria, 
Income Capital Certificates, and Mutual Capital Certificates in 
regulatory capital.
B.17. Agricultural Loan Loss Amortization
    In the computation of regulatory capital, those banks accepted into 
the agricultural loan loss amortization program pursuant to Title VIII 
of the Competitive Equality Banking Act of 1987 may defer and amortize 
certain losses related to agricultural lending that were incurred on or 
before December 31, 1991. These losses must be amortized over seven 
years. The unamortized portion of these losses is included as an 
element of Tier 2 capital under the banking agencies' risk-based 
capital standards.
    Thrifts were not eligible to participate in the agricultural loan 
loss amortization program established by this statute.
    Because the banking agencies' agricultural loan loss amortization 
program ends on December 31, 1998, this difference will disappear on 
that date.

C. Differences in Accounting Standards Among the Federal Banking and 
Thrift Agencies

C.1. Push Down Accounting
    Push down accounting is the establishment of a new accounting basis 
for a depository institution in its separate financial statements as a 
result of a substantive change in control. Under push down accounting, 
when a depository institution is acquired in a purchase (but not in a 
pooling of interests), yet retains its separate corporate existence, 
the assets and liabilities of the acquired institution are restated to 
their fair values as of the acquisition date. These values, including 
any goodwill, are reflected in the separate financial statements of the 
acquired institution as well as in any consolidated financial 
statements of the institution's parent.
    The banking agencies require push down accounting when there is at 
least a 95 percent change in ownership. This approach is generally 
consistent with accounting interpretations issued by the staff of the 
Securities and Exchange Commission.
    The OTS requires push down accounting when there is at least a 90 
percent change in ownership.
C.2. Negative Goodwill
    Under Accounting Principles Board Opinion No. 16, ``Business 
Combinations,'' negative goodwill arises when the fair value of the net 
assets acquired in a purchase business combination exceeds the cost of 
the acquisition and a portion of this excess remains after the values 
otherwise assignable to the acquired noncurrent assets have been 
reduced to zero.
    The banking agencies require negative goodwill to be reported as a 
liability on the balance sheet and do not permit it to be netted 
against goodwill that is included as an asset. This ensures that all 
goodwill assets are deducted in regulatory capital calculations 
consistent with the internationally agreed-upon Basle Accord.
    The OTS permits negative goodwill to offset goodwill assets on the 
balance sheet.

    Dated at Washington, D.C., this 21th day of April, 1998.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 98-11028 Filed 4-24-98; 8:45 am]
BILLING CODE 6714-01-P