[Federal Register Volume 63, Number 206 (Monday, October 26, 1998)]
[Rules and Regulations]
[Pages 57047-57048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28593]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 28

[Docket No. 98-16]
RIN 1557-AB58


International Banking Activities

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
amending its regulation governing international lending. This amendment 
removes the lengthy discussion concerning the accounting for fees on 
international loans and instead states that the accounting for these 
fees is to conform to generally accepted accounting principles (GAAP). 
The amendment is intended to simplify the rule and eliminate 
unnecessary burden.

EFFECTIVE DATE: This final rule is effective January 1, 1999.

FOR FURTHER INFORMATION CONTACT: Tom Rees, Senior Accountant, Bank 
Supervision Policy, (202) 874-5180; Frank Carbone, Senior International 
Advisor, International Banking & Finance, (202) 874-4730; Raija 
Bettauer, Counselor for International Activities, (202) 874-0680; or 
Mark Tenhundfeld, Assistant Director, Legislative and Regulatory 
Activities, (202) 874-5090, Office of the Comptroller of the Currency, 
250 E Street, S.W., Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

    The International Lending Supervision Act of 1983 (ILSA), 12 U.S.C. 
3901 et seq., requires, among other things, that the OCC and other 
Federal banking agencies issue regulations governing accounting for 
fees charged by banks in connection with international loans (i.e., 
those loans reported on a bank's Country Exposure Report, form FFIEC 
009). 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 that the 
OCC prescribe the accounting treatment for agency, commitment, 
management, and other fees in connection with international loans to 
assure that the appropriate portion of these fees is accrued in income 
over the effective life of each loan.
    When the OCC first published its rules on accounting for 
international loan fees in 1984 (see 49 FR 12192 (March 29, 1984)), the 
OCC determined that the application of the fee accounting principles 
for banks then set out in GAAP did not ensure a uniform accounting 
treatment for international loan fees. Accordingly, the OCC adopted 
detailed rules governing the accounting treatment for various types of 
fees generated in connection with international loans. The preamble to 
the 1984 rule stated, however, that the OCC would reexamine whether the 
rule needed to discuss the accounting treatment if the Financial 
Accounting Standards Board (FASB) were to issue further guidance on the 
accounting for fees on international loans. Since then, FASB has 
amended GAAP to provide that guidance.

Proposal

    In April of this year, the OCC published a proposed rule that 
invited comment on whether the OCC should remove the lengthy discussion 
in Sec. 28.53 concerning the accounting treatment for fees on 
international loans and replace it with a statement that the accounting 
is to conform to GAAP. See 63 FR 16708 (April 6, 1998). The OCC 
received one comment, from an individual who supported the proposal in 
its entirety.

Final Rule

    The OCC is adopting the proposal without change. Accordingly, upon 
the effective date of this final rule, national banks will be required 
to follow GAAP in accounting for fees on international loans, subject 
to the amortization requirement for fees charged in connection with 
restructuring an international loan that exceed the administrative cost 
of the restructuring. In the event that GAAP rules regarding fee 
accounting for international loans changes, the OCC will reexamine its 
rule to assess the need for further revision.
    The final rule reduces the regulatory burden on banks and 
simplifies the OCC's requirements by replacing the discussion of the 
separate accounting methods for different types of fees on 
international loans with a reference to GAAP. As noted in the preamble 
to the proposed rule, while there are some differences between the 
language in Sec. 28.53 that is being removed and the GAAP standard 
(Financial Accounting Standard No. 91), these differences are 
relatively minor. For instance, GAAP requires a method for recognizing 
fees and administrative costs of originating, restructuring, or 
syndicating international loans that is slightly different from the 
method required by former Sec. 28.53. However, adoption of the GAAP 
standard will not impose additional burden on banks, and will reduce 
burden in some instances.
    This final rule does not affect, in any way, the standards by which 
a bank recognizes loss on international assets affected by transfer 
risk,1 nor does it change the accounting treatment of a 
bank's transfer risk reserve. As discussed earlier, the final rule 
merely changes the accounting treatment of fees that banks collect on 
international loans

[[Page 57048]]

by adopting GAAP accounting requirements for fee income on loans.
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    \1\ ``Transfer risk'' arises from an obligor's inability to 
perform on its debt obligations using the agreed-upon currency 
because of a lack of, or restraints on the availability of, needed 
foreign exchange in the country of the obligor.
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    The change summarized above removes the need to define the terms 
``international syndicated loan'' and ``loan agreement,'' which are 
used only in the discussion in former Sec. 28.53. Accordingly, the rule 
amends Sec. 28.51 by removing the definitions of ``international 
syndicated loan'' and ``loan agreement'' from Sec. 28.51 (e) and (f), 
respectively, and redesignating the remaining definitions as 
appropriate.

Regulatory Flexibility Act

    It is hereby certified that this final rule will not have a 
significant economic impact on a substantial number of small entities. 
As is explained in the preamble to this final rule, there is only one 
substantive change, and this change will simplify the regulation to 
make it consistent with GAAP. The rule reduces the regulatory burden on 
all national banks that make international loans, regardless of size. 
Accordingly, a regulatory flexibility analysis is not required.

Executive Order 12866

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

Unfunded Mandates Act of 1995

    The OCC has determined that this final 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 rule simplifies the discussion 
concerning the accounting for fees on international loans to make the 
regulation consistent with generally accepted accounting principles. 
The rule also makes other nonsubstantive changes to subpart C of Part 
28 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 amends 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.


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), 
respectively.
    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, 
a banking institution is to account for fees in accordance with 
generally accepted accounting principles.

    Dated: October 14, 1998.
Julie L. Williams,
Acting Comptroller of the Currency.
[FR Doc. 98-28593 Filed 10-23-98; 8:45 am]
BILLING CODE 4810-33-P