[Federal Register Volume 73, Number 250 (Tuesday, December 30, 2008)]
[Rules and Regulations]
[Pages 79602-79608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30780]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2008-0025]
RIN 1557-AD13

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1329]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD32

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[Docket No. OTS-2008-0019]
RIN 1550-AC22


Minimum Capital Ratios; Capital Adequacy Guidelines; Capital 
Maintenance; Capital: Deduction of Goodwill Net of Associated Deferred 
Tax Liability

AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; Federal Deposit Insurance 
Corporation; and Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of Thrift Supervision 
(OTS) (collectively, the Agencies) are amending their regulatory 
capital rules to permit banks, bank holding companies, and savings 
associations (collectively, banking organizations) to reduce the amount 
of goodwill that a banking organization must deduct from tier 1 capital 
by the amount of any deferred tax liability associated with that 
goodwill. For a banking organization that elects to apply this final 
rule, the amount of goodwill the banking organization must deduct from 
tier 1 capital would reflect the maximum exposure to loss in the event 
that such goodwill is impaired or derecognized for financial reporting 
purposes.

[[Page 79603]]


DATES: Effective date: This rule is effective January 29, 2009.
    Applicability date: Banking organizations may elect to apply this 
final rule for purposes of the regulatory reporting period ending on 
December 31, 2008.

FOR FURTHER INFORMATION CONTACT:
    OCC: Paul Podgorski, Risk Expert, Capital Policy (202-874-4755); or 
Jean Campbell, Senior Attorney, or Ron Shimabukuro, Senior Counsel, 
Legislative and Regulatory Activities Division (202-874-5090).
    Board: Barbara Bouchard, Associate Director (202-452-3072), Mary 
Frances Monroe, Manager (202-452-5231), David Snyder, Supervisory 
Financial Analyst (202-728-5893), Division of Banking Supervision and 
Regulation; or Mark Van Der Weide, Assistant General Counsel (202-452-
2263) or Dinah Knight, Senior Attorney (202-452-3838), Legal Division. 
For users of Telecommunications Device for the Deaf (``TDD'') only, 
contact 202-263-4869.
    FDIC: Christine M. Bouvier, Senior Policy Analyst (Bank Accounting) 
(202-898-7289), Accounting and Securities Disclosure Section, Division 
of Supervision and Consumer Protection; Nancy Hunt, Senior Policy 
Analyst (202-898-6643), Capital Markets Branch, Division of Supervision 
and Consumer Protection; Mark Handzlik, Senior Attorney (202-898-3990), 
or Michael Phillips, Counsel (202-898-3581), Supervision Branch, Legal 
Division.
    OTS: Christine A. Smith, Project Manager, Capital Policy (202-906-
5740); Marvin Shaw, Senior Attorney, Regulations and Legislation (202-
906-6639); Patricia M. Hildebrand, Senior Policy Accountant, Accounting 
(202-906-7048); or Craig Phillips, Senior Policy Accounting Fellow, 
Accounting (202-906-5628).

SUPPLEMENTARY INFORMATION:

I. Background

    Under the Agencies' existing risk-based and leverage capital rules, 
a banking organization \1\ must deduct certain assets from tier 1 
capital.\2\ A banking organization is permitted to net any associated 
deferred tax liability against some of those assets prior to making the 
deduction from tier 1 capital. Included among the assets eligible for 
this netting treatment are certain intangible assets arising from a 
nontaxable business combination. Such netting generally is not 
permitted for goodwill and other intangible assets arising from a 
taxable business combination. In these cases, the full or gross 
carrying amount of the asset is deducted.
    On September 30, 2008, the Agencies published a notice of proposed 
rulemaking (the proposal or NPR) in the Federal Register that would 
permit a banking organization to reduce the amount of goodwill arising 
from a taxable business combination that it must deduct from tier 1 
capital by the amount of any deferred tax liability associated with 
that goodwill.\3\ The Board, OCC, and OTS also proposed revisions to 
their respective capital rules that were intended to conform certain 
provisions of their rules to developments in generally accepted 
accounting principles (GAAP), clarify certain definitions and related 
provisions, and present the rule text in a manner that is consistent 
across the Agencies. The Agencies requested comment on all aspects of 
the proposal and whether to extend the proposed capital treatment for 
any deferred tax liability associated with goodwill to deferred tax 
liabilities associated with other intangible assets acquired in a 
taxable business combination.
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    \1\ Unless otherwise indicated, the term ``banking 
organization'' includes banks, savings associations, and bank 
holding companies (BHCs). The terms ``bank holding company'' and 
``BHC'' refer only to bank holding companies regulated by the Board.
    \2\ See the Agencies' capital rules for more detail on what 
assets are required to be deducted from regulatory capital and how 
these deductions are calculated. See 12 CFR part 3 (national banks); 
12 CFR part 208 (state member banks); 12 CFR part 225 (bank holding 
companies); 12 CFR part 325 (state nonmember banks); and 12 CFR part 
567 (savings associations). This final rule is focused on the 
deduction of goodwill from tier 1 capital.
    \3\ See 73 FR 56756 (September 30, 2008).
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II. Comments

    The Agencies received 13 public comments on the proposal from 
banking organizations, industry associations, and other parties. The 
majority of the commenters supported the proposal. Five of the 
commenters who supported the proposal encouraged the Agencies to adopt 
the final rule so that it could be applicable for regulatory capital 
reporting purposes as of December 31, 2008. The Agencies agree and are 
permitting banking organizations to elect to apply the rule for 
purposes of the regulatory reporting period ending on December 31, 
2008.
    The Agencies note that the NPR requested comment and solicited data 
on the capital impact of potentially extending the proposed rule to 
intangible assets other than goodwill acquired in a taxable business 
combination. Although several commenters submitted general requests to 
extend the capital treatment proposed for goodwill to other intangible 
assets, they did not provide quantitative data to support broadening 
the scope of the proposal. In the absence of any supportive analyses, 
the Agencies have decided not to broaden the scope of the rule.
    Two commenters noted that the proposed rule either would or should 
permit the inclusion of goodwill in regulatory capital. The Agencies 
are prohibited by law from permitting a banking organization to include 
goodwill in regulatory capital.\4\ The Agencies note that this final 
rule continues to require a banking organization to deduct goodwill 
from tier 1 capital.
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    \4\ See 12 U.S.C. 1828(n).
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    As several commenters stated, if goodwill becomes impaired or is 
derecognized under GAAP, a banking organization's maximum exposure to 
loss is equal to the carrying value of the goodwill less any associated 
deferred tax liability. The Agencies agree with commenters that, unlike 
most other liabilities, a deferred tax liability associated with 
goodwill does not represent a claim on or interest in the cash or 
assets of the organization. For these reasons, the Agencies believe 
that it is appropriate to permit a banking organization to reduce the 
amount of goodwill it must deduct from tier 1 capital by the amount of 
any associated deferred tax liability, that is, the amount that 
reflects the banking organization's maximum exposure to loss if such 
goodwill becomes impaired or derecognized under GAAP.
    One commenter disagreed with the calculation of the maximum capital 
reduction that could occur as a result of the impairment of goodwill in 
the example in the NPR. This commenter asserted that the maximum 
capital reduction under GAAP should be equal to the carrying value of 
goodwill less the sum of tax benefits recognized as of the date of 
impairment and those tax benefits to be realized in future periods. The 
Agencies believe that current rules adequately address the treatment of 
deferred tax assets for regulatory capital purposes and that deferred 
tax assets that may be created for tax benefits to be realized in the 
future are beyond the scope of this NPR. One commenter expressed 
concern about the tax rate used in the example in the NPR. The Agencies 
emphasize that the tax rate in the example was simply an assumption for 
illustrative purposes.
    Two commenters opposed the proposal. One expressed general 
opposition to any rule that would reduce the regulatory capital 
requirements for banking organizations.

[[Page 79604]]

Another commenter urged the Agencies to withdraw the proposal in light 
of other efforts by the Federal government to provide capital support 
to the financial services industry. Alternatively, if the Agencies did 
not withdraw the proposal, this commenter requested an extension of the 
comment period to address valuation issues. Further, this commenter 
criticized the proposal as an attempt to provide artificial capital 
support to certain banking organizations. In addition, several 
commenters that supported the proposal raised questions about the 
valuation of goodwill. The Agencies believe that the rule as proposed 
achieves consistency with GAAP for regulatory reporting purposes and 
for determining the carrying amount of both goodwill and deferred tax 
liabilities.

III. Final Rule

    After reviewing the comments, the Agencies have adopted the 
proposal without change. Under the final rule, a banking organization 
may reduce the amount of goodwill that it must deduct from tier 1 
capital by the amount of any deferred tax liability associated with 
that goodwill. However, a banking organization that reduces the amount 
of goodwill deducted from tier 1 capital by the amount of the deferred 
tax liability is not permitted to net this deferred tax liability 
against deferred tax assets when determining regulatory capital 
limitations on deferred tax assets. For these banking organizations, 
the amount of goodwill deducted from tier 1 capital will reflect each 
organization's maximum exposure to loss in the event that the entire 
amount of goodwill is impaired or derecognized, an event which triggers 
the concurrent derecognition of the related deferred tax liability for 
financial reporting purposes.

IV. Other Revisions

    As discussed in the preamble to the proposed rule, the OCC is 
consolidating the various provisions permitting a bank to deduct assets 
from tier 1 capital on a basis net of any associated deferred tax 
liability together in one section of the regulatory text to make it 
easier to locate. The OCC is also clarifying the current regulatory 
text's special treatment of intangible assets acquired due to a 
nontaxable purchase business combination. In addition, the OCC is 
replacing the term ``purchased mortgage servicing rights'' with the 
broader term ``servicing assets,'' making clarifying changes to more 
accurately reflect the OCC's existing interpretation of the current 
regulatory text, amending the definition of goodwill to conform to 
GAAP, and making other technical and miscellaneous changes to its 
regulatory capital rules. No comments were received on these 
amendments. The amendments are adopted by the OCC as proposed. However, 
existing regulatory text not printed in the proposal has been added at 
section 2(c) for ease of reader reference to clarify that goodwill is 
required to be deducted from tier 1 capital.
    The Board is adopting as final the non-substantive technical 
changes proposed in the NPR that conform the definition of goodwill in 
its regulatory capital rules to GAAP. Further, the Board is amending 
Appendix A to 12 CFR part 225 to remove obsolete text that relates to 
goodwill recognized by a BHC prior to December 31, 1992. The Board 
received no comments on its proposal to make these rule changes.
    OTS is adopting as final the changes to its capital regulations as 
proposed in the NPR as follows: First, OTS is amending its definition 
of ``intangible assets'' in 12 CFR 567.1 and 12 CFR 567.9 to reference 
servicing assets as intangible assets. Second, OTS is conforming its 
regulatory text to that of the other Agencies to provide for netting a 
deferred tax liability specifically related to certain intangible 
assets against those intangible assets, prior to deduction when 
calculating regulatory capital, and to add regulatory text addressing 
the regulatory capital limitation on deferred tax assets. In addition, 
OTS is amending its definition in 12 CFR 565.2(f) and other proposed 
regulatory text in 12 CFR 567.9(c)(1) to conform with changes in this 
rule.

Effective Date and Applicability Date

    This final rule takes effect 30 days after publication in the 
Federal Register. In response to requests from commenters, the Agencies 
are permitting banking organizations to elect to apply this final rule 
for purposes of the regulatory reporting period ending on December 31, 
2008.

Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) requires an agency that is 
issuing a final rule to provide a final regulatory flexibility analysis 
or to certify that the rule will not have a significant economic impact 
on a substantial number of small entities.\5\
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    \5\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
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    Under regulations issued by the Small Business Administration,\6\ a 
small entity includes a bank holding company, commercial bank, or 
savings association with assets of $175 million or less (collectively, 
small banking organizations).\7\ This final rule would in effect permit 
a banking organization to compute its deduction from regulatory capital 
of goodwill net of any associated deferred tax liability. The Agencies 
believe that this final rule will not have a significant economic 
impact on a substantial number of small entities because the final rule 
is elective and, thus, does not require a banking organization to 
compute its deduction from regulatory capital of goodwill net of any 
associated deferred tax liability. In addition, the Agencies did not 
receive any comments that the proposal would have a significant impact 
on small banking organizations. Accordingly, each of the Agencies 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.
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    \6\ See 13 CFR 121.201.
    \7\ As of June 30, 2008, there were approximately 2,636 small 
bank holding companies, 730 small national banks, 467 small state 
member banks, 3,222 small state nonmember banks, and 412 small 
savings associations.
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Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the 
Agencies reviewed the rule regarding the treatment of a deferred tax 
liability attributable to goodwill as required by the Office of 
Management and Budget.\8\ No collections of information pursuant to the 
Paperwork Reduction Act are contained in the rule. However, 
implementation of this rule will require certain clarifying revisions 
to the instructions for the Agencies' quarterly regulatory reports \9\ 
to reflect the change in a banking organization's tier 1 capital.
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    \8\ See 44 U.S.C. 3506; 5 CFR 1320 Appendix A.1.
    \9\ Consolidated Reports of Condition and Income (Call Report) 
(OMB Nos. 7100-0036, 3064-0052, 1557-0081), Thrift Financial Report 
(TFR) (OMB No. 1550-0023), Consolidated Financial Statements for 
Bank Holding Companies (FR Y-9C) (OMB No. 7100-0128).
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Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. In light of this requirement, the Agencies have sought 
to present the rule in a simple and straightforward manner.

OCC and OTS Executive Order 12866 Determinations

    Executive Order 12866 requires Federal agencies to prepare a 
regulatory impact analysis for agency actions that are found to be 
significant regulatory actions. Significant regulatory actions include, 
among other things, rulemakings that have an annual effect

[[Page 79605]]

on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or state, 
local, or tribal governments or communities. The OCC and OTS each have 
determined that its portion of the rule is not a significant regulatory 
action.

OCC and OTS Executive Order 13132 Determinations

    The OCC and OTS each determined that its portion of the rulemaking 
does not have any federalism implications for purposes of Executive 
Order 13132.

OCC and OTS Unfunded Mandates Reform Act of 1995 Determinations

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)\10\ 
requires that an agency prepare a budgetary impact statement before 
promulgating a rule that includes a Federal mandate that may result in 
the expenditure by state, local, and tribal governments, in the 
aggregate, or by the private sector of $100 million or more (adjusted 
annually for inflation) in any one year.\11\ If a budgetary impact 
statement is required, section 205 of the UMRA also requires an agency 
to identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule.\12\ The OCC and OTS each have determined 
that its rule will not result in expenditures by state, local, and 
tribal governments, or by the private sector, of $133 million or more. 
Accordingly, neither OCC nor OTS has prepared a budgetary impact 
statement or specifically addressed the regulatory alternatives 
considered.
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    \10\ See 2 U.S.C. 1532.
    \11\ The OCC and OTS adjusted $100 million for inflation using 
the GDP implicit price deflator with the second quarter of 1995 as 
the base index. The result was $132.64 million, which OCC and OTS 
rounded to $133 million.
    \12\ See 2 U.S.C. 1535.
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List of Subjects

12 CFR Part 3

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, National banks, Reporting and recordkeeping requirements, 
Risk.

12 CFR Part 208

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, Reporting and recordkeeping requirements, Risk.

12 CFR Part 225

    Accounting, Administrative practice and procedure, Banks, Banking, 
Capital, Federal Reserve System, Reporting and recordkeeping 
requirements, Risk.

12 CFR Part 325

    Accounting, Banks, Banking, Administrative practice and procedure, 
Capital, Reporting and recordkeeping requirements, Risk.

12 CFR Part 565

    Administrative practice and procedure, Capital, Savings 
associations.

12 CFR Part 567

    Capital, Reporting and recordkeeping requirements, Risk, Savings 
associations.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

0
For the reasons set forth in the common preamble, part 3 of chapter I 
of title 12 of the Code of Federal Regulations is amended as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n 
note, 1835, 3907 and 3909.


0
2. In Appendix A to part 3, Section 1 is amended by:
0
a. Removing, in paragraph (c)(1), the third sentence, the phrase 
``section 1(c)(8)'' and by adding in lieu thereof the phrase ``section 
1(c)(10)''; and
0
b. Revising paragraph (c)(17) to read as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines


Section 1.  Purpose, Applicability of Guidelines, and Definitions.

* * * * *
    (c) * * *
    (17) Goodwill is an intangible asset that represents the excess 
of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed.
* * * * *

0
3. In Appendix A to part 3, Section 2 is amended by:
0
a. Revising paragraphs (c) introductory text, and (c)(1) introductory 
text;
0
b. Removing, in paragraph (c)(1)(iii), the phrase ``section 2(c)(3)'' 
and by adding in lieu thereof the phrase ``sections 2(c)(3) and 
(2)(c)(6)'';
0
c. Removing, in paragraph (c)(1)(iv), the phrase ``section 4(a)(3)'' 
and by adding in lieu thereof the phrase ``section 4(a)(2)'';
0
d. Removing, in footnote 6, the phrase ``section 1(c)(14)'' and by 
adding in lieu thereof the phrase ``section 1(c)(18)'', and removing 
the phrase ``section 4(a)(3)'' and by adding in lieu thereof the phase 
``section 4(a)(2)'';
0
e. Removing paragraph (c)(2)(iv);
0
f. Adding a heading to paragraph (c)(3)(i);
0
g. Removing paragraph (c)(3)(iii) and redesignating paragraph 
(c)(3)(iv) as paragraph (c)(3)(iii);
0
h. Removing paragraph (c)(4)(iii);
0
i. Redesignating paragraph (c)(6) as paragraph (c)(7) and adding a new 
paragraph (c)(6) to read as follows; and
0
j. Amending the introductory text of newly designated paragraph (c)(7) 
by removing the word ``items'' and adding in lieu thereof the word 
``assets''.
    The revisions and addition are set forth below.


Section 2.  Components of Capital.

* * * * *
    (c) Deductions from Capital. The following items are deducted 
from the appropriate portion of a national bank's capital base when 
calculating its risk-based capital ratio:
    (1) Deductions from Tier 1 Capital. The following items are 
deducted from Tier 1 capital before the Tier 2 portion of the 
calculation is made:
* * * * *
    (3) * * * (i) Net unrealized gains and losses on available-for-
sale securities. * * *
* * * * *
    (6) Netting of Deferred Tax Liability. (i) Banks may elect to 
deduct the following assets from Tier 1 capital on a basis that is 
net of any associated deferred tax liability:
    (A) Goodwill;
    (B) Intangible assets acquired due to a nontaxable purchase 
business combination, except banks may not elect to deduct from Tier 
1 capital on a basis that is net of any associated deferred tax 
liability, regardless of the method by which they were acquired:
    (1) Purchased credit card relationships; and
    (2) Servicing assets that are includable in Tier 1 capital;
    (C) Disallowed servicing assets;
    (D) Disallowed credit-enhancing interest-only strips; and
    (E) Nonfinancial equity investments, as defined in section 
1(c)(1) of this appendix A.
    (ii) Deferred tax liabilities netted in this manner cannot also 
be netted against deferred tax assets when determining the amount of 
deferred tax assets that are dependent upon future taxable income as 
calculated under section 2(c)(1)(iii) of this appendix A.
* * * * *

[[Page 79606]]

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

0
For the reasons set forth in the common preamble, the Board of 
Governors of the Federal Reserve System amends parts 208 and 225 of 
chapter II of title 12 of the Code of Federal Regulations as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
1. The authority citation for part 208 continues to read as follows:

    Authority: 12 U.S.C. 24, 92(a), 248(a), 248(c), 321-328a, 371d, 
461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835(a), 1882, 
2901-2907, 3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 
781(b), 781(g), 781(i), 78o-4(c)(5), 78q, 78q-1, and 78w, 1681s, 
1681w, 6801 and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 
4106, and 4128.


0
2. In appendix A to part 208, amend section II.B. by revising 
paragraphs 1.a., 1.e.iii., and 1.f. to read as follows:

Appendix A to Part 208: Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *
    II. * * *
    B. * * *
    1. * * *
    a. Goodwill. Goodwill is an intangible asset that represents the 
excess of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed. Goodwill is 
deducted from the sum of core capital elements in determining Tier 1 
capital.
* * * * *
    e. * * *
    iii. Banks may elect to deduct goodwill, disallowed mortgage 
servicing assets, disallowed nonmortgage servicing assets, and 
disallowed credit-enhancing I/Os (both purchased and retained) on a 
basis that is net of any associated deferred tax liability. Deferred 
tax liabilities netted in this manner cannot also be netted against 
deferred tax assets when determining the amount of deferred tax 
assets that are dependent upon future taxable income.
    f. Valuation. Banks must review the book value of goodwill and 
other intangible assets at least quarterly and make adjustments to 
these values as necessary. The fair value of mortgage servicing 
assets, nonmortgage servicing assets, purchased credit card 
relationships, and credit-enhancing I/Os also must be determined at 
least quarterly. This determination shall include adjustments for 
any significant changes in original valuation assumptions, including 
changes in prepayment estimates or account attrition rates. 
Examiners will review both the book value and the fair value 
assigned to these assets, together with supporting documentation, 
during the examination process. In addition, the Federal Reserve may 
require, on a case-by-case basis, an independent valuation of a 
bank's goodwill, other intangible assets, or credit-enhancing I/Os.
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
3. The authority citation for part 225 continues to read as follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.


0
4. In appendix A to part 225, amend section II.B. by revising 
paragraphs 1.a., 1.e.iii, and 1.f. to read as follows:

Appendix A to Part 225: Capital Adequacy Guidelines for Bank Holding 
Companies: Risk-Based Measure

* * * * *
    II. * * *
    B. * * *
    1. * * *
    a. Goodwill. Goodwill is an intangible asset that represents the 
excess of the cost of an acquired entity over the net of the amounts 
assigned to assets acquired and liabilities assumed. Goodwill is 
deducted from the sum of core capital elements in determining tier 1 
capital.
* * * * *
    e. * * *
    iii. Bank holding companies may elect to deduct goodwill, 
disallowed mortgage servicing assets, disallowed nonmortgage 
servicing assets, and disallowed credit-enhancing I/Os (both 
purchased and retained) on a basis that is net of any associated 
deferred tax liability. Deferred tax liabilities netted in this 
manner cannot also be netted against deferred tax assets when 
determining the amount of deferred tax assets that are dependent 
upon future taxable income.
    f. Valuation. Bank holding companies must review the book value 
of goodwill and other intangible assets at least quarterly and make 
adjustments to these values as necessary. The fair value of mortgage 
servicing assets, nonmortgage servicing assets, purchased credit 
card relationships, and credit-enhancing I/Os also must be 
determined at least quarterly. This determination shall include 
adjustments for any significant changes in original valuation 
assumptions, including changes in prepayment estimates or account 
attrition rates. Examiners will review both the book value and the 
fair value assigned to these assets, together with supporting 
documentation, during the inspection process. In addition, the 
Federal Reserve may require, on a case-by-case basis, an independent 
valuation of a bank holding company's goodwill, other intangible 
assets, or credit-enhancing I/Os.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

0
For the reasons set forth in the common preamble, part 325 of chapter 
III of title 12 of the Code of Federal Regulations is amended as 
follows:

PART 325--CAPITAL MAINTENANCE

0
1. The authority citation for part 325 continues 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, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 
U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended 
by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note).


0
2. Section 325.5 is amended by revising paragraph (g)(5) to read as 
follows:


Sec.  325.5  Miscellaneous.

* * * * *
    (g) * * *
    (5) Goodwill and other intangible assets. This paragraph (g)(5) 
provides the capital treatment for intangible assets acquired in a 
nontaxable business combination, and goodwill acquired in a taxable 
business combination.
    (i) Intangible assets acquired in nontaxable purchase business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than mortgage servicing assets, nonmortgage 
servicing assets, and purchased credit card relationships) acquired in 
a nontaxable purchase business combination may be netted against this 
intangible asset. Only the net amount of this intangible asset must be 
deducted from Tier 1 capital.
    (ii) Goodwill acquired in a taxable purchase business combination. 
A deferred tax liability that is specifically related to goodwill 
acquired in a taxable purchase business combination may be netted 
against this goodwill. Only the net amount of this goodwill must be 
deducted from Tier 1 capital.
    (iii) Treatment of a netted deferred tax liability. When a deferred 
tax liability is netted in accordance with paragraph (g)(5)(i) or (ii) 
of this section, the taxable temporary difference that gives rise to 
this deferred tax liability must be excluded from existing taxable 
temporary differences when determining the amount of deferred tax

[[Page 79607]]

assets that are dependent upon future taxable income and calculating 
the maximum allowable amount of such assets.
    (iv) Valuation. The FDIC in its discretion may require independent 
fair value estimates for goodwill and other intangible assets on a 
case-by-case basis where it is deemed appropriate for safety and 
soundness purposes.

Office of Thrift Supervision

12 CFR Chapter V

0
For the reasons set forth in the common preamble, parts 565 and 567 of 
chapter V of title 12 of the Code of Federal Regulations are amended as 
follows:

PART 565--PROMPT CORRECTIVE ACTION

0
1. The authority citation for part 565 continues to read as follows:


    Authority: 12 U.S.C. 1831o.


0
2. Section 565.2 is amended by revising paragraph (f) to read as 
follows:


Sec.  565.2  Definitions.

* * * * *
    (f) Tangible equity means the amount of a savings association's 
core capital as computed in part 567 of this chapter plus the amount of 
its outstanding cumulative perpetual preferred stock (including related 
surplus), minus intangible assets as defined in Sec.  567.1 of this 
chapter, except mortgage servicing assets to the extent they are 
includable under Sec.  567.12. Non-mortgage servicing assets that have 
not been previously deducted in calculating core capital are deducted.
* * * * *

PART 567--CAPITAL

0
3. The authority citation for part 567 continues to read as follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 
(note).


0
4. Section 567.1 is amended by revising the definition for intangible 
assets to read as follows:


Sec.  567.1  Definitions.

* * * * *
    Intangible assets. The term intangible assets means assets 
considered to be intangible assets under generally accepted accounting 
principles. These assets include, but are not limited to, goodwill, 
core deposit premiums, purchased credit card relationships, favorable 
leaseholds, and servicing assets (mortgage and non-mortgage). Interest-
only strips receivable and other nonsecurity financial instruments are 
not intangible assets under this definition.
* * * * *

0
5. Section 567.5 is amended by adding new paragraph (a)(2)(vii) to read 
as follows:


Sec.  567.5  Components of capital.

* * * * *
    (a) * * *
    (2) * * *
    (vii) Deferred tax assets that are not includable in core capital 
pursuant to Sec.  567.12 of this part are deducted from assets and 
capital in computing core capital.
* * * * *

0
6. Section 567.9 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  567.9  Tangible capital requirements.

* * * * *
    (c) * * *
    (1) Intangible assets (as defined in Sec.  567.1) except for 
mortgage servicing assets to the extent they are includable in tangible 
capital under Sec.  567.12, and credit enhancing interest-only strips 
and deferred tax assets not includable in tangible capital under Sec.  
567.12.
* * * * *

0
7. Section 567.12 is amended by:
0
a. Revising the heading and paragraphs (a) and (b)(3);
0
b. Adding paragraph (b)(5);
0
c. Revising paragraph (e)(3); and
0
d. Adding paragraph (h) to read as follows:


Sec.  567.12  Purchased credit card relationships, servicing assets, 
intangible assets (other than purchased credit card relationships and 
servicing assets), credit-enhancing interest-only strips, and deferred 
tax assets.

    (a) Scope. This section prescribes the maximum amount of purchased 
credit card relationships, serving assets, intangible assets (other 
than purchased credit card relationships and servicing assets), credit-
enhancing interest-only strips, and deferred tax assets that savings 
associations may include in calculating tangible and core capital.
    (b) * * *
    (3) Intangible assets, as defined in Sec.  567.1 of this part, 
other than purchased credit card relationships described in paragraph 
(b)(1) of this section, servicing assets described in paragraph (b)(2) 
of this section, and core deposit intangibles described in paragraph 
(g)(3) of this section, are deducted in computing tangible and core 
capital, subject to paragraph (e)(3)(ii) of this section.
* * * * *
    (5) Deferred tax assets may be included (that is not deducted) in 
computing core capital subject to the restrictions of paragraph (h) of 
this section, and may be included in tangible capital in the same 
amount.
* * * * *
    (e) * * *
    (3) Computation. (i) For purposes of computing the limits and 
sublimits in paragraphs (e) and (h) of this section, core capital is 
computed before the deduction of disallowed servicing assets, 
disallowed purchased credit card relationships, disallowed credit-
enhancing interest-only strips (purchased and retained), and disallowed 
deferred tax assets.
    (ii) A savings association may elect to deduct the following items 
on a basis net of deferred tax liabilities:
    (A) Disallowed servicing assets;
    (B) Goodwill such that only the net amount must be deducted from 
Tier 1 capital;
    (C) Disallowed credit-enhancing interest only strips (both 
purchased and retained); and
    (D) Other intangible assets arising from non-taxable business 
combinations. A deferred tax liability that is specifically related to 
an intangible asset (other than purchased credit card relationships) 
arising from a nontaxable business combination may be netted against 
this intangible asset. The net amount of the intangible asset must be 
deducted from Tier 1 capital.
    (iii) Deferred tax liabilities that are netted in accordance with 
paragraph (e)(3)(ii) of this section cannot also be netted against 
deferred tax assets when determining the amount of deferred tax assets 
that are dependent upon future taxable income.
* * * * *
    (h) Treatment of deferred tax assets. For purposes of calculating 
Tier 1 capital under this part (but not for financial statement 
purposes) deferred tax assets are subject to the conditions, 
limitations, and restrictions described in this section.
    (1) Tier 1 capital limitations. (i) The maximum allowable amount of 
deferred tax assets net of any valuation allowance that are dependent 
upon future taxable income will be limited to the lesser of:
    (A) The amount of deferred tax assets that are dependent upon 
future taxable income that is expected to be realized within one year 
of the calendar quarter-end date, based on a projected future taxable 
income for that year; or
    (B) Ten percent of the amount of Tier 1 capital that exists before 
the deduction of any disallowed servicing assets, any

[[Page 79608]]

disallowed purchased credit card relationships, any disallowed credit-
enhancing interest-only strips, and any disallowed deferred tax assets.
    (ii) For purposes of this limitation, all existing temporary 
differences should be assumed to fully reverse at the calendar quarter-
end date. The recorded amount of deferred tax assets that are dependent 
upon future taxable income, net of any valuation allowance for deferred 
tax assets, in excess of this limitation will be deducted from assets 
and from equity capital for purposes of determining Tier 1 capital 
under this part. The amount of deferred tax assets that can be realized 
from taxes paid in prior carryback years and from the reversal of 
existing taxable temporary differences generally would not be deducted 
from assets and from equity capital.
    (iii) Notwithstanding paragraph (h)(1)(B)(ii) of this section, the 
amount of carryback potential that may be considered in calculating the 
amount of deferred tax assets that a savings association that is part 
of a consolidated group (for tax purposes) may include in Tier 1 
capital may not exceed the amount which the association could 
reasonably expect to have refunded by its parent.
    (2) Projected future taxable income. Projected future taxable 
income should not include net operating loss carryforwards to be used 
within one year of the most recent calendar quarter-end date or the 
amount of existing temporary differences expected to reverse within 
that year. Projected future taxable income should include the estimated 
effect of tax planning strategies that are expected to be implemented 
to realize tax carryforwards that will otherwise expire during that 
year. Future taxable income projections for the current fiscal year 
(adjusted for any significant changes that have occurred or are 
expected to occur) may be used when applying the capital limit at an 
interim calendar quarter-end date rather than preparing a new 
projection each quarter.
    (3) Unrealized holding gains and losses on available-for-sale debt 
securities. The deferred tax effects of any unrealized holding gains 
and losses on available-for-sale debt securities may be excluded from 
the determination of the amount of deferred tax assets that are 
dependent upon future taxable income and the calculation of the maximum 
allowable amount of such assets. If these deferred tax effects are 
excluded, this treatment must be followed consistently over time.

    Dated: December 15, 2008.
John C. Dugan,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, December 19, 2008.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 16th day of December, 2008.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
    Dated: December 15, 2008.

    By the Office of Thrift Supervision.
John Reich,
Director.
[FR Doc. E8-30780 Filed 12-29-08; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P