OCC 95-10
Subject:  Regulatory Capital Treatment             Description:  Final Rule
          for Deferred Tax Assets

TO:  Chief Executive Officers of National Banks, Department and
     Division Heads, Examining Personnel and Other Interested
     Parties

PURPOSE

This bulletin announces the Office of the Comptroller of the
Currency's (OCC) final rule on the regulatory capital treatment
for deferred tax assets.  The OCC, in consultation with the
Federal Reserve Board (FRB) and the Federal Deposit Insurance
Corporation (FDIC), decided to adopt its proposal to limit the
amount of deferred tax assets dependent upon future taxable
income that may be included in regulatory capital.  The final
rule has been in effect on an interim basis since March 1993.  It
includes several modifications requested by commenters to reduce
the regulatory burden of implementation.

BACKGROUND

In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (FAS 109).  The OCC and the other federal
banking agencies adopted FAS 109 for regulatory reporting
effective January 1, 1993.

FAS 109 allows a bank to record higher amounts of deferred tax
assets than they could under previous accounting policy. 
Specifically, a bank may record deferred tax assets that will
only be realized if the bank earns sufficient taxable income in
future periods.  After analyzing the accounting rule, the OCC
concluded that the new standard would allow a bank to rely
excessively on deferred tax assets to meet regulatory capital
requirements. 

To address this concern, on December 23, 1993, the OCC published
a notice of proposed rulemaking in the Federal Register to
explicitly limit the amount of deferred tax assets dependent upon
future taxable income that a bank could include in regulatory
capital (58 Federal Register 68065).  


SUMMARY

After carefully reviewing the comments and considering the
arguments supporting and opposing the limit on deferred tax
assets, the OCC decided to adopt its proposed rule with minor
changes effective April 1, 1995.  Accordingly, the amount of
deferred tax assets dependent upon future taxable income that a
bank may include in its regulatory capital is limited to the
lesser of:

     (1) The amount of deferred tax assets the institution
     expects to realize within one year of the quarter-end report
     date, based on its projection of future taxable income
     (exclusive of tax carryforwards and reversals of existing
     temporary differences for that year), or

     (2) Ten percent of Tier 1 capital, net of goodwill and all
     identifiable intangible assets other than purchased mortgage
     servicing rights and purchased credit card relationships,
     and before any disallowed deferred tax assets are deducted.

Banks should follow the accounting guidance provided in this
final rule and in the call report instructions when calculating
the deferred tax regulatory capital limit.  The amount of
disallowed deferred tax assets should be deducted from both total
assets and from risk-weighted assets in determining a bank's
leverage and risk-based capital ratios.  Except as otherwise
noted, banks should follow FAS 109 for calculating and reporting
their deferred tax assets.  

For further information, contact the Chief National Bank
Examiner's Office (202) 874-5350.
  

                              
Jimmy F. Barton
Chief National Bank Examiner

Attachment
Date:  February 15, 1995
Fed. Reg. 60, No. 28, pg. 7903, February 10, 1995