TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
On April 15, 1994, the Federal Financial Institutions
Examination Council (FFIEC) approved an interim revision
(Attachment 1) to its Supervisory Policy Statement on Securities
Activities, which was issued by the Federal Reserve as an
attachment to SR 92-1. This interim revision is intended to
conform the policy statement with Financial Accounting Standards
Board Statement Number 115 "Accounting for Certain Investments in
Debt and Equity Securities" (FASB 115). FASB 115, which was issued
in May 1993, significantly changed the accounting treatment for
certain investment securities and establishes three categories of
securities: held-to-maturity, trading, and available-for-sale.
Existing references in the policy statement to securities
held for investment, for trading, and for sale and the accounting
treatment for each category have been revised to conform to the
terminology and accounting treatment set forth in FASB 115.
Furthermore, consistent with FASB 115, the interim revision should
enable banks in appropriate circumstances to hold "nonhigh-risk"
mortgage securities in the held-to-maturity category.1
The revised interim policy removes a provision stating
that nonhigh-risk mortgage securities that later become high-risk
must be reported as held-for-sale (available-for-sale under FASB
115) or trading assets and instructs examiners to consider any
unrecognized net depreciation in held-to-maturity high-risk
securities when they evaluate the adequacy of an institution's
capital. In addition, the revision clarifies that divestiture of
high-risk securities should generally be required by an examiner
only in those cases where continued ownership of the securities
would pose an undue risk to the safety and soundness of the bank.
This interim revision addresses certain portions of the
policy statement that are of immediate concern and is to be
incorporated into a revision of the entire supervisory policy
statement now underway. Banking organizations should follow the
interim revised guidance pending completion of the revised
supervisory policy statement.
A copy of the interim revision should be sent immediately
to each officer, examiner, and other professional involved in the
supervision of state member banks at your Reserve Bank and should
also be sent immediately to each state member bank in your District
along with the cover letter included in Attachment 2.
If you have any questions on the interim revision to the
policy statement, call Charles Holm at (202) 452-3502 or John Frech
at (202) 452-2275.
Associate Director
ATTACHMENT 1 CAN BE OBTAINED FROM FEDERAL RESERVE BANK
[TO THE CHIEF EXECUTIVE OFFICER OF EACH
On April 15, 1994, the Federal Financial Institutions
Examination Council (FFIEC) approved an interim revision
(Attachment 1) to its Supervisory Policy Statement on Securities
Activities. This interim revision is intended to conform the
policy statement with Financial Accounting Standards Board
Statement Number 115 "Accounting for Certain Investments in Debt
and Equity Securities" (FASB 115). FASB 115, which was issued in
May 1993, significantly changed the accounting treatment for
certain investment securities and establishes three categories of
securities: held-to-maturity, trading, and available-for-sale.
Existing references in the policy statement to securities
held for investment, for trading, and for sale and the accounting
treatment for each category have been revised to conform to the
terminology and accounting treatment set forth in FASB 115.
Furthermore, consistent with FASB 115, the interim revision should
enable banks in appropriate circumstances to hold "nonhigh-risk"
mortgage securities in the held-to-maturity category.2
The revised interim policy removes a provision stating
that nonhigh-risk mortgage securities that later become high-risk
must be reported as held-for-sale (available-for-sale under FASB
115) or trading assets and instructs examiners to consider any
unrecognized net depreciation in held-to-maturity high-risk
securities when they evaluate the adequacy of an institution's
capital. In addition, the revision clarifies that divestiture of
high-risk securities should generally be required by an examiner
only in those cases where continued ownership of the securities
would pose an undue risk to the safety and soundness of the bank.
This interim revision addresses certain portions of the
policy statement that are of immediate concern and is to be
incorporated into a revision of the entire supervisory policy
statement now underway. Banking organizations should follow the interim revised guidance pending completion of the revised
supervisory policy statement.
Footnotes 1. The policy statement defines "high-risk mortgage securities" as those collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), and similar instruments that have more risk than a 30-year "benchmark" mortgage-backed pass-through security. Other mortgage securities are deemed to be nonhigh-risk. Return to text 2. The policy statement defines "high-risk mortgage securities" as those collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs), and similar instruments that have more risk than a 30-year "benchmark" mortgage-backed pass-through security. Other mortgage securities are deemed to be nonhigh-risk. Return to text |
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