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2000 - Rules and Regulations
{{12-31-07 p.2241}}
PART 325CAPITAL MAINTENANCE
Subpart AMinimum Capital Requirements
Sec. 325.1
Scope.
325.2
Definitions.
325.3
Minimum leverage capital requirement.
325.4
Inadequate capital as an unsafe or unsound practice or condition.
325.5
Miscellaneous.
325.6
Issuance of directives.
Subpart BPrompt Corrective Action
325.101
Authority, purpose, scope, other supervisory authority, and disclosure
of capital categories.
325.102
Notice of capital category.
325.103
Capital measures and capital category definitions.
325.104
Capital restoration plans.
325.105
Mandatory and discretionary supervisory actions under section 38.
Appendix A to Part
325Statement of Policy on Risk-Based Capital.
Appendix B to Part
325Statement of Policy on Capital Adequacy.
Appendix C to Part
325Risked-Based Capital for State Non-Member Banks; Market Risk.
Appendix D to Part
325Capital Adequacy Guidelines for Banks: Internal-Ratings-Based and
Advanced Measurement Approaches.
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 (12 U.S.C.
1828 note).
SOURCE: The provisions of this Part 325 appear at 50 Fed. Reg.
11136, March 19, 1985, effective March 19, 1985, except as otherwise
noted.
Subpart AMinimum Capital
Requirements
§ 325.1 Scope.
The provisions of this part apply to those circumstances for which
the Federal Deposit Insurance Act or this chapter requires an
evaluation of the adequacy of an insured depository institution's
capital structure. The FDIC is required to evaluate capital before
approving various applications by insured depository institutions. The
FDIC also must evaluate capital, as an essential component, in
determining the safety and soundness of state nonmember banks it
insures and supervises and in determining whether depository
institutions are in an unsafe or unsound condition. This subpart A
establishes the criteria and standards FDIC will use in calculating the
minimum leverage capital requirement and in determining capital
adequacy. In addition, appendix A to this subpart sets forth the FDIC's
risk-based capital policy statement and appendix B to this subpart
includes a statment of policy on capital adequacy that provides
interpretational guidance as to how this subpart will be administered
and enforced. In accordance with subpart B of Part 325, the FDIC also
must evaluate an institution's capital for purposes of determining
whether the institution is subject to the prompt corrective action
provisions set forth in section 38 of the Federal Deposit Insurance Act
(12 U.S.C. 1831o).
[Codified to 12 C.F.R. § 325.1]
[Section 325.1 amended at 55 Fed. Reg. 53146, December 27,
1990, effective January 28, 1991; 56 Fed. Reg. 10160, March 11, 1991,
effective April 10, 1991; 57 Fed. Reg. 7647, March 4, 1992, effective
February 18, 1992; 58 Fed. Reg. 8219, February 12, 1993, effective
March 15, 1993]
§ 325.2 Definitions.
(a) Allowance for loan and lease losses means those
general valuation allowances that have been established through charges
against earnings to absorb losses on loans and lease
{{12-31-07 p.2242}}financing receivables.
Allowances for loan and lease losses exclude allocated transfer risk
reserves established pursuant to 12
U.S.C. 3904 and specific reserves created against identified
losses.
(b) Assets classified loss means:
(1) When measured as of the date of examination of an insured
depository institution, those assets that have been determined by an
evaluation made by a state or federal examiner as of that date to be a
loss; and
(2) When measured as of any other date, those assets:
(i) That have been determined--
(A) By an evaluation made by a state or federal examiner at the
most recent examination of an insured depository institution to be a
loss; or
(B) By evaluations made by the insured depository institution
since its most recent examination to be a loss; and
(ii) That have not been charged off from the insured depository
institution's books or collected.
(c) Bank means an FDIC-insured, state-chartered
commercial or savings bank that is not a member of the Federal Reserve
System and for which the FDIC is the appropriate federal banking agency
pursuant to section 3(q) of the FDI Act
(12 U.S.C. 1813(q)).
(d) Common stockholders' equity means the sum of common
stock and related surplus, undivided profits, disclosed capital
reserves that represent a segregation of undivided profits, and foreign
currency translation adjustments, less net unrealized holding losses on
available-for-sale equity securities with readily determinable fair
values.
(e)(1) Control has the same meaning assigned to it in
section 2 of the Bank Holding Company Act
(12 U.S.C. 1841), and the term
controlled shall be construed consistently with the term
control.
(2) Exclusion for fiduciary ownership. No insured
depository institution or company controls another insured depository
institution or company by virtue of its ownership or control of shares
in a fiduciary capacity. Shares shall not be deemed to have been
acquired in a fiduciary capacity if the acquiring insured depository
institution or company has sole discretionary authority to exercise
voting rights with respect thereto.
(3) Exclusion for debts previously contracted. No
insured depository institution or company controls another insured
depository institution or company by virtue of its ownership or control
of shares acquired in securing or collecting a debt previously
contracted in good faith, until two years after the date of
acquisition. The two-year period may be extended at the discretion of
the appropriate federal banking agency for up to three one-year
periods.
(f) Controlling person means any person having control
of an insured depository institution and any company controlled by that
person.
(g)(1) Credit-enhancing interest-only strip means an
on-balance sheet asset that, in form or in substance:
(i) Represents the contractual right to receive some or all of
the interest due on transferred assets; and
(ii) Exposes the bank to credit risk directly or indirectly
associated with the transferred assets that exceeds a pro rata share of
the bank's claim on the assets, whether through subordination
provisions or other credit enhancement techniques.
(2) Reservation of authority. In determining whether a
particular interest cash flow functions, directly or indirectly, as a
credit-enhancing interest-only strip, the FDIC will consider the
economic substance of the transaction. The FDIC, through the Director
of Supervision, or other designated FDIC official reserves the right to
identify other interest cash flows or related assets as
credit-enhancing interest-only strips.
(h) Face amount means the notional principal, or face
value, amount of an off-balance sheet item; the amortized cost of an
asset not held for trading purposes; and the fair value of a trading
asset.
(i)(1) Highly leveraged transaction means an extension
of credit to or investment in a business by an insured depository
institution where the financing transaction involves a
{{12-31-02 p.2243}}buyout, acquisition, or
recapitalization of an existing business and one of the following
criteria is met:
(i) The transaction results in a liabilities-to-assets leverage
ratio higher than 75 percent; or
(ii) The transaction at least doubles the subject company's
liabilities and results in a liabilities-to-assets leverage ratio
higher than 50 percent; or
(iii) The transaction is designated an HLT by a syndication agent
or a federal bank regulator.
(2) Notwithstanding paragraph (g)(1) of this section, loans and
exposures to any obligor in which the total financing package,
including all obligations held by all participants is $20 million or
more, or such lower level as the FDIC may establish by order on a
case-by-case basis, will be excluded from this definition.
(j) Identified losses means:
(1) When measured as of the date of examination of an insured
depository institution, those items that have been determined by an
evaluation made by a state or federal examiner as of that date to be
chargeable against income, capital and/or general valuation allowances
such as the allowance for loan and lease losses (examples of identified
losses would be assets classified loss, off-balance sheet items
classified loss, any provision expenses that are necessary for the
institution to record in order to replenish its general valuation
allowances to an adequate level, liabilities not shown on the
institution's books, estimated losses in contingent liabilities, and
differences in accounts which represent shortages); and
(2) When measured as of any other date, those items:
(i) That have been determined--
(A) By an evaluation made by a state or federal examiner at the
most recent examination of an insured depository institution to be
chargeable against income, capital and/or general valuation allowances;
or
(B) By evaluations made by the insured depository institution
since its most recent examination to be chargeable against income,
capital and/or general valuation allowances; and
(ii) For which the appropriate accounting entries to recognize
the loss have not yet been made on the insured depository institution's
books nor has the item been collected or otherwise settled.
(k) Insured depository institution means any depository
institution (except for a foreign bank having an insured branch) the
deposits of which are insured in accordance with the provisions of the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.)
(l) Intangible assets means those assets that are
required to be reported as intangible assets in a banking institution's
"Reports of Condition and Income" (Call Report) or in a savings
association's "Thrift Financial Report."
(m) Leverage ratio means the ratio of Tier 1 capital to
total assets, as calculated under this part.
(n) Management fee means any payment of money or
provision of any other thing of value to a company or individual for
the provision of management services or advice to the bank or related
overhead expenses, including payments related to supervisory,
executive, managerial, or policymaking functions, other than
compensation to an individual in the individual's capacity as an
officer or employee of the bank.
(o) Minority interests in consolidated subsidiaries
means minority interests in equity capital accounts of those
subsidiaries that have been consolidated for the purpose of computing
regulatory capital under this part, except that minority interests
which fail to provide meaningful capital support are excluded from this
definition.
(p) Mortgage servicing assets means those assets (net of
any related valuation allowances) that result from contracts to service
loans secured by real estate (that have been securitized or are owned
by others) for which the benefits of servicing are expected to more
than adequately compensate the servicer for performing the servicing.
For purposes of determining regulatory capital under this part,
mortgage servicing assets will be recognized
{{12-31-02 p.2244}}only to the extent that the
assets meet the conditions, limitations, and restrictions described in
§ 325.5(f).
(q) Noncumulative perpetual preferred stock means
perpetual preferred stock (and related surplus) where the issuer has
the option to waive payment of dividends and where the dividends so
waived do not accumulate to future periods nor do they represent a
contingent claim on the issuer. Preferred stock issues where the
dividend is reset periodically based, in whole or in part, upon the
bank's current credit standing, including but not limited to, auction
rate, money market and remarketable preferred stock, are excluded from
this definition of noncumulative perpetual preferred stock, regardless
of whether the dividends are cumulative or noncumulative.
(r) Perpetual preferred stock means a preferred stock
that does not have a maturity date, that cannot be redeemed at the
option of the holder, and that has no other provisions that will
require future redemption of the issue. It includes those issues of
preferred stock that automatically convert into common stock at a
stated date. It excludes those issues, the rate on which increases, or
can increase, in such a manner that would effectively require the
issuer to redeem the issue.
(s) Risk-weighted assets means total risk-weighted
assets, as calculated in accordance with the FDIC's Statement of Policy
on Risk-Based Capital (appendix A to subpart A of Part 325).
(t) Savings association means any federally-chartered
savings association, any state-chartered savings association, and any
corporation (other than a bank) that the Board of Directors of the FDIC
and the Director of the Office of Thrift Supervision jointly determine
to be operating in substantially the same manner as a savings
association.
(u) Tangible equity means the amount of core capital
elements as defined in section I.A.1 of the FDIC's Statement of Policy
on Risk-Based Capital
(appendix A to this Part
325), plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible
assets except mortgage servicing assets to the extent that the FDIC
determines pursuant to § 325.5(f) of this part that mortgage
servicing assets may be included in calculating the bank's Tier 1
capital.
(v) Tier 1 capital or core capital means the
sum of common stockholders' equity, noncumulative perpetual preferred
stock (including any related surplus), and minority interests in
consolidated subsidiaries, minus all intangible assets (other than
mortgage servicing assets, nonmortgage servicing assets, and purchased
credit card relationships eligible for inclusion in core capital
pursuant to § 325.5(f)), minus credit-enhancing interest-only strips
that are not eligible for inclusion in core capital minus deferred tax
assets in excess of the limit set forth in § 325.5(g), minus
identified losses (to the extent that Tier 1 capital would have been
reduced if the appropriate accounting entries to reflect the identified
losses had been recorded on the insured depository institution's
books), and minus investments in financial subsidiaries subject to 12
CFR part 362, subpart E, and minus the amount of the total adjusted
carrying value of nonfinancial equity investments that is subject to a
deduction from Tier 1 capital as set forth in section II.B.(6) of
appendix A to this part..
(w) Tier 1 risk-based capital ratio means the ratio of
Tier 1 capital to risk-weighted assets, as calculated in accordance
with the FDIC's Statement of Policy on Risk-Based Capital (appendix A
to subpart A of Part 325).
(x) Total assets means the average of total assets
required to be included in a banking institution's "Reports of
Condition and Income" (Call Report) or, for savings associations,
the consolidated total assets required to be included in the "Thrift
Financial Report," as these reports may from time to time be
revised, as of the most recent report date (and after making any
necessary subsidiary adjustments for state nonmember banks as described
in §§ 325.5(c) and 325.5(d) of this part), minus intangible assets
(other than mortgage servicing assets, nonmortgage servicing assets,
and purchased credit card relationships eligible for inclusion in core
capital pursuant to § 325.5(f)), minus credit-enhancing interest-only
strips that are not eligible for inclusion in core capital pursuant to
§ 325.5(f), minus deferred tax assets in excess of the limit set
forth in § 325.5(g), minus assets
{{12-31-02 p.2245}}classified loss and any other
assets that are deducted in determining Tier 1 capital, and minus the
amount of the total adjusted carrying value of nonfinancial equity
investments that is subject to a deduction from Tier 1 capital as set
forth in section II.B.(6) of appendix A to this part. For banking
institutions, the average of total assets is found in the Call Report
schedule of quarterly averages. For savings associations, the
consolidated total assets figure is found in Schedule CSC of the Thrift
Financial Report.
(y) Total risk-based capital ratio means the ratio of
qualifying total capital to risk-weighted assets, as calculated in
accordance with the FDIC's Statement of Policy on Risk-Based Capital
(appendix A to subpart A of Part 325).
(z) Written agreement means an agreement in writing
executed by authorized representatives entered into with the FDIC by an
insured depository institution which is enforceable by an action under
section 8(a) and/or section 8(b) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(a),
(b)).
[Codified to 12 C.F.R. § 325.2]
[Section 325.2 amended at 52 Fed. Reg. 41972, November 2, 1987,
effective December 2, 1987; 55 Fed. Reg. 53146, December 27, 1990,
effective January 28, 1991; 56 Fed. Reg. 10160, March 11, 1991,
effective April 10, 1991; 57 Fed. Reg. 44899, September 29, 1992,
effective December 19, 1992; 58 Fed. Reg. 6368 January 28, 1993,
effective March 1, 1993; 58 Fed. Reg. 8219 February 12, 1993, effective
March 15, 1993; 58 Fed. Reg. 60103, November 15, 1993; 59 Fed. Reg.
66666, December 28, 1994, effective January 27, 1995; 60 Fed. Reg.
8187, February 13, 1995, effective April 1, 1995; 60 Fed. Reg. 39232,
Aug. 1, 1995; 63 Fed. Reg. 42677, August 10, 1998, effective October 1,
1998; 66 Fed. Reg. 59652, November 29, 2001, effective January 1, 2002;
67 Fed. Reg. 3804, January 25, 2002, effective April 1,
2002]
§ 325.3 Minimum leverage capital requirement.
(a) General. Banks must maintain at least the minimum
leverage capital requirement set forth in this section. The capital
standards in this part are the minimum acceptable for banks whose
overall financial condition is fundamentally sound, which are
well-managed and which have no material or significant financial
weaknesses. Thus, the FDIC is not precluded from requiring an
institution to maintain a higher capital level based on the
institution's particular risk profile. Where the FDIC determines that
the financial history or condition, managerial resources and/or the
future earnings prospects of a bank are not adequate, or where a bank
has sizable off-balance sheet or funding risks, significant risks from
concentrations of credit or nontraditional activities, excessive
interest rate risk exposure, or a significant volume of assets
classified substandard, doubtful or loss or otherwise criticized, the
FDIC will take these other factors into account in analyzing the bank's
capital adequacy and may determine that the minimum amount of capital
for that bank is greater than the minimum standards stated in this
section. These same criteria will apply to any insured depository
institution making an application to the FDIC that requires the FDIC to
consider the adequacy of the institution's capital structure.
(b) Minimum leverage capital requirement. (1) The
minimum leverage capital requirement for a bank (or an insured
depository institution making application to the FDIC) shall consist of
a ratio of Tier 1 capital to total assets of not less than 3 percent if
the FDIC determines that the institution is not anticipating or
experiencing significant growth and has well-diversified risk,
including no undue interest rate risk exposure, excellent asset
quality, high liquidity, good earnings and in general is considered a
strong banking organization, rated composite 1 under the Uniform
Financial Institutions Rating System (the CAMEL rating system)
established by the Federal Financial Institutions Examination Council.
(2) For all but the most highly-rated institutions meeting the
conditions set forth in paragraph (b)(1) of this section, the minimum
leverage capital requirement for a bank (or for an insured depository
institution making an application to the FDIC) shall consist of a ratio
of Tier 1 capital to total assets of not less than 4 percent.
(c) Insured depository institutions with less than the
minimum leverage capital requirement. (1) A bank (or an insured
depository institution making an application to the FDIC) operating
with less than the minimum leverage capital requirement does not have
adequate capital and therefore has inadequate financial
resources.
{{12-31-02 p.2246}}
(2) Any insured depository institution operating with an
inadequate capital structure, and therefore inadequate financial
resources, will not receive approval for an application requiring the
FDIC to consider the adequacy of its capital structure or its financial
resources.
(3) As required under
§ 325.104(a)(1) of this
part, a bank must file a written capital restoration plan with the
appropriate FDIC regional director within 45 days of the date that the
bank receives notice or is deemed to have notice that the bank is
undercapitalized, significantly undercapitalized or critically
undercapitalized, unless the FDIC notifies the bank in writing that the
plan is to be filed within a different period.
(4) In any merger, acquisition or other type of business
combination where the FDIC must give its approval, where it is required
to consider the adequacy of the financial resources of the existing and
proposed institutions, and where the resulting entity is either insured
by the FDIC or not otherwise federally insured, approval will not be
granted when the resulting entity does not meet the minimum leverage
capital requirement.
(d) Exceptions. Notwithstanding the provisions of
paragraphs (a), (b) and (c) of this section:
(1) The FDIC, in its discretion, may approve an application
pursuant to the Federal Deposit Insurance Act where it is required to
consider the adequacy of capital if it finds that such approval must be
taken to prevent the closing of a depository institution or to
facilitate the acquisition of a closed depository institution, or, when
severe financial conditions exist which threaten the stability of an
insured depository institution or of a significant number of depository
institutions insured by the FDIC or of insured depository institutions
possessing significant financial resources, such action is taken to
lessen the risk to the FDIC posed by an insured depository institution
under such threat of instability.
(2) The FDIC, in its discretion, may approve an application
pursuant to the Federal Deposit Insurance Act where it is required to
consider the adequacy of capital or the financial resources of the
insured depository institution where it finds that the applicant has
committed to and is in compliance with a reasonable plan to meet its
minimum leverage capital requirements within a reasonable period of
time.
(Approved by the Office of Management and Budget under control number
3064-0075 for use through December 31, 1993)
[Codified to 12 C.F.R. § 325.3]
[Section 325.3 amended at 52 Fed. Reg. 41973, November 2, 1987,
effective December 2, 1987; 56 Fed. Reg. 10162, March 11, 1991,
effective April 10, 1991; 58 Fed. Reg. 8219, February 12, 1993,
effective March 15, 1993; 59 Fed. Reg. 64564, December 15, 1994,
effective January 17, 1995; 60 Fed. Reg. 45609, August 31, 1995; 62
Fed. Reg. 55493, October 24, 1997, effective January 1, 1998; 64 Fed.
Reg. 10200, March 2, 1999, effective April 1,
1999]
§ 325.4 Inadequate capital as an unsafe or unsound practice or
condition.
(a) General. As a condition of federal deposit
insurance, all insured depository institutions must remain in a safe
and sound condition.
(b) Unsafe or unsound practice. Any bank which has less
than its minimum leverage capital requirement is deemed to be engaged
in an unsafe or unsound practice pursuant to section 8(b)(1) and/or
8(c) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(b)(1) and/or
1818(c)). Except that such a
bank which has entered into and is in compliance with a written
agreement with the FDIC or has submitted to the FDIC and is in
compliance with a plan approved by the FDIC to increase its Tier 1
leverage capital ratio to such level as the FDIC deems appropriate and
to take such other action as may be necessary for the bank to be
operated so as not to be engaged in such an unsafe or unsound practice
will not be deemed to be engaged in an unsafe or unsound practice
pursuant to section 8(b)(1) and/or 8(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(b)(1) and/or 1818(c)) on account of its
capital ratios. The FDIC is not precluded from taking section 8(b)(1),
section 8(c) or any other enforcement action against a bank with
capital above the minimum requirement if the specific circumstances
deem such action to be appropriate. Under the conditions set forth in
section 8(t) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(t)), the
FDIC
{{2-28-02 p.2247}}also may take section 8(b)(1)
and/or 8(c) enforcement action against any savings association that is
deemed to be engaged in an unsafe or unsound practice on account of its
inadequate capital structure.
(c) Unsafe or unsound condition. Any insured depository
institution with a ratio of Tier 1 capital to total assets that is less
than two percent is deemed to be operating in an unsafe or unsound
condition pursuant to section 8(a) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(a)).
(1) A bank with a ratio of Tier 1 capital to total assets of less
than two percent which has entered into and is in compliance with a
written agreement with the FDIC (or any other insured depository
institution with a ratio of Tier 1 capital to total assets of less than
two percent which has entered into and is in compliance with a written
agreement with its primary federal regulator and to which agreement the
FDIC is a party) to increase its Tier 1 leverage capital ratio to such
level as the FDIC deems appropriate and to take such other action as
may be necessary for the insured depository institution to be operated
in a safe and sound manner, will not be subject to a proceeding by the
FDIC pursuant to 12 U.S.C. 1818(a) on account of its capital ratios.
(2) An insured depository institution with a ratio of Tier 1
capital to total assets that is equal to or greater than two percent
may be operating in an unsafe or unsound condition. The FDIC is not
precluded from bringing an action pursuant to 12 U.S.C. 1818(a) where
an insured depository institution has a ratio of Tier 1 capital to
total assets that is equal to or greater than two percent.
[Codified to 12 C.F.R. § 325.4]
[Section 325.4 amended at 56 Fed. Reg. 10162, March 11, 1991,
effective April 10, 1991]
§ 325.5 Miscellaneous.
(a) Intangible assets. Any intangible assets that were
explicitly approved by the FDIC as part of the bank's regulatory
capital on a specific case basis will be included in capital under the
terms and conditions that were approved by the FDIC, provided that the
intangible asset is being amortized over a period not to exceed 15
years or its estimated useful life, whichever is shorter. However,
pursuant to section 18(n) of the Federal Deposit Insurance Act
(12 U.S.C. 1828(n)), an
unidentifiable intangible asset such as goodwill, if acquired after
April 12, 1989, cannot be included in calculating regulatory capital
under this part.
(b) Reservation of authority. Notwithstanding the
definition of "Tier 1 capital" in § 325.2(t) of this subpart
and the risk based capital definitions of Tier 1 and Tier 2 capital in
appendix A to this subpart, the Director of the Division of Supervision
may, if the Director finds a newly developed or modified capital
instrument or a particular balance sheet entry or account to be the
functional equivalent of a component of Tier 1 or Tier 2 capital,
permit one or more insured depository institutions to include all or a
portion of such instrument, entry, or account as Tier 1 or Tier 2
capital, permanently, or on a temporary basis, for purposes of this
part. Similarly, the Director of the Division of Supervision may, if
the Director finds that a particular Tier 1 or Tier 2 capital component
or balance sheet entry or account has characteristics or terms that
diminish its contribution to an insured depository institution's
ability to absorb losses, require the deduction of all or a portion of
such component, entry, or account from Tier 1 or Tier 2 capital.
(c) Securities subsidiary. For purposes of this part,
any securities subsidiary subject to 12 CFR 337.4 shall not be
consolidated with its bank parent and any investment therein shall be
deducted from the bank parent's Tier 1 capital and total assets.
(d) Depository institution subsidiary. Any domestic
depository institution subsidiary that is not consolidated in the
"Reports of Condition and Income" (Call Report) of its insured
parent bank shall be consolidated with the insured parent bank for
purposes of this part. The financial statements of the subsidiary that
are to be used for this consolidation must be prepared in the same
manner as the "Reports of Condition and Income" (Call Report). A
domestic depository institution subsidiary of a savings association
shall be consolidated for
{{2-28-02 p.2248}}purposes of this part if such
consolidation also is required pursuant to the capital requirements of
the association's primary federal regulator.
(e) Restrictions relating to capital components. To
qualify as Tier 1 capital under this part or Tier 1 or Tier 2 capital
under appendix A to this part, a capital instrument must not contain or
be subject to any conditions, covenants, terms, restrictions, or
provisions that are inconsistent with safe and sound banking practices.
A condition, covenant, term, restriction, or provision is inconsistent
with safe and sound banking practices if it:
(1) Unduly interferes with the ability of the issuer to conduct
normal banking operations;
(2) Results in significantly higher dividends or interest
payments in the event of deterioration in the financial condition of
the issuer;
(3) Impairs the ability of the issuer to comply with statutory or
regulatory requirements regarding the disposition of assets or
incurrance of additional debt; or
(4) Limits the ability of the FDIC or a similar regulatory
authority to take any necessary action to resolve a problem bank or
failing bank situation. Other conditions and covenants that are not
expressly listed in paragraphs (e)(1) through (e)(4) of this section
also may be inconsistent with safe and sound banking practices.
(f) Treatment of mortgage servicing assets, purchased credit
card relationships, nonmortgage servicing assets, and credit-enhancing
interest-only strips. For purposes of determining Tier 1 capital
under this part, mortgage servicing assets, purchased credit card
relationships, nonmortgage servicing assets, and credit-enhancing
interest-only strips will be deducted from assets and from common
stockholders' equity to the extent that these items do not meet the
conditions, limitations, and restrictions described in this section.
Banks may elect to deduct disallowed servicing assets and disallowed
credit-enhancing interest-only strips on a basis that is net of a
proportional amount of any associated deferred tax liability recorded
on the balance sheet. Any deferred tax liability 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 and calculating the maximum allowable amount of these assets
under paragraph (g) of this section.
(1) Valuation. The fair value of mortgage servicing
assets, purchased credit card relationships, nonmortgage servicing
assets, and credit-enhancing interest-only strips shall be estimated at
least quarterly. The quarterly fair value estimate shall include
adjustments for any significant changes in the original valuation
assumptions, including changes in prepayment estimates or attrition
rates. The FDIC in its discretion may require independent fair value
estimates on a case-by-case basis where it is deemed appropriate for
safety and soundness purposes.
(2) Fair value limitation. For purposes of calculating
Tier 1 capital under this part (but not for financial statement
purposes), the balance sheet assets for mortgage servicing assets,
purchased credit card relationships, and nonmortgage servicing assets
will each be reduced to an amount equal to the lesser of:
(i) 90 percent of the fair value of these assets, determined in
accordance with paragraph (f)(1) of this section; or
(ii) 100 percent of the remaining unamortized book value of these
assets (net of any related valuation allowances), determined in
accordance with the instructions for the preparation of the "Reports
of Income and Condition" (Call Reports).
(3) Tier 1 capital limitations. (i) The maximum
allowable amount of mortgage servicing assets, purchased credit card
relationships, and nonmortgage servicing assets in the aggregate, will
be limited to the lesser of:
(A) 100 percent of the amount of Tier 1 capital that exists
before the deduction of any disallowed mortgage servicing assets, any
disallowed purchased credit card relationships, any disallowed
nonmortgage servicing assets, any disallowed credit-enhancing
interest-only strips, any disallowed deferred tax assets, and any
nonfinancial equity investments; or
(B) The sum of the amounts of mortgage servicing assets,
purchased credit card relationships, and nonmortgage servicing assets,
determined in accordance with paragraph (f)(2) of this
section.
{{12-31-08 p.2248.01}}
(ii) The maximum allowable amount of credit-enhancing
interest-only strips, whether purchased or retained, will be limited to
the lesser of:
(A) 25 percent of the amount of Tier 1 capital that exists before
the deduction of any disallowed mortgage servicing assets, any
disallowed purchased credit card relationships, any disallowed
nonmortgage servicing assets, any disallowed credit-enhancing
interest-only strips, any disallowed deferred tax assets, and any
nonfinancial equity investments; or
(B) The sum of the face amounts of all credit-enhancing
interest-only strips.
(4) Tier 1 capital sublimit. In addition to the
aggregate limitation on mortgage servicing assets, purchased credit
card relationships, and nonmortgage servicing assets set forth in
paragraph (f)(3) of this section, a sublimit will apply to purchased
credit card relationships and nonmortgage servicing assets. The maximum
allowable amount of the aggregate of purchased credit card
relationships and nonmortgage servicing assets will be limited to the
lesser of:
(i) 25 percent of the amount of Tier 1 capital that exists before
the deduction of any disallowed mortgage servicing assets, any
disallowed purchased credit card relationships, any disallowed
nonmortgage servicing assets, any disallowed credit-enhancing
interest-only strips, any disallowed deferred tax assets, and any
nonfinancial equity investments; or
(ii) The sum of the amounts of purchased credit card
relationships and nonmortgage servicing assets determined in accordance
with paragraph (f)(2) of this section.
(g) 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) Deferred tax assets that are dependent upon future
taxable income. These assets are:
(i) Deferred tax assets arising from deductible temporary
differences that exceed the amount of taxes previously paid that could
be recovered through loss carrybacks if existing temporary differences
(both deductible and taxable and regardless of where the related
deferred tax effects are reported on the balance sheet) fully reverse
at the calendar quarter-end date; and
(ii) Deferred tax assets arising from operating loss and tax
credit carryforwards.
(2) Tier 1 capital limitations. (i) The maximum
allowable amount of deferred tax assets that are dependent upon future
taxable income, net of any valuation allowance for deferred tax assets,
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 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 mortgage servicing assets, any
disallowed nonmortgage servicing assets, any disallowed purchased
credit card relationships, any disallowed credit-enhancing
interest-only strips, any disallowed deferred tax assets, and any
nonfinancial equity investments.
(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. However, notwithstanding
the first three sentences in this paragraph, the amount of carryback
potential that may be considereed in calculating the amount of deferred
tax assets that a member of a consolidated group (for tax purposes) may
include in Tier 1 capital may not exceed the amount which the member
could reasonably expect to have refunded by its parent.
(3) 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
{{12-31-08 p.2248.02}}reverse within that year.
Projected future taxable income should include the estimated effectof
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.
(4) 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.
(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 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.
[Codified to 12 C.F.R. § 325.5]
[Section 325.5 amended at 52 Fed. Reg. 41973, November 2,
1987, effective December 2, 1987; 55 Fed. Reg. 53146, December 27,
1990, effective January 28, 1991; 56 Fed. Reg. 10163, March 11, 1991,
effective April 10, 1991; 57 Fed. Reg. 7647, March 4, 1992, effective
February 18, 1992; 58 Fed. Reg. 6369, January 28, 1993, effective March
1, 1993; 58 Fed. Reg. 8219, February 12, 1993; effective March 15,
1993; 60 Fed. Reg. 8187, February 13, 1995, effective April 1, 1995; 60
Fed. Reg. 39232, August 1, 1995; 63 Fed. Reg. 42677, August 10, 1998,
effective October 1, 1998; 66 Fed. Reg. 59652, November 29, 2001,
effective January 1, 2002; 67 Fed. Reg. 3804, January 25, 2002,
effective April 1, 2002; 73 Fed. Reg. 79606, December 30, 2008,
effective January 29, 2009, applicability date for Banking
organizations may elect to apply this final rule for purposes of the
regulatory reporting period ending in December 31, 2008]
{{10-31-93 p.2249}}
§ 325.6 Issuance of directives.
(a) General. A directive is a final order issued to a
bank that fails to maintain capital at or above the minimum leverage
capital requirement as set forth in §§ 325.3 and 325.4. A directive
issued pursuant to this section, including a plan submitted under a
directive, is enforceable in the same manner and to the same extent as
a final cease-and-desist order issued under
12 U.S.C. 1818(b).
(b) Issuance of directives. If a bank is operating with
less than the minimum leverage capital requirement established by this
regulation, the Board of Directors, or its designee(s), may issue and
serve upon any insured state nonmember bank a directive requiring the
bank to restore its capital to the minimum leverage capital requirement
within a specified time period. The directive may require the bank to
submit to the appropriate FDIC regional director, or other specified
official, for review and approval, a plan describing the means and
timing by which the bank shall achieve the minimum leverage capital
requirement. After the FDIC has approved the plan, the bank may be
required under the terms of the directive to adhere to and monitor
compliance with the plan. The directive may be issued during the course
of an examination of the bank, or at any other time that the FDIC deems
appropriate, if the bank is found to be operating with less than the
minimum leverage capital requirement.
(c) Notice and opportunity to respond to issuance of a
directive. (1) If the FDIC makes an initial determination that a
directive should be issued to a bank pursuant to paragraph (b) of this
section, the FDIC, through the appropriate designated official(s),
shall serve written notification upon the bank of its intent to issue a
directive. The notice shall include the current Tier 1 leverage capital
ratio, the basis upon which said ratio was calculated, the proposed
capital injection, the proposed date for achieving the minimum leverage
capital requirement and any other relevant information concerning the
decision to issue a directive. When deemed appropriate, specific
requirements of a proposed plan for meeting the minimum leverage
capital requirement may be included in the notice.
(2) Within 14 days of receipt of notification, the bank may file
with the appropriate designated FDIC official(s) a written response,
explaining why the directive should not be issued, seeking modification
of its terms, or other appropriate relief. The bank's response shall
include any information, mitigating circumstances, documentation or
other relevant evidence which supports its position, and may include a
plan for attaining the minimum leverage capital requirement.
(3) After considering the bank's response, the appropriate
designated FDIC official(s) shall serve upon the bank a written
determination addressing the bank's response and setting forth the
FDIC's findings and conclusions in support of any decision to issue or
not to issue a directive. The directive may be issued as originally
proposed or in modified form. The directive may order the bank to:
(i) Achieve the minimum leverage capital requirement established
by this regulation by a certain date;
(ii) Submit for approval and adhere to a plan for achieving the
minimum leverage capital requirement;
(iii) Take other action as is necessary to achieve the minimum
leverage capital requirement; or
(iv) A combination of the above actions.
If a directive is to be issued, it may be served upon the bank along
with the final determination.
(4) Any bank, upon a change in circumstances, may request the
FDIC to reconsider the terms of a directive and may propose changes in
the plan under which it is operating to meet the minimum leverage
capital requirement. The directive and plan continue in effect while
such request is pending before the FDIC.
(5) All papers filed with the FDIC must be postmarked or received
by the appropriate designated FDIC official(s) within the prescribed
time limit for filing.
{{10-31-93 p.2250}}
(6) Failure by the bank to file a written response to
notification of intent to issue a directive within the specified time
period shall constitute consent to the issuance of such directive.
(d) Enforcement of a directive. (1) Whenever a bank
fails to follow the directive or to submit or adhere to its capital
adequacy plan, the FDIC may seek enforcement of the directive in the
appropriate United States district court, pursuant to
12 U.S.C. 3907(b)(2)(B)(ii),
in the same manner and to the same extent as if the directive were a
final cease-and-desist order. In addition to enforcement of the
directive, the FDIC may seek assessment of civil money penalties for
violation of the directive against any bank, any officer, director,
employee, agent, or other person participating in the conduct of the
affairs of the bank, pursuant to 12
U.S.C. 3909(d).
(2) The directive may be issued separately, in conjunction with,
or in addition to, any other enforcement mechanisms available to the
FDIC, including cease-and-desist orders, orders of correction, the
approval or denial of applications, or any other actions authorized by
law. In addition to addressing a bank's minimum leverage capital
requirement, the capital directive may also address minimum risk-based
capital requirements that are to be maintained and calculated in
accordance with appendix A to this part.
[Codified to 12 C.F.R. § 325.6]
[Section 325.6 amended at 56 Fed. Reg. 10164, March 11, 1991,
effective April 10, 1991]
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