(a) Establishment
of allocated transfer-risk reserve. A banking institution shall
establish an allocated transfer-risk reserve (ATRR) for specified
international assets when required by the Board in accordance with
this section.
(b) Procedures and
standards.
(1) Joint agency determination. At least annually,
the federal banking agencies shall determine jointly, based on the
standards set forth in subparagraph (b)(2) of this section, the following:
(i) which international
assets subject to transfer risk warrant establishment of an ATRR;
(ii) the amount of the ATRR for
the specified assets; and
(iii)
whether an ATRR established for specified assets may be reduced.
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(2) Standards
for requiring ATRR.
(i) Evaluation
of assets. The federal banking agencies shall apply the following
criteria in determining whether an ATRR is required for particular
international assets:
(A) whether the quality of a banking institution’s assets has been
impaired by a protracted inability of public or private obligors in
a foreign country to make payments on their external indebtedness
as indicated by such factors, among others, as whether—
(1)
such obligors have failed to make full interest payments on external
indebtedness; or
(2) such obligors
have failed to comply with the terms of any restructured indebtedness;
or
(3) a foreign country has
failed to comply with any International Monetary Fund or other suitable
adjustment program; or
(B) whether no definite prospects exist for the orderly restoration
of debt service.
(ii) Determination of amount of ATRR.
(A) In determining
the amount of the ATRR, the federal banking agencies shall consider—
(1) the length of time the quality of the asset has been impaired;
(2) recent actions taken to restore
debt-service capability;
(3) prospects for restored asset quality; and
(4) such other factors as the federal
banking agencies may consider relevant to the quality of the asset.
(B) The initial year’s
provision for the ATRR shall be 10 percent of the principal amount
of each specified international asset, or such greater or lesser percentage
determined by the federal banking agencies. Additional provision,
if any, for the ATRR in subsequent years shall be 15 percent of the
principal amount of each specified international asset, or such greater
or lesser percentage determined by the federal banking agencies.
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(3) Board notification. Based on the
joint agency determinations under paragraph (b)(1) of this section, the
Board shall notify each banking institution holding assets subject
to an ATRR—
(i) of
the amount of the ATRR to be established by the institution for specified
international assets; and
(ii)
that an ATRR established for specified assets may be reduced.
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(c) Accounting treatment of ATRR.
(1) Charge to current income. A banking institution
shall establish an ATRR by a charge to current income and the amounts
so charged shall not be included in the banking institution’s capital
or surplus.
(2) Separate accounting. A banking institution
shall account for an ATRR separately from the allowance for loan and
lease losses, and shall deduct the ATRR from “gross loans and leases”
to arrive at “net loans and leases.” The ATRR must be established
for each asset subject to the ATRR in the percentage amount specified.
(3) Consolidation. A banking institution shall
establish an ATRR, as required, on a consolidated basis. For banks,
consolidation should be in accordance with the procedures and tests
of significance set forth in the instructions for preparation of Consolidated
Reports of Condition and Income (FFIEC Nos. 031 and 041). For bank
holding companies, the consolidation shall be in accordance with the
principles set forth in the instructions to Consolidated Financial
Statements for Bank Holding Companies (Form FR Y-9C). Edge and agreement
corporations engaged in banking shall report in accordance with instructions
for preparation of the Report of Condition for Edge and Agreement
Corporations (Form FR 2886b).
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(4) Alternative accounting treatment. A banking institution is not required to establish an ATRR if it
writes down in the period in which the ATRR is required, or has written
down in prior periods, the value of the specified international assets
in the requisite amount for each such asset. For purposes of this
paragraph, international assets may be written down by a charge to
the Allowance for Loan and Lease Losses or the allowance for credit
losses, as applicable, to the extent permitted under U.S. generally
accepted accounting principles, or a reduction in the principal amount
of the asset by application of interest payments or other collections
on the asset. However, the Allowance for Loan and Lease Losses or
allowance for credit losses, as applicable, must be replenished in
such amount necessary to restore it to a level which adequately provides
for the estimated losses inherent in the banking institution’s loan
portfolio.
(5) Reduction of ATRR. A banking institution
may reduce an ATRR when notified by the Board or, at any time, by
writing down such amount of the international asset for which the
ATRR was established.
