Capital; Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance

[Federal Register Volume 60, Number 147 (Tuesday, August 1, 1995)]

[Rules and Regulations]

[Pages 39226-39233]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 95-18772]

[[Page 39225]]

_______________________________________________________________________

Part IV

Department of the Treasury

Office of the Comptroller of the Currency

Federal Reserve System

Federal Deposit Insurance Corporation

Department of the Treasury

Office of Thrift Supervision

_______________________________________________________________________

12 CFR Part 3, et al.

Capital; Risk-Based Capital Guidelines; Capital Adequacy Guidelines;

Capital Maintenance; Final Rule

Federal Register / Vol. 60, No. 147 / Tuesday, August 1, 1995 / Rules

and Regulations

[[Page 39226]]

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3 and 6

[Docket No. 95-18]

RIN 1557-AB14

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Docket No. R-0887]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AB61

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 565 and 567

[Docket No. 95-140]

RIN 1550-AA84

Capital; Risk-Based Capital Guidelines; Capital Adequacy

Guidelines; Capital Maintenance

AGENCIES: Office of the Comptroller of the Currency (OCC), Department

of the Treasury; Board of Governors of the Federal Reserve System

(FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift

Supervision (OTS), Department of the Treasury.

ACTION: Joint interim rule with request for comments.

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SUMMARY: The OCC, FRB, FDIC, and OTS (the Agencies) are amending their

capital adequacy standards for banks, bank holding companies, and

savings associations (banking organizations) to treat originated

mortgage servicing rights (OMSRs) the same as purchased mortgage

servicing rights (PMSRs) for regulatory capital purposes. The interim

capital rule was developed in response to the Financial Accounting

Standards Board's issuance of Statement No. 122, ``Accounting for

Mortgage Servicing Rights,'' which eliminates the accounting

distinction between OMSRs and PMSRs by requiring OMSRs to be

capitalized as balance sheet assets, a treatment previously required

only for PMSRs. Under the interim rule, both OMSRs and PMSRs are

``included in'' (i.e., not deducted from) regulatory capital when

determining Tier 1 (core) capital for purposes of the Agencies' risk-

based and leverage capital standards, and when calculating tangible

equity for purposes of prompt corrective action, subject to the

regulatory capital limitations that previously applied only to PMSRs.

Thus, the effect of the interim rule is to permit OMSRs in regulatory

capital, subject to certain limitations.

DATES: The interim rule is effective August 1, 1995. Comments must be

received by October 2, 1995.

ADDRESSES: Commenters should respond to their primary federal

regulator. All comments will be shared among all of the Agencies.

OCC: Written comments should be submitted to Docket No. 95-18,

Communications Division, Ninth Floor, Office of the Comptroller of the

Currency, 250 E Street SW., Washington, DC 20219, Attention: Karen

Carter. Comments will be available for inspection and photocopying at

that address.

FRB: Comments should refer to Docket No. R-0887, and may be mailed

to William W. Wiles, Secretary, Board of Governors of the Federal

Reserve System, 20th Street and Constitution Avenue NW., Washington, DC

20551. Comments also may be delivered to Room B-2222 of the Eccles

Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard

station in the Eccles Building courtyard on 20th Street NW. (between

Constitution Avenue and C Street) at any time. Comments received will

be available for inspection in Room MP-500 of the Martin Building

between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in 12 CFR

261.8 of the Board's rules regarding availability of information.

FDIC: Written comments shall be addressed to Office of the

Executive Secretary, Federal Deposit Insurance Corporation, 550 17th

Street NW., Washington, DC 20429. Comments may be hand delivered to

Room F-402, 1776 F Street NW., Washington, DC 20429, on business days

between 8:30 a.m. and 5:00 p.m. (Fax number: (202) 898-3838; Internet

address: [email protected]) Comments will be available for inspection

at the FDIC's Reading Room, Room 7118, 550 17th Street NW., Washington,

DC, between 9:00 a.m. and 4:30 p.m. on business days.

OTS: Send comments to Chief, Dissemination Branch, Records

Management and Information Policy, Office of Thrift Supervision, 1700 G

Street, N.W., Washington, D.C. 20552, Attention Docket No. 95-140.

These submissions may be hand-delivered to 1700 G Street, N.W. between

9 a.m. and 5 p.m. on business days; they may be sent by facsimile

transmission to FAX Number (202) 906-7755. Comments will be available

for inspection at 1700 G Street, N.W., from 1:00 p.m. until 4:00 p.m.

on business days.

FOR FURTHER INFORMATION CONTACT: OCC: Christine A. Smith, Esq.,

Professional Accounting Fellow, (202/874-5180), Roger Tufts, Senior

Economic Advisor, (202/874-5070), Office of the Chief National Bank

Examiner; Mitchell Stengel, Financial Economist, (202/874-5431), Risk

Analysis Division; Ronald Shimabukuro, Senior Attorney, or P. Moni

SenGupta, Attorney, (202/874-5090), Legislative and Regulatory

Activities Division, Washington, D.C. 20219.

FRB: Arthur W. Lindo, Supervisory Financial Analyst, (202/452-2695)

or Thomas R. Boemio, Supervisory Financial Analyst, (202/452-2982),

Division of Banking Supervision and Regulation. For the hearing

impaired only, Telecommunication Device for the Deaf (TDD), Dorothea

Thompson (202) 452-3544, Board of Governors of the Federal Reserve

System, 20th and C Streets, N.W., Washington, D.C. 20551.

FDIC: For supervisory issues, Stephen G. Pfeifer, Examination

Specialist, (202/898-8904), Accounting Section, Division of

Supervision; for legal issues, Jules E. Bernard, Counsel, (202/898-

3731), Legal Division.

OTS: John F. Connolly, Senior Program Manager for Capital Policy,

(202/906-6465), or Timothy J. Stier, Assistant Chief Accountant, (202/

906-5699), Supervision; Deborah Dakin, Assistant Chief Counsel, (202/

906-6445), Regulations and Legislation Division, Office of the Chief

Counsel, Office of Thrift Supervision, 1700 G Street, N.W., Washington,

D.C. 20552.

SUPPLEMENTARY INFORMATION:

Background

Mortgage servicing rights are the contractual obligations

undertaken by an institution to provide servicing for mortgage loans

owned by others, typically for a fee. Originated mortgage servicing

rights (OMSRs) generally represent the servicing rights acquired when

an institution originates mortgage loans and subsequently sells the

loans but retains the servicing rights. Purchased mortgage servicing

rights (PMSRs) are mortgage servicing rights that have been purchased

from other parties.

In May 1995, the Financial Accounting Standards Board (FASB) issued

Statement of Financial Accounting Standards No. 122 (FAS 122),

``Accounting for Mortgage Servicing Rights.'' FAS 122 eliminates the

accounting distinction between

[[Page 39227]]

OMSRs and PMSRs and the need for companies engaged in mortgage banking

to sell OMSRs in order to realize their value for financial statement

purposes. FAS 122 specifies that capitalized mortgage servicing rights

are to be treated as a single type of asset, regardless of how these

rights were acquired. As a result, upon an institution's adoption of

FAS 122, both OMSRs and PMSRs must be capitalized as balance sheet

assets, a treatment previously permitted only for PMSRs. Both types of

mortgage servicing rights may be reported in the same balance sheet

asset category. Thus, on a prospective basis, under generally accepted

accounting principles (GAAP), there generally will no longer be any

significant accounting distinction between OMSRs and PMSRs for

reporting, valuation, or disclosure purposes.

Prior to the issuance of FAS 122, GAAP referred to PMSRs as

intangible assets. FAS 122 eliminates the reference to PMSRs as

intangible assets but does not characterize mortgage servicing rights

as either intangible or tangible assets. FAS 122 indicates that no

characterization of mortgage servicing rights as either intangible or

tangible assets is necessary because similar characterizations are not

made for most other assets. However, FAS 122 also indicates that the

elimination of the intangible asset reference does not imply that

mortgage servicing rights are tangible assets.

FAS 122 requires that mortgage servicing rights be considered

impaired whenever their fair value is less than their amortized cost. A

valuation allowance is required for the amount of any impairment, which

must be measured by stratifying mortgage servicing rights based on one

or more of the predominant risk characteristics of the underlying

loans. These characteristics may include loan type, size, note rate,

date of origination, term and geographic location.

FAS 122 is effective for financial statements prepared in

accordance with GAAP for fiscal years beginning after December 15,

1995, although FASB encourages earlier application. On June 21, 1995,

the Federal Financial Institutions Examination Council (FFIEC)

announced that banks must adopt FAS 122 for purposes of the Reports of

Condition and Income (Call Report) as of the same effective date and

with earlier application permitted to the extent allowable in this

accounting standard. The OTS requires savings associations to follow

GAAP for regulatory reporting and, thus, FAS 122's effective date

provisions are also applicable for Thrift Financial Report

purposes.1

\1\Commercial banks are required to file quarterly Consolidated

Reports of Condition and Income (Call Reports) and should report

OMSRs and PMSRs in Schedule RC-M (Memoranda), item 6.a., ``Mortgage

servicing rights'' and in Schedule RC (Balance Sheet), item 10,

``Intangible assets.'' Bank holding companies with total

consolidated assets of $150 million or more file quarterly

Consolidated Financial Statements for Bank Holding Companies (FR Y-

9C reports) with the Federal Reserve, and should report OMSRs and

PMSRs in Schedule HC--Consolidated Balance Sheet, item 10.a.,

``Mortgage servicing rights.'' Savings Associations are required to

file quarterly Thrift Financial Reports and should report

capitalized OMSRs and PMSRs on Thrift Financial Report Schedule SC,

line 640, which is currently labeled ``purchased loan servicing

rights.''

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Interim Amendments to the Capital Adequacy Guidelines

Banking organizations adopting FAS 122 early could reflect OMSRs on

their regulatory reports as soon as June 30, 1995.2 In view of

this implementation schedule, the Agencies are now adopting an interim

rule that is effective immediately in order to give banking

organizations that adopt FAS 122 early direction on the regulatory

capital treatment of OMSRs.

\2\Banking organizations that do not adopt FAS 122 early may not

capitalize OMSRs in 1995 and would not reflect the asset on their

regulatory reports. In the interim, such institutions should

continue to report PMSRs in accordance with the existing Call Report

and Thrift Financial Report instructions until they adopt FAS 122 in

1996.

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Under the interim rule, for risk-based and leverage capital

purposes, mortgage servicing rights, including both PMSRs and

OMSRs3, and purchased credit card relationships (PCCRs) may be

included in capital only to the extent that, in the aggregate, they do

not exceed 50 percent of Tier 1 (core) capital.4 For purposes of

calculating Tier 1 (core) capital, all mortgage servicing rights are

valued--as PMSRs previously were--at the lesser of 90 percent of fair

market value or 100 percent of their book value (net of any valuation

allowance). In addition, under the interim rule, the amount of mortgage

servicing rights that may be included in tangible equity for purposes

of prompt corrective action is the same as that permitted in Tier 1

(core) capital.

\3\Due to the 50 percent of Tier 1 (core) capital limitation, it

is possible that at least some of the OMSRs an institution reports

as balance sheet assets for Call Report and Thrift Financial Report

purposes may be required to be deducted in computing regulatory

capital under this interim rule. For purposes of determining the

amount of any OMSRs that would be deducted (or disallowed) under

this 50 percent of Tier 1 (core) capital limitation, institutions

may choose to reduce their otherwise disallowed OMSRs by the amount

of any associated deferred tax liability. Any such deferred tax

liability used in this manner would not be available for the

institution to use in determining the amount of any net deferred tax

assets that may be included in Tier 1 (core) capital for risk-based

and leverage capital purposes.

\4\The 25 percent of Tier 1 (core) capital sublimit on PCCRs is

not affected by this rulemaking. In addition, all other intangible

assets continue to be fully deducted from capital.

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The Agencies are adopting this interim rule because they believe

that the risk characteristics of OMSRs are similar to those of PMSRs.

In view of the subjectivity and uncertainty surrounding the valuation

of PMSRs and the consequent risks resulting from a high concentration

of these assets, the Agencies previously decided to limit the amount of

PMSRs that an institution could include in regulatory capital.

Therefore, the Agencies believe that it is consistent to limit OMSRs in

the same manner as PMSRs, pending a review of the comments received on

this interim rule and the Agencies' resulting determination of the

appropriate capital treatment of mortgage servicing rights. This

interim capital rule is consistent with the recommendations provided on

June 21, 1995, to the Agencies by the FFIEC's Task Force on

Supervision.

The Agencies are seeking comment on all aspects of this interim

rule. The Agencies also request specific comment on the following:

(1) For regulatory capital purposes, the Agencies have considered

PMSRs as intangible assets. This determination was based, in part, on

the prior GAAP characterization of this asset. FAS 122 indicates

indifference toward any characterization of mortgage servicing rights

(both PMSRs and OMSRs) as intangible or tangible assets.

(a) Should mortgage servicing rights be viewed as intangible assets

for regulatory capital purposes?

(b) If mortgage servicing rights are considered to be intangible

assets for regulatory capital purposes, should they continue to be

subject to the regulatory capital limitations previously applied only

to PMSRs?

(c) If mortgage servicing rights are considered to be tangible

assets for regulatory capital purposes, what regulatory capital

limitations, if any, should apply?

(2) How should any deferred tax liability associated with PMSRs and

OMSRs be treated when calculating a regulatory capital limit?

(3) When an institution originates mortgage loans and swaps them

for mortgage-backed securities, including agency guaranteed mortgage-

backed securities, FAS 122 requires the institution to attribute a

separate cost basis to the loan and servicing right components of such

mortgage-backed securities. What is the appropriate regulatory capital

treatment of mortgage servicing rights that are associated with

mortgage-backed securities that are

[[Page 39228]]

acquired in swap transactions and included in an institution's assets?

Regulatory Flexibility Act Analysis

The Agencies do not believe that the adoption of their interim

rule will have a significant economic impact on a substantial number of

small business entities (in this case, small banking organizations), in

accordance with the spirit and purposes of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq.). Because of the pre-FAS 122 accounting

treatment of OMSRs, no banking organizations--large or small--currently

carry any OMSRs, which are the subject of the interim rule, as assets

on their balance sheets or include them in capital. The Agencies'

interim rule, in combination with the requirement that institutions

adopt FAS 122 for regulatory reporting purposes, allows banking

organizations to increase their regulatory capital by including OMSRs

in assets and Tier 1 (core) capital. This interim rule would only

affect those banking organizations that originate and subsequently sell

or securitize mortgage loans but retain the servicing rights. In

addition, FAS 122 is to be applied prospectively. As a result, OMSRs

will only need to be capitalized for those transactions that occur

after the date as of which an institution adopts FAS 122. Moreover,

because the risk-based and leverage capital guidelines generally do not

apply to bank holding companies with consolidated assets of less than

$150 million, this proposal will not affect such companies.

OCC and OTS Executive Order 12866 Statement

The Comptroller of the Currency and the Director of the OTS have

determined that the interim rule described in this notice is not a

significant regulatory action under Executive Order 12866. Accordingly,

a regulatory impact analysis is not required.

Paperwork Reduction Act and Regulatory Burden

The Agencies have determined that this interim rule will not

increase the regulatory paperwork burden of banking organizations

pursuant to the provisions of the Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

Section 302 of the Riegle Community Development and Regulatory

Improvement Act of 1994 (Pub. L. 103-325, 108 Stat. 2160) provides that

the federal banking agencies must consider the administrative burdens

and benefits of any new regulation that imposes additional requirements

on insured depository institutions. The Agencies have found that their

interim rule does not impose any additional reporting or recordkeeping

burdens. Section 302 also requires such a rule to take effect on the

first day of the calendar quarter following final publication of the

rule, unless the agency, for good cause, determines an earlier

effective date is appropriate. The Agencies have decided that their

interim rule should be effective immediately because it provides

institutions with information on the regulatory capital treatment for

OMSRs that may begin to be reported on the June 30, 1995 Call Report

and Thrift Financial Report.

Administrative Procedure Act

Pursuant to section 553 of the Administrative Procedure Act, 5

U.S.C. 553, the Agencies find good cause for issuing this interim rule

in advance of the receipt of comments from interested parties and for

waiving the 30-day delay of effectiveness provisions of the

Administrative Procedures Act. This ``good cause'' determination is

based upon institutions' immediate need to know how to treat OMSRs in

computing regulatory capital. This guidance is necessary because the

Financial Accounting Standards Board, on May 12, 1995, revised the

treatment of OMSRs under generally accepted accounting principles by

adopting Statement of Financial Accounting Standard No. 122 (FAS 122),

``Accounting for Mortgage Servicing Rights,'' which institutions may

adopt beginning in reports prepared as of June 30, 1995. Under FAS 122,

OMSRs will be capitalized and included in assets with corresponding

increases to an institution's capital base. Prior to the issuance of

FAS 122, OMSRs were not capitalized and not recorded on the balance

sheet. This interim rule allows institutions that early adopt FAS 122

in their June 30, 1995, regulatory reports to include OMSRs in assets

and regulatory capital, subject to certain limitations.

OCC and OTS Unfunded Mandates Act Statement

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law

104-4 (Unfunded Mandates Act) (signed into law on March 22, 1995)

requires that an agency prepare a budgetary impact statement before

promulgating a rule that includes a Federal mandate that may result in

expenditure by State, local and tribal governments, in the aggregate,

or by the private sector, of $100 million or more in any one year. If a

budgetary impact statement is required, section 205 of the Unfunded

Mandates Act also requires an agency to identify and consider a

reasonable number of regulatory alternatives before promulgating a

rule. As discussed in the preamble, this interim rule, in conjunction

with FAS 122, permits OMSRs to be capitalized as balance sheet items, a

treatment that was previously only permitted for PMSRs. Under the

interim rule, OMSRs will be included in calculating Tier 1 (core)

capital for risk-based capital and leverage capital standards subject

to the same constraints that are imposed on PMSRs. Thus, no additional

cost of $100 million or more, to State, local, or tribal governments or

to the private sector will result from this rule. Accordingly, the OCC

and the OTS have not prepared a budgetary impact statement nor

specifically addressed any regulatory alternatives.

List of Subjects

12 CFR Part 3

Administrative practice and procedure, Capital, National banks,

Reporting and recordkeeping requirements, Risk.

12 CFR Part 6

Capital, National banks.

12 CFR Part 208

Accounting, Agriculture, Banks, banking, Confidential business

information, Crime, Currency, Federal Reserve System, Flood insurance,

Mortgages, Reporting and recordkeeping requirements, Securities.

12 CFR Part 225

Administrative practice and procedure, Banks, banking, Federal

Reserve System, Holding companies, Reporting and recordkeeping

requirements, Securities.

12 CFR Part 325

Bank deposit insurance, Banks, banking, Capital adequacy, Reporting

and recordkeeping requirements, Savings associations, State nonmember

banks.

12 CFR Part 565

Administrative practice and procedure, Capital, Savings

associations.

12 CFR Part 567

Capital, Reporting and recordkeeping requirements, Savings

associations.

Authority and Issuance

Office of the Comptroller of the Currency

12 CFR Chapter I

For the reasons set out in the joint preamble, the Office of the

Comptroller

[[Page 39229]]

of the Currency amends 12 CFR chapter I as set forth below.

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

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.

2. In part 3, paragraph (c)(2) of Sec. 3.100 is revised to read as

follows:

Sec. 3.100 Capital and surplus.

* * * * *

(c) * * *

(2) Mortgage servicing rights;

* * * * *

3. In appendix A to part 3, paragraph (c)(13) of section 1 is

revised to read as follows:

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

Section 1. Purpose, Applicability of Guidelines, and Definitions

* * * * *

(c) * * *

(13) Intangible assets include mortgage servicing rights,

purchased credit card relationships (servicing rights), goodwill,

favorable leaseholds, and core deposit value.

* * * * *

4. In appendix A to part 3, paragraphs (c) introductory text,

(c)(1), and (c)(3) of section 2 are revised to read as follows:

* * * * *

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:

\6\[Reserved].

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(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:

(i) All goodwill subject to the transition rules contained in

section 4(a)(1)(ii) of this appendix A;

(ii) Other intangible assets, except as provided in section

2(c)(2) of this appendix A; and

(iii) Deferred tax assets, except as provided in section 2(c)(3)

of this appendix A, that are dependent upon future taxable income,

which exceed the lesser of either:

(A) The amount of deferred tax assets that the bank could

reasonably expect to realize within one year of the quarter-end Call

Report, based on its estimate of future taxable income for that

year; or

(B) 10% of Tier 1 capital, net of goodwill and all intangible

assets other than mortgage servicing rights and purchased credit

card relationships, and before any disallowed deferred tax assets

are deducted.

(2) Qualifying intangible assets. Subject to the following

conditions, mortgage servicing rights (originated and purchased) and

purchased credit card relationships need not be deducted from Tier 1

capital:

(i) The total of all intangible assets which are included in

Tier 1 capital is limited to 50 percent of Tier 1 capital, of which

no more than 25 percent of Tier 1 capital can consist of purchased

credit card relationships. Calculation of these limitations must be

based on Tier 1 capital net of goodwill and other disallowed

intangible assets.

(ii) Each intangible asset which is included in Tier 1 capital

must be valued at the lesser of:

(A) 90 percent of the fair market value of the intangible asset,

determined in accordance with section 2(c)(2)(iii) of this appendix

A; or

(B) 100 percent of the remaining unamortized book value of the

intangible asset, determined at least quarterly in accordance with

the instructions of the Call Report.

(iii) Banks shall determine the current fair market value of

each intangible asset included in Tier 1 capital at least quarterly.

The quarterly determination of the current fair market value of the

intangible asset must include adjustments for any significant

changes in original valuation assumptions, including changes in

prepayment estimates. In determining the current fair market value

of the intangible asset, the bank shall apply an appropriate market

discount rate to the expected net cash flows of the intangible

asset.

* * * * *

PART 6--PROMPT CORRECTIVE ACTION

1. The authority citation for part 6 continues to read as follows:

Authority: 12 U.S.C. 93a, 1831o.

2. In subpart A to part 6, paragraph (g) of Sec. 6.2 is revised to

read as follows:

Sec. 6.2 Definitions.

* * * * *

(g) Tangible equity means the amount of Tier 1 capital elements in

the OCC's Risk-Based Capital Guidelines (appendix A to part 3 of this

chapter) plus the amount of outstanding cumulative perpetual preferred

stock (including related surplus) minus all intangible assets except

mortgage servicing rights to the extent permitted in Tier 1 capital

under section 2(c) in appendix A to part 3 of this chapter.

* * * * *

Dated: July 21, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

Federal Reserve System

12 CFR Chapter II

For the reasons outlined in the joint preamble, the Board of

Governors of the Federal Reserve System amends 12 CFR Chapter II as set

forth below.

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL

RESERVE SYSTEM (REGULATION H)

1. The authority citation for part 208 is revised to read as

follows:

Authority: 12 U.S.C. 36, 248(a), 248(c), 321-338, 371d, 461,

481-486, 601, 611, 1814, 1823(j), 1828(o), 1831o, 1831p-1, 3105,

3310, 3331-3351 and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),

78l(i), 78o-4(c) (5), 78q, 78q-l, and 78w; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4104a, 4104b, 4106, and 4128.

2. In Sec. 208.31, paragraph (f) is revised to read as follows:

Sec. 208.31 Definitions.

* * * * *

(f) Tangible equity means the amount of core capital elements in

the Board's Capital Adequacy Guidelines for State Member Banks: Risk-

Based Measure (Appendix A to this part), plus the amount of outstanding

cumulative perpetual preferred stock (including related surplus), minus

all intangible assets except mortgage servicing rights to the extent

that the Board determines that mortgage servicing rights may be

included in calculating the bank's tier 1 capital.

* * * * *

3. Appendix A to part 208 is amended by revising section II.B.1.b.

to read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member

Banks: Risk-Based Measure

* * * * *

II. * * *

B. * * *

1. * * *

b. Other intangible assets. i. The only types of identifiable

intangible assets that may be included in, that is, not deducted

from, a bank's capital are readily marketable mortgage servicing

rights and purchased credit card relationships, provided that, in

the aggregate, the total amount of these assets included in capital

does not exceed 50 percent of tier 1 capital. Purchased credit card

relationships are subject to a separate sublimit of 25 percent of

tier 1 capital.14

\14\Amounts of mortgage servicing rights and purchased credit

card relationships in excess of these limitations, as well as all

other identifiable intangible assets, including core deposit

intangibles and favorable leaseholds, are to be deducted from a

bank's core capital elements in determining tier 1 capital. However,

identifiable intangible assets (other than mortgage servicing rights

and purchased credit card relationships) acquired on or before

February 19, 1992, generally will not be deducted from capital for

supervisory purposes, although they will continue to be deducted for

applications purposes.

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ii. For purposes of calculating these limitations on mortgage

servicing rights and purchased credit card relationships, tier 1

capital is defined as the sum of core capital

[[Page 39230]]

elements, net of goodwill and all identifiable intangible assets other

than mortgage servicing rights and purchased credit card

relationships, regardless of the date acquired. This method of

calculation could result in mortgage servicing rights and purchased

credit card relationships being included in capital in an amount

greater than 50 percent--or in purchased credit card relationships

being included in an amount greater than 25 percent--of the amount

of tier 1 capital used to calculate an institution's capital ratios.

In such instances, the Federal Reserve may determine that a bank is

operating in an unsafe and unsound manner because of over-reliance

on intangible assets in tier 1 capital.

iii. Banks must review the book value of all intangible assets

at least quarterly and make adjustments to these values as

necessary. The fair market value of mortgage servicing rights and

purchased credit card relationships also must be determined at least

quarterly. The fair market value generally shall be determined by

applying an appropriate market discount rate to the expected future

net cash flows. This determination shall include adjustments for any

significant changes in original valuation assumptions, including

changes in prepayment estimates or account attrition rates.

iv. Examiners will review both the book value and the fair

market 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 intangible assets.

v. The amount of mortgage servicing rights and purchased credit

card relationships that a bank may include in capital shall be the

lesser of 90 percent of their fair market value, as determined in

accordance with this section, or 100 percent of their book value, as

adjusted for capital purposes in accordance with the instructions in

the commercial bank Consolidated Reports of Condition and Income

(Call Reports). If both the application of the limits on mortgage

servicing rights and purchased credit card relationships and the

adjustment of the balance sheet amount for these intangibles would

result in an amount being deducted from capital, the bank would

deduct only the greater of the two amounts from its core capital

elements in determining tier 1 capital.

vi. The treatment of identifiable intangible assets set forth in

this section generally will be used in the calculation of a bank's

capital ratios for supervisory and applications purposes. However,

in making an overall assessment of a bank's capital adequacy for

applications purposes, the Board may, if it deems appropriate, take

into account the quality and composition of a bank's capital,

together with the quality and value of its tangible and intangible

assets.

vii. Consistent with long-standing Board policy, banks

experiencing substantial growth, whether internally or by

acquisition, are expected to maintain strong capital positions

substantially above minimum supervisory levels, without significant

reliance on intangible assets.

2. * * *

* * * * *

4. Appendix A to part 208 is amended by revising section II.B.4. to

read as follows:

* * * * *

II. * * *

B. * * *

4. Deferred tax assets. The amount of deferred tax assets that

are dependent upon future taxable income, net of the valuation

allowance for deferred tax assets, that may be included in, that is,

not deducted from, a bank's capital may not exceed the lesser of:

(i) the amount of these deferred tax assets that the bank is

expected to realize within one year of the calendar quarter-end

date, based on its projections of future taxable income for that

year,20 or (ii) 10 percent of tier 1 capital. The reported

amount of deferred tax assets, net of any valuation allowance for

deferred tax assets, in excess of the lesser of these two amounts is

to be deducted from a bank's core capital elements in determining

tier 1 capital. For purposes of calculating the 10 percent

limitation, tier 1 capital is defined as the sum of core capital

elements, net of goodwill and all identifiable intangible assets

other than mortgage servicing rights and purchased credit card

relationships, before any disallowed deferred tax assets are

deducted. There generally is no limit in tier 1 capital on the

amount of deferred tax assets that can be realized from taxes paid

in prior carryback years or from future reversals of existing

taxable temporary differences, but, for banks that have a parent,

this may not exceed the amount the bank could reasonably expect its

parent to refund.

\20\To determine the amount of expected deferred tax assets

realizable in the next 12 months, an institution should assume that

all existing temporary differences fully reverse as of the report

date. Projected future taxable income should not include net

operating loss carryforwards to be used during that year or the

amount of existing temporary differences a bank expects to reverse

within the year. Such projections should include the estimated

effect of tax planning strategies that the organization expects to

implement to realize net operating losses or tax credit

carryforwards that would otherwise expire during the year.

Institutions do not have to prepare a new 12 month projection each

quarter. Rather, on interim report dates, institutions may use the

future taxable income projections for their current fiscal year,

adjusted for any significant changes that have occurred or are

expected to occur.

---------------------------------------------------------------------------

* * * * *

5. Appendix B to part 208 is amended by revising section II.b. to

read as follows:

Appendix B to Part 208--Capital Adequacy Guidelines for State Member

Banks: Tier 1 Leverage Measure

* * * * *

II. * * *

b. A bank's tier 1 leverage ratio is calculated by dividing its

tier 1 capital (the numerator of the ratio) by its average total

consolidated assets (the denominator of the ratio). The ratio will

also be calculated using period-end assets whenever necessary, on a

case-by-case basis. For the purpose of this leverage ratio, the

definition of tier 1 capital for year-end 1992 as set forth in the

risk-based capital guidelines contained in Appendix A of this part

will be used.2 As a general matter, average total consolidated

assets are defined as the quarterly average total assets (defined

net of the allowance for loan and lease losses) reported on the

bank's Reports of Condition and Income (Call Reports), less

goodwill; amounts of mortgage servicing rights and purchased credit

card relationships that, in the aggregate, are in excess of 50

percent of tier 1 capital; amounts of purchased credit card

relationships in excess of 25 percent of tier 1 capital; all other

intangible assets; any investments in subsidiaries or associated

companies that the Federal Reserve determines should be deducted

from tier 1 capital; and deferred tax assets that are dependent upon

future taxable income, net of their valuation allowance, in excess

of the limitation set forth in section II.B.4 of this Appendix

A.3

\2\At the end of 1992, tier 1 capital for state member banks

includes common equity, minority interest in the equity accounts of

consolidated subsidiaries, and qualifying noncumulative perpetual

preferred stock. In addition, as a general matter, tier 1 capital

excludes goodwill; amounts of mortgage servicing rights and

purchased credit card relationships that, in the aggregate, exceed

50 percent of tier 1 capital; amounts of purchased credit card

relationships that exceed 25 percent of tier 1 capital; all other

intangible assets; and deferred tax assets that are dependent upon

future taxable income, net of their valuation allowance, in excess

of certain limitations. The Federal Reserve may exclude certain

investments in subsidiaries or associated companies as appropriate.

\3\Deductions from tier 1 capital and other adjustments are

discussed more fully in section II.B. in Appendix A of this part.

---------------------------------------------------------------------------

* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL

(REGULATION Y)

1. 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(l), 3106, 3108, 3310, 3331-3351, 3907, and

3909.

2. Appendix A to part 225 is amended by revising section II.B.1.b.

to read as follows:

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding

Companies: Risk-Based Measure

* * * * *

II. * * *

B. * * *

1.* * *

b. Other intangible assets. i. The only types of identifiable

intangible assets that may be included in, that is, not deducted

from, a organization's capital are readily marketable mortgage

servicing rights and purchased credit card relationships, provided

that, in the aggregate, the total amount of these assets included in

capital does not exceed 50 percent of tier 1 capital. Purchased

credit card relationships are subject to a separate sublimit of 25

percent of tier 1 capital.\15\

\15\Amounts of mortgage servicing rights and purchased credit

card relationships in excess of these limitations, as well as all

other identifiable intangible assets, including core deposit

intangibles and favorable leaseholds, are to be deducted from an

organization's core capital elements in determining tier 1 capital.

However, identifiable intangible assets (other than mortgage

servicing rights and purchased credit card relationships) acquired

on or before February 19, 1992, generally will not be deducted from

capital for supervisory purposes, although they will continue to be

deducted for applications purposes.

[[Page 39231]]

---------------------------------------------------------------------------

ii. For purposes of calculating these limitations on mortgage

servicing rights and purchased credit card relationships, tier 1

capital is defined as the sum of core capital elements, net of

goodwill and all identifiable intangible assets other than mortgage

servicing rights and purchased credit card relationships, regardless

of the date acquired. This method of calculation could result in

mortgage servicing rights and purchased credit card relationships

being included in capital in an amount greater than 50 percent--or

in purchased credit card relationships being included in an amount

greater than 25 percent--of the amount of tier 1 capital used to

calculate an institution's capital ratios. In such instances, the

Federal Reserve may determine that an organization is operating in

an unsafe and unsound manner because of overreliance on intangible

assets in tier 1 capital.

iii. Bank holding companies must review the book value of all

intangible assets at least quarterly and make adjustments to these

values as necessary. The fair market value of mortgage servicing

rights and purchased credit card relationships also must be

determined at least quarterly. The fair market value generally shall

be determined by applying an appropriate market discount rate to the

expected future net cash flows. This determination shall include

adjustments for any significant changes in original valuation

assumptions, including changes in prepayment estimates or account

attrition rates.

iv. Examiners will review both the book value and the fair

market 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 an organization's intangible assets.

v. The amount of mortgage servicing rights and purchased credit

card relationships that a bank holding company may include in

capital shall be the lesser of 90 percent of their fair market

value, as determined in accordance with this section, or 100 percent

of their book value, as adjusted for capital purposes in accordance

with the instructions to the Consolidated Financial Statements for

Bank Holding Companies (FR Y-9C Report). If both the application of

the limits on mortgage servicing rights and purchased credit card

relationships and the adjustment of the balance sheet amount for

these intangibles would result in an amount being deducted from

capital, the bank holding company would deduct only the greater of

the two amounts from its core capital elements in determining tier 1

capital.

vi. The treatment of identifiable intangible assets set forth in

this section generally will be used in the calculation of a bank

holding company's capital ratios for supervisory and applications

purposes. However, in making an overall assessment of an

organization's capital adequacy for applications purposes, the Board

may, if it deems appropriate, take into account the quality and

composition of an organization's capital, together with the quality

and value of its tangible and intangible assets.

vii. Consistent with long-standing Board policy, banking

organizations experiencing substantial growth, whether internally or

by acquisition, are expected to maintain strong capital positions

substantially above minimum supervisory levels, without significant

reliance on intangible assets.

2.* * *

* * * * *

3. Appendix A to Part 225 is amended by revising section II.B.4. to

read as follows:

* * * * *

II. * * *

B. * * *

4. Deferred tax assets. The amount of deferred tax assets that

are dependent upon future taxable income, net of the valuation

allowance for deferred tax assets, that may be included in, that is,

not deducted from, a banking organization's capital may not exceed

the lesser of: (i) the amount of these deferred tax assets that the

banking organization is expected to realize within one year of the

calendar quarter-end date, based on its projections of future

taxable income for that year,\23\ or (ii) 10 percent of tier 1

capital. The reported amount of deferred tax assets, net of any

valuation allowance for deferred tax assets, in excess of the lesser

of these two amounts is to be deducted from a banking organization's

core capital elements in determining tier 1 capital. For purposes of

calculating the 10 percent limitation, tier 1 capital is defined as

the sum of core capital elements, net of goodwill and all

identifiable intangible assets other than mortgage servicing rights

and purchased credit card relationships, before any disallowed

deferred tax assets are deducted. There generally is no limit in

tier 1 capital on the amount of deferred tax assets that can be

realized from taxes paid in prior carryback years or from future

reversals of existing taxable temporary differences.

\23\To determine the amount of expected deferred tax assets

realizable in the next 12 months, an institution should assume that

all existing temporary differences fully reverse as of the report

date. Projected future taxable income should not include net

operating loss carryforwards to be used during that year or the

amount of existing temporary differences a bank holding company

expects to reverse within the year. Such projections should include

the estimated effect of tax planning strategies that the

organization expects to implement to realize net operating losses or

tax credit carryforwards that would otherwise expire during the

year. Institutions do not have to prepare a new 12 month projection

each quarter. Rather, on interim report dates, institutions may use

the future taxable income projections for their current fiscal year,

adjusted for any significant changes that have occurred or are

expected to occur.

---------------------------------------------------------------------------

* * * * *

4. Appendix D to part 225 is amended by revising section II.b. to

read as follows:

Appendix D to Part 225--Capital Adequacy Guidelines for Bank Holding

Companies: Tier 1 Leverage Measure

* * * * *

II. * * *

b. A banking organization's tier 1 leverage ratio is calculated

by dividing its tier 1 capital (the numerator of the ratio) by its

average total consolidated assets (the denominator of the ratio).

The ratio will also be calculated using period-end assets whenever

necessary, on a case-by-case basis. For the purpose of this leverage

ratio, the definition of tier 1 capital for year-end 1992 as set

forth in the risk-based capital guidelines contained in Appendix A

of this part will be used.\3\ As a general matter, average total

consolidated assets are defined as the quarterly average total

assets (defined net of the allowance for loan and lease losses)

reported on the organization's Consolidated Financial Statements (FR

Y-9C Report), less goodwill; amounts of mortgage servicing rights

and purchased credit card relationships that, in the aggregate, are

in excess of 50 percent of tier 1 capital; amounts of purchased

credit card relationships in excess of 25 percent of tier 1 capital;

all other intangible assets; any investments in subsidiaries or

associated companies that the Federal Reserve determines should be

deducted from tier 1 capital; and deferred tax assets that are

dependent upon future taxable income, net of their valuation

allowance, in excess of the limitation set forth in section II.B.4

of this Appendix A.\4\

\3\At the end of 1992, tier 1 capital for banking organizations

includes common equity, minority interest in the equity accounts of

consolidated subsidiaries, qualifying noncumulative perpetual

preferred stock, and qualifying cumulative perpetual preferred

stock. (Cumulative perpetual preferred stock is limited to 25

percent of tier 1 capital.) In addition, as a general matter, tier 1

capital excludes goodwill; amounts of mortgage servicing rights and

purchased credit card relationships that, in the aggregate, exceed

50 percent of tier 1 capital; amounts of purchased credit card

relationships that exceed 25 percent of tier 1 capital; all other

intangible assets; and deferred tax assets that are dependent upon

future taxable income, net of their valuation allowance, in excess

of certain limitations. The Federal Reserve may exclude certain

investments in subsidiaries or associated companies as appropriate.

\4\Deductions from tier 1 capital and other adjustments are

discussed more fully in section II.B. in Appendix A of this part.

---------------------------------------------------------------------------

* * * * *

By order of the Board of Governors of the Federal Reserve

System, July 26, 1995

William W. Wiles,

Secretary of the Board.

Federal Deposit Insurance Corporation

12 CFR Chapter III

For the reasons outlined in the joint preamble, the Board of

Directors of the Federal Deposit Insurance Corporation amends 12 CFR

chapter III as set forth below.

[[Page 39232]]

PART 325--CAPITAL MAINTENANCE

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, 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, 2386 (12 U.S.C. 1828 note).

2. In Sec. 325.2, paragraph (n) is amended by removing the word

``purchased'' each place it appears and paragraph (s) is revised to

read as follows:

Sec. 325.2 Definitions.

* * * * *

(s) 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 rights

to the extent that the FDIC determines pursuant to Sec. 325.5(f) of

this part that mortgage servicing rights may be included in calculating

the bank's Tier 1 capital.

* * * * *

Sec. 325.5 [Amended]

3. Section 325.5 is amended by removing the words ``purchased

mortgage servicing rights'' and adding, in their place, the words

``mortgage servicing rights'' in paragraphs (f), (g)(2)(i)(B), and

(g)(5).

Appendix A to Part 325 [Amended]

4. In Appendix A to part 325, remove the words ``purchased mortgage

servicing rights'' in footnote 2 to ``Table I--Definition of Qualifying

Capital'' and add, in their place, the words ``mortgage servicing

rights''.

Appendix B to Part 325 [Amended]

5. In Appendix B to part 325, section IV.A.:

a. Remove the words ``purchased mortgage servicing rights'' and

add, in their place, the words ``mortgage servicing rights'' each place

they appear in footnote 1 and in the last sentence of the last

paragraph; and

b. Remove the words ``purchased servicing intangibles'' and add, in

their place, the words ``servicing intangibles'' in the last sentence

of the last paragraph.

By order of the Board of Directors.

Dated at Washington, DC, this 21st day of July, 1995.

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

Office of Thrift Supervision

12 CFR Chapter V

For the reasons outlined in the joint preamble, the Office of

Thrift Supervision hereby amends 12 CFR chapter V as set forth below.

SUBCHAPTER D--REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS

PART 565--PROMPT CORRECTIVE ACTION

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

follows:

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

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 defined in part 567 of this subchapter plus the amount

of its outstanding cumulative perpetual preferred stock (including

related surplus), minus intangible assets as defined in Sec. 567.1(m)

of this subchapter and mortgage servicing rights not includable in core

capital pursuant to Sec. 567.12 of this subchapter.

* * * * *

PART 567--CAPITAL

1. The authority citation for part 567 continues to read as

follows:

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

(note).

2. Section 567.1 is amended by revising paragraph (m) to read as

follows:

Sec. 567.1 Definitions.

* * * * *

(m) Intangible assets. The term intangible assets means assets

referred to as intangible assets in authoritative literature on

generally accepted accounting principles. These intangible assets

include, but are not limited to, goodwill, favorable leaseholds, core

deposit premiums and purchased credit card relationships. Mortgage

servicing rights (either originated or purchased) are not intangible

assets under this definition.

* * * * *

3. Section 567.5 is amended by revising paragraphs (a)(2) heading,

(a)(2)(i) and (a)(2)(ii) to read as follows:

Sec. 567.5 Components of capital.

(a) * * *

(2) Deductions from core capital. (i) Intangible assets, as defined

in Sec. 567.1(m) of this part, are deducted from assets and capital in

computing core capital, except as otherwise provided by Sec. 567.12 of

this part.

(ii) Mortgage servicing rights (both originated and purchased) that

are not includable in tangible and core capital pursuant to Sec. 567.12

of this part are deducted from assets and capital in computing core

capital.

* * * * *

4. Section 567.6 is amended by revising paragraphs (a)(1)(iv)(L)

and (a)(1)(iv)(M) to read as follows:

Sec. 567.6 Risk-based capital credit risk-weight categories.

(a) * * *

(1) * * *

(iv) * * *

(L) Mortgage servicing rights and intangible assets includable in

core capital pursuant to Sec. 567.12 of this part;

(M) Excess servicing receivables;

* * * * *

5. Section 567.9 is amended by revising paragraph (c)(1) to read as

follows:

Sec. 567.9 Tangible capital requirement.

* * * * *

(c) * * *

(1) Intangible assets, as defined in Sec. 567.1(m) of this part,

and mortgage servicing rights (purchased or originated) not includable

in core and tangible capital pursuant to Sec. 567.12 of this part.

* * * * *

6. Section 567.12 is amended by revising the section heading and

paragraphs (a) through (f) to read as follows:

Sec. 567.12 Qualifying intangible assets and mortgage servicing

rights.

(a) Scope. This section prescribes the maximum amount of qualifying

intangible assets, as defined in Sec. 567.1(m) of this part, and

mortgage servicing rights that savings associations may include in

calculating tangible and core capital.

(b) Definition. Qualifying intangible assets and mortgage servicing

rights means purchased credit card relationships and mortgage servicing

rights (both originated and purchased). Mortgage servicing rights (both

originated and purchased) may be included (that is, not deducted) in

computing core and tangible capital. Purchased credit card

relationships may be included in computing core capital, but must be

deducted in computing tangible capital. These qualifying intangible

assets and mortgage servicing

[[Page 39233]]

rights may be included in capital only in accordance with the

limitations and restrictions set forth in this section. Intangible

assets, as defined in Sec. 567.1(m) of this part, other than purchased

credit card relationships and core deposit intangibles grandfathered by

paragraph (g)(3) of this section, must be deducted in computing

tangible and core capital.

(c) Market valuations. The OTS reserves the authority to require

any savings association to perform an independent market valuation of

qualifying intangible assets and mortgage servicing rights on a case-

by-case basis or through the issuance of policy guidance. An

independent market valuation, if required, shall be conducted in

accordance with any policy guidance issued by the OTS. A required

valuation shall include adjustments for any significant changes in

original valuation assumptions, including changes in prepayment

estimates or attrition rates. The valuation shall determine the current

fair market value of the qualifying intangible assets and mortgage

servicing rights by applying an appropriate market discount rate to the

net cash flows expected to be generated from the qualifying intangible

assets and mortgage servicing rights. This independent market valuation

may be conducted by an independent valuation expert evaluating the

reasonableness of the internal calculations and assumptions used by the

association in conducting its internal analysis. The association shall

calculate an estimated fair market value for the qualifying intangible

assets and mortgage servicing rights at least quarterly regardless of

whether an independent valuation expert is required to perform an

independent market valuation.

(d) Value limitation. For purposes of calculating core capital

under this part (but not for financial statement purposes), qualifying

intangible assets and mortgage servicing rights must be valued at the

lesser of:

(1) 90 percent of their fair market value determined in accordance

with paragraph (c) of this section; or

(2) 100 percent of their remaining unamortized book value

determined in accordance with the instructions for the Thrift Financial

Report.

(e) Core capital limitation.--(1) Aggregate limit. The maximum

aggregate amount of qualifying intangible assets and mortgage servicing

rights that may be included in core capital shall be limited to the

lesser of:

(i) 50 percent of the amount of core capital computed before the

deduction of any disallowed qualifying intangible assets or mortgage

servicing rights; or

(ii) The amount of qualifying intangible assets and mortgage

servicing rights determined in accordance with paragraph (d) of this

section.

(2) Reduction by deferred tax liability. Associations may elect to

reduce the amount of their disallowed (i.e., not includable in capital)

originated mortgage servicing rights exceeding the 50 percent aggregate

limit by the amount of any associated deferred tax liability.

(3) Sublimit for purchased credit card relationships. In addition

to the aggregate limitation on qualifying intangible assets and

mortgage servicing rights set forth in paragraph (e)(1) of this

section, a sublimit shall apply to purchased credit card relationships.

The maximum allowable amount of purchased credit card relationships

shall be limited to the lesser of:

(i) 25 percent of the amount of core capital computed before the

deduction of any disallowed qualifying intangible assets or mortgage

servicing rights; or

(ii) the amount of purchased credit card relationships determined

in accordance with paragraph (d) of this section.

(f) Tangible capital limitation. The maximum amount of mortgage

servicing rights that may be included in tangible capital shall be the

same amount includable in core capital in accordance with the

limitations set by paragraph (e)(1) of this section.

* * * * *

Dated: July 25, 1995.

By the Office of Thrift Supervision.

Jonathan L. Fiechter,

Acting Director.

[FR Doc. 95-18772 Filed 7-31-95; 8:45 am]

BILLING CODES 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P