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6. Mail the CTR to the IRS Data Center, P. 0. Box 32621,

Detroit, MI 48232 ATTN: CTR Processing.
chief National Bank Exaniner's office, comercial Examinations
Division, (202) 447-1164.

Join 7. Downey
Chief National Bank Exaniner

April 9, 1986

Page 2 of 2

Comptroller of the Currency
Administrator of National Banks

Bank Supervision Newsletter

Washington, D. C. 20219

July 1985

Number 8


ing, credit malyais, concentration NOTIFICATIONS: limits, and reporting).

In This issue... A TIGHT HAND

3. Strict guidance on the purchase • Comptroller Notifications:

of "junk bonds" either in a fiduci A Tight Hand Within the past month, the ary role ar as investments for

• Concentrations of Credit Comptroller's Office has issued sev their eligibility as borrower col

• Disclosure eral Banking Issuances to drive lateral). home the point that national 4. The Federal Reserve's final rule

Chill Money Penalties banks-and especially their senior

Determining the ATRA management-are at risk in the

implementing the FTC's Credit

Agricultural Report of

Practices Rule (no pyramiding future if they claim lack of aware

Condition late charges, prohibited credit, ness of several important rules

Bank Socracy Act and Trust obligation provisions, written

• Noninterest Income The issuances cover a variety of

notice of conigner liability); issues:

6. Direct policy guidance on the ac 1. Reworked (and somewhat tight

counting for gains and losses on ened) Change-In-Control dis

foreign loan "swaps"—including 6. Reaffirmation of specific limits on closure policy.

a presumption that “...the esti- Loan Production Office opera

mated fair values (of such loans) tions—along with strong advice 2. Prudent controls for securities will be less than the respective that banks tighten up on liberal

lending (reflecting joint Federal face values... resulting) in a loss interpretations of LPO loan pro agency agreement on recordkeep on the swap":

(continuadas page 21


The OCC has collected infor mation on concentrations of credit in national banks since January 1984. This data is collected through the Statistical Data Sheet (SDS). Compiled information is available on the National Bank Surveillance Video Display System (NBSVDS).

A recent review of the database noted the existence of 3,991 concentrations of credit in 1,928 national banks. Surprisingly, 2,317 banks, which constitute 55 percent of the 4,245 examinations available in the

SDS database, report no con
centrations. Concentrations in
the agricultural industry are by
far the largest. The most fre
quently cited credit concentra-
tions are:


Rank Description Banlos

1. Crops-grain 600
2. Livestock-

beef, hogs,

3. Real estate

4. Residential

construction 388 5. Nonresidential

construction 260 6. Oil and gas 216

The concentrations are in distressed economic sectors. Special call reports have been created for banks with concentrations of farm and oil credits These special call reports gather additional information on the financial condition of the bor rowers in the particular industries. This, in turn, provides additional information on the overall condition of the affected banks and promotes more effec tive supervision

Alan Wachter
National Bank Examiner
Community Bank Analysis

Bank Supervision


Comptroller of the Currency
Administrator of National Banks

Bank SupervisionNewsletter

Washington, D.C. 20219

August 1986

Number 9


upon the risks and rewards tavalvod
in each specific case. The determina In This issue...

tion should be made on the basis of
A new accounting buzz word in
financial institutions (primarily ing as a leader or lovestor. If the

whether the bank is primarily act. • ADC Loans savings and loan associations) is

• Training Team Coup examiner concludes the ADC ar MDC loans" The acronym stands

National Banks' Operationsfor real estate acquisition, development, the examiner should cite a 12 rangement is a real estate invest

First Quarter 1985 ment and construction loans" Can

• Bank Socracy Act USC 29 violation. ing them loans may be a misnomer.

• ATRR Accounting Treatment Some ADC loans provide the same In a true loan arrangement, the • Employee Benefit Plans risks and rewards as ownership bank usually requires the borrower they could be considered real estate to have a substantial equity investinvestments. The distinction, for ment in the venture Additionally be considered an investment has banks, could have implications in the bank may have recourse against

most of the following characterismaluating risk and compliance with other assets of the borrower. Fur

tics: 12 USC 29. ther, there may be a takeout

• The banks participates in the Examiners should review these commitment or noncancelable sales contract or lease commitment that

expected residual profit of the ADC arrangements carefully to de

venture (12 CFR 7.7312 allows termine whether the ADC arrange protect the bank. guarantees sufficient cash flow to

a national bank to take as conment is a loan or an investment.

sideration for a loan a share in The assessment should be based An ADC arrangement that may the profit from a business en

(continued on page 2)

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(AGRICULTURAL from page 31 in accons of $5,000 on any one occa growth rate for net interest income avec less than 40 percent greater nion must file certain reports with was 63 percent, 48 percent for total than 40 percent but has than 70 the Secretary of the Treasury. It is operating income and 70 percent for percent greater than 70 percent but clear from the definitional provt overhoed spensa loss than 100 percent, and over 100 wions of the Act that bank trust

Noninterest income in national percent departments are included within its

banks bas risen from 0.84 percent Information is being collected by requirements

d average ascots in 1980 to 1.23 both product line and indebtedness In order to ensure compliance percent in 1984, a 89 basis point in level 80 the OC can identity banks with the Act and its implementing Crowna This increase in noninterest which are the most susceptible to regulations, the Trust Examinations income has not resulted in a com changing economic events. These Division is developing examination mensurate increase in earnings The banks will then be selected andler procedures for inclusion in a supple costs of providing foe generating targeted for angoing analysis, closer ment to the Comptrollers Hand services have caused overhead scrutiny or examination. The OCC book for National Thist Ecaminar penses to grow more rapidly than will be able to identity and analyze Until the procedures are developed, isosta Inczoased provisions to the agricultural trends by geographical examiners should be familiar with Allowance for Loan and Lease areas, by concentrations in par Section 201.1 and appropriate so Lonces have also slowed earnings ticular commodities ar livestock, amination procedures in the Comp growth and the borrowers' debtlasset ratio troller's Handbooks for National Bank Examiners prior to examining above are similar for banks of all

While the growth rates Doted This information will allow the

trust departments for compliance OCC to make informed decisions on with 31 CFR 103.

sizes, noninterest income is a more agricultural banks The OCC will

significant account in the largest also be better able to develop Arthur W. Steele

banka Noninterest income repit policies and procedures to respond National Trust Examiner

rents 1.83 percent of average asorts to developing situations

in national banks with assets over Trust Examinations Division

$1 billion. This is not surprising Tom Wateon

considering the higher levels of att National Bank Examiner

NONINTEREST INCOME balance sheet toe generating activi Community Bank Analysis

ty (such as foe paid loan commitDivision

A combination of causes (such as ments) in these banks

deregulation, increased competition BANK SECRECY ACT and economic factors have put present in the composition of noninterest in

There are significant differences AND TRUST

sure on bank earnings in recent
years One possible strategic re

come in the various size banks De National bank trust departments increase doninterest income sponse to this pressure has been to post service charges account for

over 56 percent of foe income in are required to comply with the

banks with assets under $100 mil recordkeeping and reporting re National banks have been very lion, but represent only 17 percent quirements contained in both the successful in generating additional al noninterest income in billion dat Bank Secrecy Act (Act) and Section fee income Potal noninterest income lav banks Income from trading 21 of the Federal Deposit Insurance in national banks has more than accounts, foreign exchange and Act (FDIA), 12 USC 1829 doubled between 1980 (88.4 billion) other foreign transactions is almost

and 1984 ($17.3 billion). The Act requires that whoever

all generated by the billion dollar

beka knowingly transports a causes to The Byear growth rate for noninbe transported 'monetary in- terest income between 1980 and Alan J. Wachter strumento" into or out of the 1984 at 107 percent is significantly National Bank Examiner United States a rosive monetary greater than the growth rates in Camomunity Bank Analysis instruments" in the United States other financial accounts. The Division

dent Supenon isbed in an amount necrosury to The ATRR is established for


states: "Any person who willfully credit, securities, gold, or a trans

violates any provision of title II of action in money, credit, securities Several amendments to the Bank

Pub. L 91-508, or of this part au- or gold." Sacrecy Act, 31 CFR 103, bave been thorized thereby, may, upon conmacted in 1985. So that examiners

viction thereof, be fined not more • Amendment effective August 7 will be familiar with the changes, a

than $250,000 or be imprisoned establishes a regulatory procedure synopsis of the major amendments not more than 5 years, or both." through which the Secretary of is provided below.

(31 CFR 103.49)

the Treasury can require financial

institutions in the United States • Amendment effective May 7 ix- • A new section effective May 31 corporates gambling casinos into provides rewards for informants

to submit reports of financial the definition of "financial institu who provide original information

transactions with foreign financial tion" and makes them subject to leading to a recovery of a criminal

agencies (31 CFR 103.25). all requirements of the Bank Se fine, civil penalty, or forfeiture, • Sections 103.25 (Fling of Reports) crecy Act (31 CFR 103.11). which exceeds $50,000. (31 CFR and 103.26 (Identification Re

103.52) • Amendment effective May 31 in

quired) were renumbered 103.26 creases the reporting requirement • Amendment effective August 7

and 103.27, respectively. NOTE: on Form 4790 from $5,000 to defines a foreign financial agency

Please record this change immedi$10.000. Paragraph (b) of this sec

ately since it will affect the violaas: "A person acting outside the tion was not statutorily changed United States for a person (except

tion of law cites and the OCC's and the requirement remains

quarterly report to the Departfor a country, a monetary or finan$5,000. (31 CFR 103.23(a)) cial authority acting as a mone

ment of Treasury. These new cites

should be used for transactions • Amendment effective May 31

tary or financial authority, or an
international financial institution

occurring on or after August 7. changes the ceiling on civil penal

1985. of which the United States Gov ties from $1,000 to $10,000. (31

ernment is a member) as a finan- An update to the Comptrollers CFR 103.47(a))

cial institution, bailee, depository Manual For National Banks incor • Amendment effective May 31 trustee or agent, or acting in porating all changes to the Bank adds a new paragraph which a similar way related to money. Secrecy Act is being compiled and

will be distributed in the near fu

ture ATRR ACCOUNTING regulatory recordkeeping it

Thomas C. Lehmkuhl TREATMENT quirements

National Bank Examiner A banking institution need Commercial Examinations Division An Allocated Transfer Risk not establish an ATRR if it Reserve (ATRR) must be estab writes down, in the period in bished for each agset, when re which the ATRR is required, or quired, in the amount specified has written down in prior pe by the Federal banking age. riods, the value of the specified cies The ATRR is established International assets in the reg by a charge to current income visite amount for each asset. and the amounts charged are Such asoets may be written not included in the banking it down by a charge to the ALLL. stitution's total capital The a a reduction in the principal ATRR is separate from the Ab amount of the asset by apply lowance for Loan and Louseing interest payments or other Losses (ALLLI, and is deducted collections on the asset. How from grous loans and leave.. ever, the ALLL must be replac

reston it to a level which ade banks, bank holding companies, and Edge and Agreement cor

quately provides for the esti

matad losses inherent in the porations, as required, on a consolidated basis in accordance

banking institution's portfolio with the procedures and tests d significance set forth in the instructions for preparation of Leon S. Turrant, Manager Cal Reports or other Federal ICERC Sacretariat

Bant Supervision

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