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Chief National Bank Examiner's Office, Commercial Examinations
Division. (202) 447-1164.

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The Federal Reserve's final rule implementing the FTC's Credit Practices Rule (no pyramiding late charges, prohibited credit, obligation provisions, written notice of cosigner liability),

5. Direct policy guidance on the accounting for gains and losses on foreign loan "swaps"-including a presumption that "..the estimated fair values (of such loans) will be less than the respective face values...result(ing) in a loss on the swap".

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July 1985

Number 8

In This Issue...

• Comptroller Notifications: A Tight Hand

• Concentrations of Credit • Disclosure

• Civil Money Penalties • Determining the ATRA • Agricultural Report of Condition

• Bank Secrecy Act and Trust • Noninterest Income

6. Reaffirmation of specific limits on Loan Production Office operations-along with strong advice that banks tighten up on liberal interpretations of LPO loan pro(continued on page 2)

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 effective supervision.

Alan Wachter

National Bank Examiner Community Bank Analysis Division

The issuances cover a variety of issues:

1. Reworked (and somewhat tightened) Change-In-Control disclosure policy.

2. Prudent controls for securities lending (reflecting joint Federal agency agreement on recordkeep



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

Bank Supervision



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(AGRICULTURAL from page 3) are: less than 40 percent, greater than 40 percent but less than 70 percent, greater than 70 percent but less than 100 percent, and over 100 percent.

Information is being collected by both product line and indebtedness level so the OCC can identify banks which are the most susceptible to changing economic events. These banks will then be selected and/or targeted for ongoing analysis, closer scrutiny or examination. The OCC will be able to identify and analyze agricultural trends by geographical areas, by concentrations in par ticular commodities or livestock, and the borrowers' debt/asset ratio

This information will allow the trust departments for compliance above are similar for banks of all OCC to make informed decisions on agricultural banks. The OCC will also be better able to develop policies and procedures to respond to developing situations.

Tom Watson

National Bank Examiner Community Bank Analysis Division


National bank trust departments are required to comply with the recordkeeping and reporting requirements contained in both the Bank Secrecy Act (Act) and Section 21 of the Federal Deposit Insurance Act (FDIA), 12 USC 1829b.

The Act requires that whoever knowingly transports or causes to be transported "monetary instruments" into or out of the United States or receives "monetary instruments" in the United States

in excess of $5,000 on any one occasion must file certain reports with the Secretary of the Treasury. It is clear from the definitional provisions of the Act that bank trust departments are included within its requirements.

In order to ensure compliance with the Act and its implementing regulations, the Trust Examinations Division is developing examination procedures for inclusion in a supple ment to the Comptroller's Hand book for National Trust Examiners Until the procedures are developed, examiners should be familiar with Section 201.1 and appropriate examination procedures in the Comp troller's Handbook for National Bank Examiners prior to examining

with 31 CFR 103.

growth rate for net interest income was 53 percent, 48 percent for total operating income and 70 percent for overhead expense.

Noninterest income in national banks has risen from 0.84 percent of average assets in 1980 to 1.23 percent in 1984, a 39 basis point increase. This increase in noninterest income has not resulted in a commensurate increase in earnings. The costs of providing fee generating services have caused overhead expenses to grow more rapidly than assets. Increased provisions to the Allowance for Loan and Lease Losses have also slowed earnings growth.

While the growth rates noted

Arthur W. Steele
National Trust Examiner
Trust Examinations Division


A combination of causes (such as deregulation, increased competition and economic factors) have put pre sure on bank earnings in recent years. One possible strategic response to this pressure has been to increase noninterest income.

National banks have been very successful in generating additional fee income. Total noninterest income in national banks has more than doubled between 1980 (88.4 billion) and 1984 ($17.3 billion).

The 5-year growth rate for noninterest income between 1980 and 1984 at 107 percent is significantly greater than the growth rates in other financial accounts. The

sizes, noninterest income is a more significant account in the largest banks. Noninterest income represents 1.33 percent of average assets in national banks with assets over $1 billion. This is not surprising considering the higher levels of offbalance sheet fee generating activi ty (such as fee paid loan commitments) in these banks.

in the composition of noninterest in There are significant differences

come in the various size banks. De

posit service charges account for
over 56 percent of fee income in
banks with assets under $100 mil
lion, but represent only 17 percent
of noninterest income in billion dol-
lar banks. Income from trading
accounts, foreign exchange and
other foreign transactions is almost
all generated by the billion dollar

Alan J. Wachter
National Bank Examiner
Community Bank Analysis

Bank Supervision


Several amendments to the Bank Secrecy Act, 31 CFR 103, have been enacted in 1985. So that examiners will be familiar with the changes, a synopsis of the major amendments is provided below.

• Amendment effective May 7 incorporates gambling casinos into the definition of "financial institution" and makes them subject to all requirements of the Bank Secrecy Act (31 CFR 103.11).

• Amendment effective May 31 increases the reporting requirement on Form 4790 from $5,000 to $10,000. Paragraph (b) of this sec tion was not statutorily changed and the requirement remains $5,000. (31 CFR 103.23(a))

• Amendment effective May 31 changes the ceiling on civil penalties from $1,000 to $10,000. (31 CFR 103.47(a))

• Amendment effective May 31 adds a new paragraph which


An Allocated Transfer Risk Reserve (ATRR) must be established for each asset, when required, in the amount specified by the Federal banking agencies. The ATRR is established by a charge to current income and the amounts charged are not included in the banking institution's total capital. The ATRR is separate from the Allowance for Loan and Lease Losses (ALLL), and is deducted from gross loans and leases.

The ATRR is established for banks, bank holding companies, and Edge and Agreement cor porations, as required, on a consolidated basis in accordance with the procedures and tests of significance set forth in the instructions for preparation of Call Reports or other Federal

states: "Any person who willfully violates any provision of title II of Pub. L. 91-508, or of this part authorized thereby, may, upon conviction thereof, be fined not more than $250,000 or be imprisoned not more than 5 years, or both." (31 CFR 103.49)

• A new section effective May 31 provides rewards for informants who provide original information leading to a recovery of a criminal fine, civil penalty, or forfeiture, which exceeds $50,000. (31 CFR 103.52)

• Amendment effective August 7 defines a foreign financial agency as: "A person acting outside the United States for a person (except for a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member) as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money,

regulatory recordkeeping requirements.

A banking institution need not establish an ATRR if it writes down, in the period in which the ATRR is required, or has written down in prior pe riods, the value of the specified international assets in the requisite amount for each asset. Such assets may be written down by a charge to the ALLL or a reduction in the principal amount of the asset by apply ing interest payments or other collections on the asset. However, the ALLL must be replenished in an amount necessary to restore it to a level which adequately provides for the estimated losses inherent in the banking institution's portfolia

Leon S. Tarrant, Manager
ICERC Secretariat

credit, securities, gold, or a trans-
action in money, credit, securities
or gold."

• Amendment effective August 7 establishes a regulatory procedure through which the Secretary of the Treasury can require financial institutions in the United States to submit reports of financial transactions with foreign financial agencies (31 CFR 103.25).

• Sections 103.25 (Filing of Reports) and 103.26 (Identification Required) were renumbered 103.26 and 103.27, respectively. NOTE: Please record this change immediately since it will affect the violation of law cites and the OCC's quarterly report to the Department of Treasury. These new cites should be used for transactions occurring on or after August 7, 1985.

An update to the Comptroller's Manual For National Banks incor porating all changes to the Bank Secrecy Act is being compiled and will be distributed in the near future.

Thomas C. Lehmkuhl
National Bank Examiner
Commercial Examinations Division

Bank Supervision

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