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Comptroller of the Currency
Administrator of National Banks

Bank Supervision Newsletter

Washington, D.C. 20219

October 1985

Number 11

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SALE OF BANK ASSETS tion, there may be a differenca
Accounting under GAAP may or

In This Issue...
Recently, a large bank an.

may not result in loss recognition, nounced a plan to sell many of its

but RAP clearly requires booking • Sale of Bank Assets

a loss if the assete are currently nonperforming assets and interna

• Bank Socracy Act Rotorrals worth less than the book value tional loans to its parent and other

• RE Construction Loan affiliates. Although the transac- A gain or loss on a transaction Survey tion will result in a stronger bank, is measured by the difference be • Global Banking Markets it is interesting to note that the tween the book value of the assets • International Monetary bank will book a $50 million loss and their fair market value regard- Fund (before taxes and other offsetting less of the amount paid by the af

Trust Support Services gains) on the sale

filiate. If a bank were to receive an

amount greater than the fair mar It may be questioned whether

ket value- such as book valuesuch a loss should be recognized the excess would be booked as a capital considerations. Although since the assets are simply moved from one affiliate to another. The capital contribution.

the transactions vary in type and answer depends on which entity is We frequently see similar trans complexity, the accounting is genreporting the transaction and on actions of a smaller magnitude in. Krally the same Fair market values the governing accounting rules, volving the sale of loans, securities must be determined, and the acGAAP or RAP (regulatory ac- and other assets to affiliates. They counting may include a gain or loss counting principles).

may also involve sale/leaseback coupled with either a capital conOn a consolidated basis, GAAP

transactions, sales of charged off wribution or a "constructive" diviand RAP are in agreement-no loans or exchange of securities

dend. This accounting treatment

ensures that the transaction is reloss would be recognized. However, Sales or exchange transactions corded on the same basis as if the when a bank reports the transac- are generally motivated by tax and

Icontinued on peger $

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BSA REFERRALS from page 1) should be followed in all cases ex.

Survey Content the work papers. In the event cept multinational bank cases, Treasury authorizes further inves. which should be sent directly to The survey was designed to pro tigation, the documentation may the Director, Multinational and vide the detail necessary to be requested by IRS agents. Regional Bank Supervision. evaluate the potential for risk be

ing taken in the marketplace as a Subsequent to review and ap: whole and by individual companies Referral Criteria

proval by District Counsel or Di; and banks. The following is a brief

rector, Multinational and Regional description of information reQuestions have arisen regarding Bank Supervision, the recommenthe nature and number of violadation will be forwarded to the

quested: tions that warrant a referral. While Chief National Bank Examiner's • Provisions in lending policies the decision is left to examiner dig. Office for administrative coordina- relating to appraisals, revaluing cretion, the most common situa- tion.

property, loan review, loan loss tions include:

reserves, etc;

If you have questions regarding • Failure to file Form 4789, whethcases you wish to refer, contact

• Dollar amount of the construcer intentional or not: District Counsel or the District

tion loan portfolio categorized by

type-non-residential, residential - in more than an insignificant BSA Specialist. number of reportable trans.

and land development-and fur Thomas C. Lehmkuhl

ther broken down by categories actions, National Bank Examiner

such as retail stores, office – as a pattern or practice at a Commercial Examinations

buildings, condominiums, apartcertain location, Division

ments, etc. In addition, the

amount of standby letters of – as a pattern or practice for a specific customer/account; REAL ESTATE

credit, past-due and non-accrual

loans for each real estate loan CONSTRUCTION LOAN • More than an insignificant num

category; ber of technical violations, ie, in. SURVEY

• Breakdown and dollar amounts completelinaccurate Forms 4789; Many parts of the country are

of internal loan classifications by • Failure to maintain an exempt faced with an oversupply of com

categories such as office buildcustomer list, except when man mercial real estate and many

ings, condominiums, etc. agement does not authorize any banks are experiencing growing • Breakdown and dollar amounts exemptions;

problems in real estate portfolios. of non-residential and land • Inclusion of ineligible entities on High vacancy rates and disinfla

development loans greater than tion have led to rent concessions, $3 million situated in the 50 the exemption list;

declines in property value and largest metropolitan statistical • Lack of internal controls and/or diminished collateral support for areas; audit coverage regarding the many real estate loans. In light

• Breakdown and dollar amounts BSA in combination with

viola- of these adverse economic develop tions of the act; and ments, in July, the OCC sent a

of office building loans greater

than $3 million by metropolitan real estate construction loan sur • Failure to maintain specific in vey form to a selected number of

statistical area and the percenformation regarding deposit ac large bank holding companies and

tage of loan to appraised value. counts, certificates of deposit banks. The selected companies and and loans as detailed in the regu- banks represented more than 8900

A major issue, as seen by OCC lations. billion in total assets and had a

staff, is the adequacy of the apThe referral document should significant volume of activity in praisal supporting the loan on a be in memorandum form and for construction lending. Survey re

construction project. Do ap. warded by the examiner-in-charge sults are currently being analyzed praisals reflect the current market

value of the real estate collateral to District Counsel This procedure

The purpose of the survey was to when adverse economic conditions

determine the extent of construc- occur? Under the new supervisory The Bank Supervision Newsletter is & compilation of articles from the

tion lending within each banking approach, the institutions ex. various Bank Supervision Divisions.

company or bank. The survey hibiting significant risk in conThe newslettor is published

results will determine the major struction lending will receive monthly by the Chiet National Bank loans according to type of project increased supervisory attention. Examiner's Office under the editor- (office building, land development, ship of James E. Tracy, Deputy Director, Commercial Examinations

etc.) and the location of the project Gary H. Christensen Division.

according to metropolitan statisti. National Bank Examiner
cal area.

Community Bank Analysis

.

2

Bank Supervision

Policy Group
Endorses SSP
Recommendations

by Gerry Hagar, Strategic Planning

The recommendations that came from more than seven months of brainstorming. interviewing, and writing by the Strategic Systems Planning (SSP) Team have been endorsed by the Policy Group

The team developed their long-range plan for improved OCC information management using techniques developed by the Holland Systems Corporation. After designing a functional business model that categorizes OCC activities into various "businesses." such as licensing and supervision, the team recommended several steps that would lead OCC to more unified information systems. • Construct shared databases to replace the

80 existing mainframe databases. • Give priority attention for the next 1 to

2 years to development or refinement of

systems in the areas of:
Management planning and reporting
Specifically, strategic and operating plan de.
velopment and coordination, management
reporting, and program tracking

ank supervision - Specifically, systemic
risk identification, assessment and strate.
gy development and individual institution
supervision
Resource management Specifically stafi-
ing plan and career path development, af-
firmative action, recruitment, internal
placement, and training activities.

Completion of this project is an important
step in achieving an integrated, usable and
responsive information system that will
serve OCC's present and future information
needs.

The SSP Team Gerry Hagar, Ron Lindhart, Dave Perkins, Cindy Petitt, Darrell Sheels and Melanie Smith - are now turning their recommendations over to Manage. ment Systems and Information Systems and Technology for implementation. There is a much work to do to complete the project and accomplish the recommendations.

health coverage, you should arrange
with the Payroll Office to continue
family coverage during LWOP (there
is no cost for individual coverage)
After 365 days of LWOP, your cover-
age ends. If you return to an active
duty status you may re-enroll.
OCC Life and FEGLI coverage stays
in force for up to one year with no
further payment. After one year,
your coverage ends with no conver-
sion privileges.
Dental and Vision coverages con-
tinue at no cost for up to one year
while you are on LWOP. At the end
of that time the coverages end. If
you return to active duty, coverages
will be automatically reinstated.
Long-term Disability coverage con
tinues as long as you are in a non-
pay status, if your non-pay status is
for medical reasons (medical
documentation is required). Other
wise, coverage ends when LWOP be.

IRS Bank Secrecy OCC Publishes "The Changing
Responsibilities

Shape of Retail Banking"
Expand

by Janet Gordon, Crustomer and Industry Affairs by Thomas C. Lehmkuhl, Commercial Epaminations

What does the future hold in store for banking services and innovative conOn September 6, 1985, the Depart- banks, their customers, and the bank- sumer lending and education proment of the Treasury signed a delega. customer relationship? OCC has recent

grams; and tion order giving the Internal Revenue ly published a lively discussion of this Service (IRS) certain authorities under question in "The Changing Shape a Re

4. Community investment, including the Bank Secrecy Act (BSA). Under that tail Banking: Responding to Customer

aggressive mortgage lending using delegation, the IRS becomes responsi- Needs." The booklet, now available

revenue bond and secondary market ble for reviewing the exemption lists de. upon request from the Communications programs and an innovative minori. veloped and maintained by financial Division, is a detailed summary of a con

ty small business development institutions. The delegation became ef- ference sponsored last June by the OCC.

program. fective January 1, 1986.

The conference, developed by the Also included are texts of the three The IRS also became responsible for Customer and Industry Affairs Division,

major presentations - Michael A. Manreviewing special-case exemptions and gave bankers, customer group represen- cusi's opening remarks on OCC exemptions that banks feel are justified tatives, industry experts and agency customer-oriented activities; remarks an under BSA but are not covered by the leaders an opportunity to exchange in banking deregulation and consumer in. law's list of standard exempt activities. formation and opinions on a variety of terests by Paul Horvitz, Professor of Exemption requests should no longer be timely issues - from innovations in low- Banking and Finance at the University submitted to the Department of the cost basic banking services to the latest of Texas; and an overview of current Treasury. Such requests should be made in bank technology for branches. trends in bank-customer relationships to the Internal Revenue Service, P.O. The publication summarizes presen- by Raoul Edwards, editor of U.S. Box 32063, Detroit, Michigan 48232. tations and discussions from four work- Banker.

Although the IRS's plans to review ex- shop sessions, which dealt with: The OCC publication has been providisting exemption lists are not yet com

1. Reconfiguration of retail service ed to department and division heads plete, it is clear that those lists will be reviewed. If the RS finds a customer not

delivery systems, including branch and many national, regional and state closing policies, new technologies,

banking and astomer organizations acceptable for exemption, it will require and innovative branch types;

Copies are available from the Commuthe inancial institution to remove the customer from the exempt list and to file 2. Small business products and deliv

nications Division by writing them at

the Washington Omce a by calling Currency Transaction Reports (CTRs).

ery systems, including special small As yet it is unclear whether the IRS wil

business centers and innovative bus

447-1768. Questions regarding the con require retroactive CTR filings for such

iness advisory services;

ference should be directed to Malloy T.

Harris, Jr., or Janet R. Gordon on customers

3. Consumer services, including basic 287-4169.

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el or program you find useful, please contact your Users' Group representative It is important that employees mainto have it presented to the group for review and distribution throughout OCC. tain Nexibility in airline selection, rathThe Microcomputer Users' Group representatives are:

er than insisting on preferred carriers. Name FTS Number Unit

The difference in fares can be dramatic.

For instance, one airline Nies from Larry Horn

8-597-5894
Northeastern District

LaGuardia to O'Hare for a government David Scott

8-242-3792
Southeastern District

rate of $210 round trip and offers four Mark Bryant

8-886-1135
Central District

flights each day. Two other airlines Terry Anstine

8-864-4811
Midwestern District

charge $540 for the same trip, a difJohn Brown

8-729-5750
Southwestern District

ference of $330. An employee flying Don Ewan

8-545-5927
Western District

from Washington to Dallas at the Bill Dehnke

8-447.1896

Chief Counsel's Office government rate pays $234 round trip, Dave Nichols

8-447-1360
Policy and Planning

compared to $660 full coach fare, a difEd Reedy

8-447-1920
Multinational and Regional

ference of $426. Cost differences of Jonathan Faulkner 8-447-1723

more than 150 percent are significant,

Operations Analysis Torn Treichler

particularly when multiplied by the 8-447-1445 Bank Supervision

number of trips taken OCC-wide.

SATO will automatically search for the

lowest available fare in the hour before IRS and the Bank Secrecy Act

and the hour after your requested

departure time. You will not be required by Thomas C. Lehmkuhl, Commercial Examinations

to change planes en route to get a

cheaper fare or to take a slight with The Internal Revenue Service (IRS) has embraced its newly delegated authorities more than one stop. Exceptions to the under the Bank Secrecy Act (BSA) and is actively seeking to strengthen the ad- lowest cost rule may be granted when ministration of BSA compliance. IRS is increasing the staff available and hopes the lowest fare night will not arrive in to provide more assistance to those with BSA problems. The IRS Data Center in

time to accomplish the purpose of your Detroit, Michigan is expected to reach its target level of 300 by the summer of trip. 1986. That staff will process Form 4789, address BSA questions, provide rulings and interpretations of the Act and respond to requests for exemptions. Contacting IRS

IRS is planning a toll-free "800" telephone number to allow them to be more OCC Adopts New responsive to financial institutions, examiners, attorneys, etc. Until the number is available, field

examiners should contact their District Counsel who will con. Home Sale Program tact RS.

Escaminers should remind bankers to document telephone conversations with IRS.
In conversations with bankers, examiners should provide the following BSA

by Dee Dee Bryant, contacts:

Benefits and Travel Services
General BSA information:
IRS Data Center

Under a new IRS position, a relocating
Currency and Banking Report Division

employee who secures an offer higher 1300 John C. Lodge Freeway

than Homequity's offer can turn that ofDetroit, MI 48226

fer over to Homequity and receive the Commercial (313) 226-3525

entire equity payment immediately, basFTS (8) 226-3525

ed on the higher offer. Before 1986,

employees could assign a higher sale to Exemptions and exemption lists:

Homequity and receive full equity only IRS Data Center

after the sale had been closed. The proCurrency and Banking Reports Division

gram change is a result of the IRS posiP.O. Bax 32063

tion that brokers' commissions paid Detroit, MI 48232

throu assigned sale programs are inDick Gabany: Commercial (202) 566-6474

come to the employee. This new OCC FTS (8) 566-6474

amended value program does not result Addressing Past Violations of BSA

in taxable income by IRS standards. When Forms 4789/4790 are not filed, an ineligible customer is included on the Employees who receive higher offers exemption list, and/or a number of Forms 4789 are incompletelinaccurate, exshould coordinate closely with their aminers must direct the bank to contact IRS to determine what corrective action Homequity counselors to ensure that should be taken. Examiners should note in the workpapers and supervisory let- the necessary requirements are met. It ter their instructions to the bank.

is imperative that employees not sign of.

fers, accept earnest money or accept Reviewing Exemption Lists

downpayments on their homes. Anyone OCC is still responsible for reviewing exemption lists. There seems to have been who does so cannot participate in the some confusion regarding the IRS press release attached to Banking Circular 193, Homequity program. Of course Supplement 3. By delegation, IRS may request and review the exemption list of employees who choose to sell their any domestic financial institution. However, IRS will concentrate its review on homes completely independent of institutions not regulated by federal financial institution regulators. If IRS reviews Homequity will still be reimbursed for a national bank's exempt list, OCC will receive a report of the findings. allowable closing costs and the gross up

March 1986

SuperVisions

60-672 0 - 86 - 20

Foderal Register / Vol. 50. No. 167 / Wednesday, August 28. 1985 / Proposed Rules

34857

reporting and maintaining reco:ds of
known or suspected crimes.
DATES: Comments must be rimine
or before October 28, 1965.
ADORESSES: Comments shoulub
directed to. Docket So. 05-14
Communications Division. Sih Fico:
L'Enfant Plaza East. SW., Washington
DC 20219. Attention: Lutinelle Carter.
Comments will be available for public
inspection and photocopying at the
same location.

The collection of information
requirements contained in the proposed
rule tave been submitted to the Office
of Management and Dudget (OMB) for
review under 44 U.S.C. 3504 h).
Comments specifically addressing those
information collection requirements
should be submitted to: Office of
Management and Budget. 726 Jacksuit
Place. NW., Washington, DC 20500.
Attention: Desk Officer for the Office of
the Comptroller of the Currency: and
should also be directed to this Ollice at
the above address.
FOR FURTHER INFORMATION CONTACT:

Jane Rasmussen. Allorncy. Enforcement
DEPARTMENT OF THE TREASURY

and Compliance Division, Office o! the

Comptroller of is. Currency.
Office of the Comptrollor of the

Washington. DC 20218. (202) 447-1818
Currency

SUPPLEMENTARY INFORMATION
12 CFR Parts 1 and 21

Background

The OCC is charged with (Docket No. 15-14)

safeguarding the safety and soundness Reports of Suspected Crimes

of national banks and is responsible for

ensuring that natioral banks apprise AGENCY: Office of the Comptroller of the

law enforcement authorities of any Currency. Treasury.

potential violations of criminal statuis. ACTION: Notice of proposed

rulemaking.

Employee fraud, abusive insider

transactions. check kiting schemes, and
SUMMARY: The Office of the Comptroller the like, can be serious threats to a
of the Currency (OCC) proposes to bank's security and undermine the
eliminate Interpretive Ruling I 7.5225 (12 confidence and trust that individuals
CFR 7.5225) regarding reports by a and businesses place in the barking
national bank in the event of known or industry. The OCC's primary concerns
suspected crimes and replace it with a are losses sufficient in size or number to
regulation that amends the requirements impact the safety and soundness of the
of the ruling. The proposed rule

bank, crimes committed by bank
references a new report form, eliminates officials, and the adequecy of the bank's
I requirement lo send a report to the security systems and internal controls
bank', bonding company, and extends The law enforcement community is
the time for filing reports of mysterious

concerned with receiving prompt reports
disappearances. The current reporting

with sufficient information to determine
system (1 7.5225) is unduly burdensome whether the matter warrants
on banks and bas limited practical investigation and prosecution.
utility to the government agencies

A Working Group was formed in
Involved. The proposed rule is intended December 1984 to address problems and
to make report filing more efficient for promote cooperation toward the soul o!
the banks and more useful for law

improving the federal govern.nerit's enforcement agencies in identifying response to white collar crime in patterns of criminal activity and

federally-regulated fir.ancial institutio::s. apprehending persons who commit The Working Group is composed of crimes involving national banks. The senior officials of the financial proposed rule also clarifies the

institution regulatory agencies and tire responsibilities of national banks in Justice Department. Among the

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