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Comptroller of the Currency
Bank Supervision Newsletter
Washington, D.C. 20219
SALE OF BANK ASSETS tion, there may be a differenca
In This Issue...
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 $
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:
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
Community Bank Analysis
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:
ank supervision - Specifically, systemic
Completion of this project is an important
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
IRS Bank Secrecy OCC Publishes "The Changing
Shape of Retail Banking"
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.
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
LaGuardia to O'Hare for a government David Scott
rate of $210 round trip and offers four Mark Bryant
flights each day. Two other airlines Terry Anstine
charge $540 for the same trip, a difJohn Brown
ference of $330. An employee flying Don Ewan
from Washington to Dallas at the Bill Dehnke
Chief Counsel's Office government rate pays $234 round trip, Dave Nichols
compared to $660 full coach fare, a difEd Reedy
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.
by Dee Dee Bryant, contacts:
Benefits and Travel Services
Under a new IRS position, a relocating
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
60-672 0 - 86 - 20
Foderal Register / Vol. 50. No. 167 / Wednesday, August 28. 1985 / Proposed Rules
reporting and maintaining reco:ds of
The collection of information
Jane Rasmussen. Allorncy. Enforcement
and Compliance Division, Office o! the
Comptroller of is. Currency.
Washington. DC 20218. (202) 447-1818
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
Employee fraud, abusive insider
transactions. check kiting schemes, and
bank, crimes committed by bank
concerned with receiving prompt reports
with sufficient information to determine
A Working Group was formed in
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