District Circular Letters

December 9, 1998

REGULATION Y:
APPRAISAL REQUIREMENTS FOR MORTGAGE-BACKED SECURITIES

RULES REGARDING DELEGATION OF AUTHORITY:
DIRECTOR OF DIVISION OF CONSUMER AND COMMUNITY AFFAIRS

INTERAGENCY STATEMENTS:
LOAN LOSS ACCOUNTING POLICY
INCOME TAX ALLOCATION IN BANK HOLDING COMPANY STRUCTURES
NATIONAL REGISTRY OF STATE CERTIFIED AND LICENSED APPRAISERS

To Member Banks,
Bank Holding Companies,
U. S. Branches and Agencies of Foreign Banks
and Others Concerned
in the Twelfth Federal Reserve District

Final Rule Regarding Transactions Involving Mortgage-Backed Securities (Docket R-0990)

The Federal Reserve Board has approved an amendment to Subpart G of Regulation Y, Appraisal Standards for Federally Related Transactions. The amendment exempts from the Board's appraisal requirements transactions involving the underwriting or dealing of mortgage-backed securities. This amendment permits bank holding company subsidiaries engaged in underwriting and dealing in securities (so-called section 20 subsidiaries) to underwrite and deal in mortgage-backed securities without demonstrating that the loans underlying the securities are supported by appraisals that meet the Board's appraisal requirements.

The amendment is effective December 28, 1998.

Authority of Director of Division of Consumer and Community Affairs (Docket R-1025)

The Board has amended its Rules Regarding Delegation of Authority, revising and expanding the delegation of authority to the Director of Division of Consumer and Community Affairs to include

• issuing interpretations under the Fair Credit Reporting Act;
• adjusting the dollar amount to determine coverage under the Home Ownership and Equity Protection Act;
• adjusting the depository institution exemption threshold under the Home Mortgage Disclosure Act;
• making certain determinations under the Community Reinvestment Act regulations; and
• holding public hearings on financial service issues in keeping with congressional mandates.

This final rule became effective November 25, 1998.

Joint Agency Statement Regarding Allowance for Loan Losses

The Securities and Exchange Commission, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Comptroller of the Currency, and Office of Thrift Supervision have jointly issued the enclosed statement on the allowance for loan losses of depository institutions. The statement is intended to better ensure the consistent application of loan loss accounting policy and to improve the transparency of financial statements.

Income Tax Allocation in Bank Holding Company Structures (Docket R-1022)

The Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (the Agencies) have adopted a uniform interagency policy statement regarding inter-company tax allocation agreements for banking organizations and savings associations (institutions) that file income tax returns as members of a consolidated group. The statement provides guidance regarding the allocation and payment of taxes among a holding company and its depository institution subsidiaries. In general, inter-corporate tax settlements between an institution and its parent company should be conducted in a manner that is no less favorable to the institution than if it were a separate taxpayer. This policy statement is the result of the Agencies' ongoing effort to implement section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRI Act), which requires the Agencies to work jointly to make uniform their regulations and guidelines implementing common statutory or supervisory policies.

This interagency policy statement became effective November 23, 1998.

Internet Access to the National Registry of State Certified and Licensed Appraisers

Under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), federally regulated financial institutions are required to obtain appraisals by state certified or licensed appraisers for all federally related financial transactions. To assist regulated financial institutions in determining whether a appraiser is licensed or certified, the Appraisal Subcommittee of the Federal Financial Institutions Examination Council has introduced an Internet-based registry of all appraisers who are permitted to perform real estate appraisals for federally related financial transactions, located at http://www.asc.gov. The Federal Reserve Board has issued the enclosed letter (SR 98-31 [SUP]) providing further details about this Internet site.

Copies

Copies of the Board's notices (Docket R-0990, Docket R-1025, and Docket R-1022) are available from our Corporate Services Department. To request copies to be sent via mail, please call (415) 974-2748. To request copies to be sent via fax, please call (415) 974-3333, and specify document numbers 4179, 4169, and 4189, respectively.

Additional Information

For additional information about Regulation Y, the Rules Regarding Delegation of Authority, and the interagency statements regarding income tax allocation in bank holding company structures, and loan loss accounting policy, please contact our Banking Supervision and Regulation Department, at (415) 974-3007. For additional information regarding the National Registry of State Certified and Licensed Appraisers, please contact Ms. Virginia Gibbs, Senior Supervisory Financial Analyst, Federal Reserve Board, at (202) 452-2521.

FEDERAL RESERVE BANK OF SAN FRANCISCO