SECTION 5. DRAFTING

INFORMATION

The principal authors of this notice are Matthew P. Howard and John W. Rogers III of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this notice, contact Mr. Howard or Mr. Rogers at (202) 622–4695 (not a toll-free call).

standards that are used for charge-offs, and they no longer classify a loss asset using the April 26, 1991, version of the Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks that is referenced in the Conclusive Presumption Regulations.

In 2004, the bank regulators adopted the 2004 Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts (the “2004 Classification and Appraisal Agreement”), rescinding the prior 1991 agreement. The 2004 Classification and Appraisal Agreement classified applicable debt securities by relying on Financial Accounting Standards Board (“FASB”) pronouncements. Under the 2004 Classification and Appraisal Agreement, a debt security is considered impaired if its fair value is less than its amortized cost, and the standards mandate recognizing a loss equal to the full difference between the debt’s fair value and its amortized cost if the reduction in value (impairment) is other than temporary.

Additional changes to bank regulatory standards were made in 2009, when FASB issued additional guidance. See O.C.C. Bulletin 2009–11, Other-Than-Temporary Impairment Accounting (April 17, 2009). That guidance changed how the impairment should be reported on financial statements for held-to-maturity debt securities. For a held-to-maturity debt security, the portion of loss related to credit loss is to be recognized in earnings (on the income statement), while the portion of loss related to all other factors is to be reported directly on the balance sheet as other comprehensive income (thereby bypassing the income statement). Financial Accounting Standards Board Staff Positions, FSP FAS 115–2 and 124–2, Recognition and Presentation of Other-Than-Temporary Impairments (later codified as part of Accounting Standards Codification 320). Thus, beginning in 2009, the portion of the loss on held-to-maturity debt securities associated with credit impairment, as defined in regulatory standards, could be separately identified. These standards continue to be subject to future change, and they are currently under active review by FASB with a view, in part, to creating a uniform impairment model. See Exposure Draft, Finan- cial Instruments—Credit Losses (Subtopic 825–15) (December 20, 2012).

In light of these changes to the regulatory standards relevant to loan charge-offs, the Treasury Department and the Internal Revenue Service are evaluating the Conclusive Presumption Regulations.

B. Entities Subject to the Conclusive Presumption Regulations

The Book Conformity Method under the Conclusive Presumption Regulations is expressly available only to banks. The Specific Order Method, in contrast, applies to a bank “...or other corporation which is subject to supervision by Federal authorities, or by State authorities maintaining substantially equivalent standards.” The Treasury Department and the Internal Revenue Service have received questions about which taxpayers may qualify as “other corporations” for this purpose, particularly with respect to insurance companies and government-sponsored enterprises.