Risk-Based Capital Guidelines
Final Rule on Capital Treatment of Servicing Assets Effective October 1, 1998
August 24, 1998
Circular No. 11085

To All State Member Banks and Bank Holding Companies in the Second Federal Reserve District:

The following is from a statement by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board, along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision today issued a final rule amending capital adequacy standards for banks, bank holding companies, and savings associations to address the regulatory capital treatment of servicing assets on both mortgage assets and financial assets other than mortgages (nonmortgages).

The final rule is effective October 1, 1998. Banking organizations may voluntarily apply the provisions of the final rule immediately if desired.

The final rule increases the maximum amount of servicing assets along with purchased credit card relationships (PCCRs) that are includable in regulatory capital from 50 percent to 100 percent of Tier 1 capital. Servicing assets include the aggregate amount of mortgage servicing assets (MSAs) and nonmortgage servicing assets (NMSAs).

The final rule applies a further sublimit of 25 percent of Tier 1 capital to the aggregate amount of NMSAs and PCCRs and subjects the valuation of MSAs, NMSAs, and PCCRs to a 10 percent discount.

The final rule also modifies certain terms used in the banking agencies' capital rules to be more consistent with the terminology found in accounting standards recently prescribed by the Financial Accounting Standards Board for reporting of these assets.

A copy of the final rule, effective October 1, 1998, as published in the Federal Register is available as a file (pdf - 93kb).