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To: Chief Executive Officers of National Banks, Department and Division Heads, Examining Personnel and Other Interested Parties

Description: Final Rule


This bulletin announces the Office of the Comptroller of the Currency's (OCC) final rule on the regulatory capital treatment for deferred tax assets. The OCC, in consultation with the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC), decided to adopt its proposal to limit the amount of deferred tax assets dependent upon future taxable income that may be included in regulatory capital. The final rule has been in effect on an interim basis since March 1993. It includes several modifications requested by commenters to reduce the regulatory burden of implementation.


In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). The OCC and the other federal banking agencies adopted FAS 109 for regulatory reporting effective January 1, 1993.

FAS 109 allows a bank to record higher amounts of deferred tax assets than they could under previous accounting policy. Specifically, a bank may record deferred tax assets that will only be realized if the bank earns sufficient taxable income in future periods. After analyzing the accounting rule, the OCC concluded that the new standard would allow a bank to rely excessively on deferred tax assets to meet regulatory capital requirements.

To address this concern, on December 23, 1993, the OCC published a notice of proposed rulemaking in the Federal Register to explicitly limit the amount of deferred tax assets dependent upon future taxable income that a bank could include in regulatory capital (58 Federal Register 68065).


After carefully reviewing the comments and considering the arguments supporting and opposing the limit on deferred tax assets, the OCC decided to adopt its proposed rule with minor changes effective April 1, 1995. Accordingly, the amount of deferred tax assets dependent upon future taxable income that a bank may include in its regulatory capital is limited to the lesser of:

  1. The amount of deferred tax assets the institution expects to realize within one year of the quarter-end report date, based on its projection of future taxable income (exclusive of tax carryforwards and reversals of existing temporary differences for that year), or
  2. Ten percent of Tier 1 capital, net of goodwill and all identifiable intangible assets other than purchased mortgage servicing rights and purchased credit card relationships, and before any disallowed deferred tax assets are deducted.

Banks should follow the accounting guidance provided in this final rule and in the call report instructions when calculating the deferred tax regulatory capital limit. The amount of disallowed deferred tax assets should be deducted from both total assets and from risk-weighted assets in determining a bank's leverage and risk-based capital ratios. Except as otherwise noted, banks should follow FAS 109 for calculating and reporting their deferred tax assets.

For further information, contact the Chief National Bank Examiner's Office (202) 649-6370.

Jimmy F. Barton
Chief National Bank Examiner

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