OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
SUPERVISION AND REGULATION
January 25, 1999
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OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 |
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| DIVISION OF BANKING SUPERVISION AND REGULATION |
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| SR 99-1 (SUP) January 25, 1999 |
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TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND TO EACH DOMESTIC BANKING ORGANIZATION SUPERVISED BY THE FEDERAL RESERVE
Attached is a copy of the joint release on the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), issued by the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision on December 29, 1998 (see Attachment 1 20 KB PDF). Banking organizations are not required to adopt FAS 133 until fiscal years beginning after June 15, 1999, but have the option of adopting earlier. The joint release sets forth the interim regulatory reporting and capital guidance for these banks, bank holding companies, and thrift institutions (i.e., banking organizations) that avail themselves of the option of early adopting FAS 133.
This new accounting standard requires that all derivatives be recorded on the balance sheet as assets or liabilities at fair value. It also significantly alters the accounting for derivatives used for hedging purposes and for financial instruments with specific types of embedded derivatives. The requirements set forth in FAS 133 may affect a banking organization's recorded amount of assets, liabilities, and equity capital.
The attached joint release and interim guidance explain how derivatives should be reported by early adopters of FAS 133 in the December 1998 Reports of Condition and Income (Call Report), Consolidated Financial Statements for Bank Holding Companies (FR Y-9C), and Thrift Financial Report (TFR).1 The interim guidance also describes how derivatives should be treated under the agencies' existing capital standards by banking organizations that early adopt FAS 133 and how the implementation of this accounting standard may affect the risk-based and tier 1 leverage capital ratios.
The attached joint release and interim reporting and capital guidance should be sent by your Reserve Bank to the chief executive officer of each bank holding company and state member bank in your District. A suggested transmittal letter is attached (Attachment 2 5 KB PDF).
Any questions your bank may have on the attached joint release and interim guidance should be directed to Arleen Lustig, Supervisory Financial Analyst, at 202/452-2987.
Director
Notes 1. Effective March 1999, a new item will be added to the equity capital sections of the Call Report and the FR Y-9C, to collect the accumulated net gains (losses) on FAS 133 cash flow hedges. Return to text
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SR letters | 1999
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