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Federal Register / Vol. 86, No. 188 / Friday, October 1, 2021 / Rules and Regulations
individual capital requirements for service corporations as part of the chartering process. We believe the more prudent default treatment is deduction rather than risk weighting. We would consider risk weighting on a case-bycase basis as the exception.
G. Adjustments for Accruing Patronage and Dividends We proposed to amend the regulatory capital adjustment and deduction requirements under 628.22 by incorporating in proposed 628.22b the existing call report instructions directing System institutions to reverse the accrual of patronage or dividend payables or receivables that occur prior to a board declaration resolution.66 As discussed in the proposed rule preamble, FCA believes it is important to reflect regulatory capital on the basis of related contractual obligations. Some options for the treatment of patronage and dividend accruals under GAAP may not be consistent with this regulatory capital requirement.67 FCA looks to the date an institutions board of directors passes a binding resolution declaring an amount it will pay in patronage or dividends 68 to establish when the legal obligation exists and should be reflected in regulatory capital computations. We received no comments on this amendment and are adopting it as proposed.
H. Bank Disclosures We proposed clarifying amendments to the requirement under 628.63b4
that banks disclose a reconciliation of their regulatory capital elements to their balance sheets in any audited consolidated financial statements.
Specifically, we proposed to add the word applicable before audited to clarify that reconciliation requirements apply only to current period financial statements that have been audited.69 We further proposed that System banks be required to complete this reconciliation of regulatory capital elements using both point-in-time and three-month average daily balance regulatory capital values as our regulatory capital requirements are based on a threemonth average daily balance.70
Financial statements are generally 66 See existing Call Report instructions for Schedule RCR.4, Line item 3 at https
www.fca.gov/bank-oversight/fcs-call-reports.
67 See 85 FR 55786, 5578755788 September 10, 2020.
68 The declaration must include an amount to be paid or include language by which an amount could be calculated.
69 Under FCA regulations, only the annual report to shareholders prepared at yearend must be audited. See 620.5j1.
70 See 628.10a.

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prepared using point-in-time information.
The System Comment Letter questioned the value added by completing the required reconciliation on both a point-in-time and a threemonth average daily balance basis. The commenters noted that Basel III Pillar 3
disclosure requirements are based on a tieback to audited financial statements, which are prepared on a point-in-time basis. They further noted that the addition of the three-month average reconciliation was unnecessary and potentially confusing.
We are persuaded that completing the reconciliation on a point-in-time basis satisfies the Basel III Pillar 3 disclosure requirement for a reconciliation of regulatory capital to GAAP capital. We acknowledge that requiring a reconciliation on two separate bases would have added another administrative requirement. We have decided instead to revise 628.63b4
to require only a reconciliation on a point-in-time basis, together with a statement that compliance with the minimum capital requirements in subpart B of part 628 is determined using average daily balances for the most recent 3 months.
To address potential conflicts between the requirements of 620.3
and 628.62c, we proposed to revise 620.3 to state that, unless otherwise determined by FCA, the use of the authorized limited disclosure in 628.62c does not create an incomplete disclosure. We also proposed to revise 620.3 to permit institutions to modify the required statement that the information provided is true, accurate, and complete to explain that the completeness of the disclosure was determined in consideration of 628.62c. We received no comments on this amendment and are adopting it as proposed.
Lastly, we proposed to remove and reserve 628.63b3, which required disclosure of the computation of regulatory capital ratios during the transition period, because the provision is no longer applicable. We received no comments on this amendment and are adopting it as proposed.
I. Retirement of Statutory Borrower Stock Under existing 628.20b1xivB, System institutions may redeem the minimum statutory borrower stock described in 628.20b1x without prior FCA approval and without satisfying the minimum holding period for common cooperative equities included in CET1 capital. In order to
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eliminate any possible misinterpretation that an institution could retire statutory borrower stock if the institution were not meeting its regulatory capital requirements, we proposed to add a provision to 628.20b1xivB to clarify that institutions may redeem statutory borrower stock only provided that, after such redemption, the institution continues to comply with all minimum regulatory capital requirements.
The System Comment Letter and Compeer requested that we reconsider the regulatory provisions for redemptions of statutory minimum borrower stock because of the administrative burden they create for small-balance loans at some institutions those with balances of $50,000 or less.
As we clarified in the preamble to the proposed rule, under the existing provisions of 628.20b1xivB, for any statutory borrower stock exceeding $1,000 or 2 percent of the loan amount, whichever is less, the minimum holding periods for inclusion in regulatory capital apply.71 We also clarified in the preamble that the 2 percent of the loan amount is determined relative to the originated loan amount. Commenters stated that, under this structure, some System institutions must undertake a burdensome process to track the holding period for stock that is $1,000
or less but greater than 2 percent of the loan balance. The commenters further noted that the amounts of capital retained as a result of this requirement are de minimis in terms of any institutions total capital.
We are persuaded that the burden of tracking and managing these de minimis amounts of statutory minimum borrower stock in accordance with existing requirements is not justified by the safety and soundness benefits of the nominal amounts of capital retained.
Accordingly, we are amending the provisions of 628.20b1xivB to reflect that an amount of the statutory borrower stock as described in section 4.3A of the Act, not to exceed $1,000, may be redeemed without a minimum period outstanding after issuance and without the prior approval of the FCA.
This amendment eliminates the burden of tracking de minimis amounts of statutory borrower stock that are less than $1,000 but exceed 2 percent of the loan balance. More specifically, System institutions may redeem up to $1,000 of statutory borrower stock irrespective of 71 See 85 FR 55786, 55794 September 10, 2020.
Of note, under 628.20b1x and d1viii, any statutory borrower stock in excess of the statutory minimum that is funded through loan proceeds from the System institution is includable only in tier 2 capital.

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