ASC 310-942
Financial Services—Depository and Lending
310 Receivables
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This Subtopic gives industry guidance for depository and lending institutions on receivables, principally debt-equity swap programs in which a bank converts U.S.-dollar-denominated loans to financially troubled countries into approved local equity investments. A swap is measured at fair value at the date both parties agree to the transaction, considering both the secondary market price of the loan given up and the fair value of the equity or net assets received; a shortfall against the recorded investment in the loan is a loss charged to the allowance for loan losses. It also addresses nonaccrual loans to troubled countries, when interest may again be recognized as income, and gross presentation of customers' liabilities on acceptances.
Key points (7)
- A debt-equity swap shall be measured at fair value at the date the transaction is agreed to by both parties, considering both the secondary market price of the loan given up and the fair value of the equity investment or net assets received, since the thin secondary market may not be the best indicator (310-942-30-1; 310-942-30-2).
- Management is responsible for measuring fair value using reasonable methods and assumptions consistent with Topic 820, considering similar cash transactions, estimated cash flows, fair value of similar equity investments, and currency/repatriation restrictions (310-942-30-3).
- If the fair value received is less than the recorded investment in the loan, the loss is recognized at the agreement date and generally charged to the allowance for loan losses, including any discount from the official exchange rate imposed as a transaction fee (310-942-35-5).
- Loss recoveries or gains indicated by the valuation ordinarily should not be recorded until the equity investment or net assets received are realized in unrestricted cash or cash equivalents (310-942-35-6).
- All other fees and transaction costs in a debt-equity swap are expensed as incurred, not capitalized (310-942-25-2).
- On a loan whose interest accrual has been suspended, payments received are applied to reduce principal to the extent necessary to eliminate doubt about ultimate collectibility of principal (310-942-35-2); interest may be recognized as income only once the country is current and has normalized relations with the international financial community and the allowance is adequate (310-942-35-3), and a period of payment performance is generally needed before returning loans to accrual status (310-942-35-4).
- Customers' liabilities on acceptances shall be reported gross rather than net of the related bankers' acceptance liability (310-942-45-1); loans held for disposition prior to maturity are carried at the lower of amortized cost basis or fair value (310-942-55-1).
For students. Practically, this is niche sovereign-debt/bank guidance, but it illustrates an important asymmetry students often miss: swap losses are recognized immediately at the agreement date (charged to the allowance for loan losses), while indicated gains or loss recoveries wait until the received investment is realized in unrestricted cash. Also note that meeting the "normalized relations" conditions permits interest income recognition but does not automatically restore accrual status.
debt-equity swapnonaccrual loansallowance for loan lossessovereign debt of financially troubled countriesfair value measurementbankers' acceptanceslower of amortized cost basis or fair valuecost recovery of interest
Machine-generated study aid for ASC 310-942. Check the source paragraphs below.
310-942-00Status
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310-942-00-1
The following table identifies the changes made to this Subtopic.
| Paragraph | Action | Accounting Standards Update | Date |
| Fair Value (3rd def.) | Added | Accounting Standards Update No. 2012-04 | 10/01/2012 |
| 942-310-05-1 | Amended | Accounting Standards Update No. 2016-13 | 06/16/2016 |
| 942-310-05-4 | Superseded | Accounting Standards Update No. 2016-13 | 06/16/2016 |
| 942-310-25-1 | Superseded | Accounting Standards Update No. 2016-13 | 06/16/2016 |
| 942-310-30-1 | Amended | Accounting Standards Update No. 2022-02 | 03/31/2022 |
| Amended | Accounting Standards Update No. 2012-04 | 10/01/2012 | |
| 942-310-35-1 | Amended | Accounting Standards Update No. 2016-13 | 06/16/2016 |
| 942-310-55-1 | Amended | Accounting Standards Update No. 2016-13 | 06/16/2016 |
310-942-05Overview and Background
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310-942-05-1
This Subtopic provides guidance on accounting for debt-equity swap programs.
310-942-05-2
This Subtopic addresses situations where a financially troubled country may suspend the payment of interest on its loans. Banks with outstanding loans from such a country have also suspended accrual of interest income (placed them on nonaccrual status). A country that has suspended payment of interest may later resume payment.
310-942-05-3
Debt-equity swap programs are in place in several financially troubled countries. Although the programs differ somewhat among the countries, the principal elements of each program generally are as follows:
- aHolders of U.S.-dollar-denominated debt of these countries can choose to convert that debt into approved local equity investments.
- bThe holders are credited with local currency, at the official exchange rate, approximately equal to the U.S. dollar debt.
- cA discount from the official exchange rate is usually imposed as a transaction fee.
- dThe local currency credited to the holder must be used for an approved equity investment.
- eThe local currency is not available to the holders for any other purpose.
- fDividends on the equity investment can generally be paid annually, although there may be restrictions on the amounts of the dividends or on payment of dividends in the early years of the investment.
- gCapital usually cannot be repatriated for several years, and although some countries permit the investment to be sold, the proceeds from any such sale are generally subject to similar repatriation restrictions.
310-942-15Scope and Scope Exceptions
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Overall Guidance
310-942-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 942-10-15, with specific transaction exceptions noted below.
Transactions
310-942-15-2
The guidance in this Subtopic does not apply to the following transactions:
- aStock loans that fall under the scope of Topic 718.
310-942-25Recognition
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Debt-Equity Swap Fees and Costs
310-942-25-2
All other fees and transaction costs involved in a debt-equity swap shall not be capitalized but shall be charged to expense as incurred.
310-942-30Initial Measurement
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Debt-Equity Swap Programs
310-942-30-1
A debt-equity swap shall be measured at fair value at the date the transaction is agreed to by both parties. Debt-equity swaps have characteristics similar to both the acquisition of assets contemplated by Topics 805 and 845 and the receipt of assets in satisfaction of a loan contemplated by Subtopic 310-20.
310-942-30-2
Since the secondary market for debt of financially troubled countries may be considered to be thin, it may not be the best indicator of the fair value of the equity investment or of net assets received. In light of this thin secondary market and of the unique nature of the transaction, it is also necessary to examine the fair value of the equity investment or net assets received. In arriving at the fair value of a debt-equity swap, both the secondary market price of the loan given up and the fair value of the equity investment or net assets received shall be considered.
310-942-30-3
It is the responsibility of management to measure fair value considering all of the circumstances and to see that the measurement of fair value is based on reasonable methods and assumptions consistent with Topic 820, including, as needed, information from independent appraisals. Factors to consider in measuring fair values include the following:
- aSimilar transactions for cash
- bEstimated cash flows from the equity investment or net assets received
- cFair value of similar equity investments, if any
- dCurrency restrictions, if any, affecting dividends, the sale of the investment, or the repatriation of capital.
310-942-35Subsequent Measurement
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Loans to Financially Troubled Countries
310-942-35-1
Bank loans to financially troubled countries may meet the conditions in Subtopic 326-20 on financial instruments measured at amortized cost for recording of credit losses. As a result, a bank shall establish loan loss allowances for such loans by charges to income.
310-942-35-2
If amounts are received on a loan on which the accrual of interest has been suspended, a determination should be made about whether the payment received should be recorded as a reduction of the principal balance or as interest income. If the ultimate collectibility of principal, wholly or partially, is in doubt, any payment received on a loan on which the accrual of interest has been suspended shall be applied to reduce principal to the extent necessary to eliminate such doubt.
310-942-35-3
When a country becomes current as to principal and interest payments and has normalized relations with the international financial community including, as appropriate, having in place an understanding with the International Monetary Fund regarding its economic stabilization program, and assuming that the allowance for loan losses is adequate, the creditor may recognize receipt of interest payments as income.
310-942-35-4
Although a country has met the conditions described in the preceding paragraph, that fact should not automatically lead to the conclusion that the loans should be returned to accrual status. Some period of payment performance generally is necessary in order to make an assessment of collectibility that would permit returning the loans to accrual status.
Debt-Equity Swap Programs
310-942-35-5
If the fair value of the equity investment or net assets received in a debt-equity swap is less than the recorded investment in the loan, a loss shall be recognized and recorded at the date the transaction is agreed to by both parties. Although some portion of the swap loss may result from factors such as a change in the interest rate environment for similar loans, the loss results principally from a concern as to the ultimate collectibility of the loan. Therefore, the swap loss generally shall be charged to the allowance for loan losses and shall include any discounts from the official exchange rate that are imposed as a transaction fee.
310-942-35-6
Loss recoveries or even gains might be indicated in a swap transaction as a result of the valuation process. However, due to the subjective nature of the valuation process, such loss recoveries or gains ordinarily should not be recorded until the equity investment or net assets received in the swap transaction are realized in unrestricted cash or cash equivalents.
310-942-35-7
Recognition of a debt-equity swap loss shall be among the factors to be considered by management in its periodic assessment of the adequacy of the allowance for loan losses with respect to its remaining portfolio of loans to debtors in financially troubled countries.
Customers' Liabilities on Acceptances
310-942-35-8
Provisions for uncollectible amounts for customers' acceptance liabilities should be made, if necessary.
310-942-45Other Presentation Matters
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Customers' Liabilities on Acceptances
310-942-45-1
Customers' liabilities on acceptances shall be reported gross, rather than net of the related bankers' acceptance liability.
Unearned Premiums and Unpaid Claims on Insurance Coverages
310-942-45-2
See Section 942-210-45 regarding presentation guidance for unearned premiums and unpaid claims on insurance coverages issued to finance customers.
310-942-55Implementation Guidance and Illustrations
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Debt-Equity Swap Programs
310-942-55-1
Management may decide to dispose (by sale of swap) of loans prior to maturity for a number of reasons, including liquidity needs, tax considerations, portfolio diversification objectives, and management practices of generating loans specifically for disposition, in which case the loans shall be carried at the lower of amortized cost basis or fair value.
310-942-S00StatusSEC
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310-942-S00-1
No updates have been made to this subtopic.
310-942-S35Subsequent MeasurementSEC
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Reporting of an Allocated Transfer Risk Reserve in Filings Under the Federal Securities Laws
310-942-S35-1
See paragraph 942-310-S99-3, SAB Topic 11.I, for SEC Staff views on how the allocated transfer risk reserve should be reported in filings under Federal Securities Laws.
310-942-S45Other Presentation MattersSEC
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Loans and Allowance For Loan Losses
310-942-S45-1
See paragraph 942-210-S99-1, Regulation S-X Rule 9-03.7, for presentation requirements pertaining to loans and allowance for loan losses.
Due from Customers on Acceptances
310-942-S45-2
See paragraph 942-210-S99-1, Regulation S-X Rule 9-03.9, for presentation requirements pertaining to amounts receivable from customers on unmatured drafts and bills of exchange.
310-942-S50DisclosureSEC
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Loans and Allowance for Loan Losses
310-942-S50-1
See paragraph 942-210-S99-1, Regulation S-X Rule 9-03.7, for disclosure requirements pertaining to loans and allowance for loan losses.
Due from Customers on Acceptances
310-942-S50-2
See paragraph 942-210-S99-1, Regulation S-X Rule 9-03.9, for disclosure requirements pertaining to amounts receivable from customers on unmatured drafts and bills of exchange.
Deposit-Relending Arrangements
310-942-S50-3
See paragraph 942-310-S99-1, SAB Topic 11.H.1, for SEC Staff views regarding appropriate disclosures for deposit-relending arrangements between U.S. banks and certain foreign banks and borrowers.
Accounting and Disclosures by Bank Holding Companies for a Mexican Debt Exchange Transaction
310-942-S50-4
See paragraph 942-310-S99-2, SAB Topic 11.H.2, for SEC Staff views on disclosure related to Mexican debt exchange transactions.
Allocated Transfer Risk Reserve
310-942-S50-5
See paragraph 942-310-S99-3, SAB Topic 11.I, for SEC Staff views on disclosures pertaining to an allocated transfer risk reserve.
310-942-S99SEC MaterialsSEC
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SEC Staff Guidance
310-942-S99-1
The following is the text from SAB Topic 11.H.1, Disclosures by Bank Holding Companies Regarding Certain Foreign Loans.
- Facts: Certain foreign countries experiencing liquidity problems, by agreement with U.S. banks, have instituted arrangements whereby borrowers in the foreign country may remit local currency to the foreign country's central bank, in return for the central bank's assumption of the borrowers' non-local currency obligations to the U.S. banks. The local currency is held on deposit at the central bank, for the account of the U.S. banks, and may be subject to relending to other borrowers in the country. Ultimate repayment of the obligations to the U.S. banks, in the requisite non-local currency, may not be due until a number of years hence.
- Question: What disclosures are appropriate regarding deposit/relending arrangements of this general type?
- Interpretive Response: The staff emphasizes that it is the responsibility of each registrant to determine the appropriate financial statement treatment and classification of foreign outstandings. The facts and circumstances surrounding deposit/relending arrangements should be carefully analyzed to determine whether the local currency payments to the foreign central bank represent collections of outstandings for financial reporting purposes, and whether such outstandings should be classified as nonaccrual, past due or restructured loans pursuant to Item III.C.1. of Industry Guide 3, Statistical Disclosure by Bank Holding Companies ("Guide 3").
- The staff believes, however, that the impact of deposit/relending arrangements covering significant amounts of outstandings to a foreign country should be disclosed pursuant to Guide 3, Item III.C.3., Instruction (6)(a). FN1 The disclosures should include a general description of the arrangements and, if significant, the amounts of interest income recognized for financial reporting purposes which has not been remitted in the requisite non-local currency to the U.S. bank.
- FN1 Instruction (6)(a) calls for description of the nature and impact of developments in countries experiencing liquidity problems which are expected to have a material impact on timely repayment of principal or interest. Additionally, Instruction (6)(d)(ii) to Item III.C.3. calls for disclosure of commitments to relend, or to maintain on deposit, arising in connection with certain restructurings of foreign outstanding.
310-942-S99-2
The following is the text from SAB Topic 11.H.2, Accounting and Disclosures by Bank Holding Companies for a "Mexican Debt Exchange" Transaction.
- Facts: Inquiries have been made of the staff regarding certain accounting and disclosure issues raised by a proposed "Mexican Debt Exchange" transaction which could involve numerous bank holding companies with existing obligations of the United Mexican States ("Mexico") or other Mexican public sector entities (collectively, "Existing Obligations"). The key elements of the Mexican Debt Exchange are as follows:
- Mexico will offer for sale bonds ("Bonds"), denominated in U.S. dollars, which will pay interest at a LIBOR-based floating rate and mature in twenty years. Mexico will undertake to list the Bonds on the Luxembourg Stock Exchange. The Bonds will be secured, as to their ultimate principal value only, by non-interest bearing securities of the U.S. Treasury ("Zero Coupon Treasury Securities") which will be purchased by Mexico. The Zero Coupon Treasury Securities will be pledged to holders of the Bonds and held in custody at the Federal Reserve Bank of New York and will have a maturity date and ultimate principal value which match the maturity date and principal value of the Bonds. While the Bonds will have default and acceleration provisions, the holder of a Bond will not be permitted to have access to the collateral prior to the final scheduled maturity date, at which time the proceeds of the collateral will be available to pay the full principal amount of the Bonds. As such, the holder of a Bond ultimately will be secured as to principal at maturity; however, the interest payments will not be secured. The Bonds will not be subject to future restructurings of Mexico's Existing Obligations, and Mexico has indicated that neither the Bonds nor the Existing Obligations exchanged therefor will be considered part of a base amount with respect to any future requests by Mexico for new money.
- The Mexican Debt Exchange will be structured in such a way that potential purchasers of the Bonds will submit bids on a voluntary basis to the auction agent. These bids will specify the face dollar amount of existing restructured commercial bank obligations of Mexico or of other Mexican public sector entities that the potential purchaser is willing to tender and the face dollar amount of Bonds that the purchaser is willing to accept in exchange for the Existing Obligations. Following the auction date, Mexico will determine the face dollar amount of Bonds to be issued and will exchange the Bonds for Existing Obligations taking first the offer of the largest face dollar amount of Existing Obligations per face dollar amount of Bonds, and so on, until all Bonds which Mexico is willing to issue have been subscribed. It is therefore possible that a greater amount of Existing Obligations could be tendered than Mexico is willing to accept.
- The lender has appropriately accounted for the transaction as a troubled debt restructuring in accordance with the provisions of Statement 15 as amended by Statement 114 [Topic 310].
- Question 1: What financial statement and other disclosure issues regarding the Mexican Debt Exchange and the Bonds received should be considered by registrants?
- Interpretive Response: The staff believes that disclosure of the nature of the transaction would be necessary, including:
- Carrying value and terms of Existing Obligations exchanged;
- Face value, carrying value, market value and terms of Bonds received;
- The effect of the transaction on the allowance for loan losses and the provision for losses in the current period; and
- Annual interest income on Existing Obligations exchanged and annual interest income on Bonds received.
- On an ongoing basis, the staff believes that the terms, carrying value and market value of the Bonds should be disclosed, if material, due to their unique features. FN2
- Question 2: What disclosure with respect to the Bonds received would be acceptable under Industry Guide 3?
- Interpretive Response: Instruction (4) to Item III.C.3. of Industry Guide 3 states: "The value of any tangible, liquid collateral may also be netted against cross-border outstandings of a country if it is held and realizable by the lender outside of the borrower's country." Given the unique features of the Bonds in that the ultimate repayment of the principal amount (but not interest) at maturity is assured, the staff will not object to either of two presentations. Under the first presentation, the carrying value of the Bonds, including any accrued but unpaid interest, would be included as a "cross-border outstanding" to the extent it exceeds the current fair value of the Zero Coupon Treasury Securities which collateralize the bonds. Alternatively, under the second presentation, the carrying value of the Bond principal would be excluded from Mexican cross-border outstandings provided (a) disclosure is made of the exclusion, (b) for purposes of determining the 1% and.75% of total assets disclosure thresholds of Item III.C.3. of Industry Guide 3, such carrying values are not excluded, and (c) all the Guide 3 disclosures relating to cross-border outstandings continue to be made, as discussed further below.
- For registrants that adopt the alternative disclosure approach and whose Mexican cross-border outstandings (excluding the carrying value of the Bond principal) exceed 1% of total assets, appropriate footnote disclosure of the exclusions should be made. Such footnote should indicate the face amount and carrying value of the Bonds excluded, the market value of such Bonds, and the face amount and current fair value of the Zero Coupon Treasury Securities which secure the Bonds.
- If the Mexican cross-border outstandings (excluding the carrying value of the Bond principal) are less than 1% of total assets but with the addition of the carrying value of the Bond principal would exceed 1%, the carrying value of the Mexican cross-border outstandings may be excluded from the list of countries whose cross-border outstandings exceed 1% of total assets provided that a footnote discloses the amount of Mexican cross-border outstandings (excluding the carrying value of the Bond principal) along with the footnote-type disclosure concerning the Bonds discussed in the previous paragraph. This disclosure and any other material disclosure specified by Item III.C.3. of Industry Guide 3 would continue to be made as long as Mexican exposure, including the carrying value of the Bond principal, exceeded 1%.
- If the Mexican cross-border outstandings (excluding the carrying value of the Bond principal) are less than.75% of total assets but with the addition of the carrying value of the Mexican Bond principal would exceed .75% but be less than 1%, cross-border outstandings disclosed pursuant to Instruction (7) to Item III.C.3. of Industry Guide 3 may exclude Mexico provided a footnote is added to the aggregate disclosure which discloses the amount of Mexican cross-border outstandings and the fact that they have not been included. The carrying value of the Bond principal may be excluded from the amount of Mexican cross-border outstandings disclosed in the footnote provided the footnote-type disclosure discussed in the second preceding paragraph is also made.
- In essence, the alternative discussed herein results in a change only in the method of presenting information, not in the total information required. FN3
- FN3 The following represents proposed disclosure using the alternative method discussed above. Of course, it would be necessary to supplement this disclosure with the additional disclosures regarding foreign outstandings that are called for by Guide 3 (e. g., an analysis of the changes in aggregate outstandings), and the disclosures called for by the Interpretive Responses to Question 1.
- The appropriate disclosure would depend on the level of Mexican cross-border outstandings as follows:
- A. Assuming that the remaining Mexican cross-border outstandings are in excess of 1% of total assets:
- Mexican cross-border outstandings (which excludes the total amount of the carrying value of Bond principal) would be disclosed in the table presenting all such outstandings in excess of 1%.
- Proposed footnote disclosure -
- Not included in this amount is $___ million of Mexican Government Bonds maturing in 2008, with a carrying value of $___ million [if different from face value]. These Mexican Government Bonds had a market value of $___ million on [reporting date]. The principal amount of these bonds is fully secured, at maturity, by $___ million face value of U.S. zero coupon treasury securities that mature on the same date. The current fair value of these U.S. Government securities is $___ million at [reporting date]. This collateral is pledged to holders of the bonds and held in custody at the Federal Reserve Bank of New York. The details of the transaction in which these bonds were acquired was reported in the Corporation's Form (8-K, 10-Q or 10-K) for (date). Accrued interest on the bonds, which is not secured, is included in the outstandings reported [amount to be disclosed if material]. Future interest on the bonds remains a cross-border risk.
- B. Assuming that remaining Mexican cross-border outstandings are less than 1% of total assets but with the addition of the carrying value of the Mexican Bond principal would exceed 1%:
- There would not be any disclosure included in any cross-border table.
- The total amount of remaining cross-border Mexican outstandings would be disclosed in a footnote to the table. Such footnote would also explain that the Mexican outstandings are excluded from the table.
- Additional footnote disclosure - (same disclosure in A above).
- The disclosure required under this paragraph (plus any other disclosure required by Item III.C.3. of Guide 3) would continue so long as Mexican exposure, including the carrying value of the Mexican Bond principal, exceeded 1%.
- C. Assuming that the remaining Mexican cross-border outstandings is less than.75% of total assets but with the addition of the carrying value of the Mexican Bond principal is greater than .75% but less than 1%:
- Mexico would not be included in the list of names of countries required by Instruction 7 to Item III.C.3. of Industry Guide 3 and the amount of Mexican cross-border outstandings would not be included in the aggregate amount of outstandings attributable to all such countries.
- A footnote would be added to this disclosure of aggregate outstandings which discusses the Mexican outstandings and the Mexican Bonds. An example follows:
- Not included in the above aggregate outstandings are the Corporation's cross-border outstandings to Mexico which totaled $___ million at (reporting date). This amount is less than .75% of total assets. (The remaining portion of this footnote is the same disclosure in A above.)
- D. Assuming that the total of the Mexican cross-border outstanding plus the carrying value of the Bond principal is less than the.75% of total assets:
- No disclosure would be required.
- However, same disclosure as in A above would be provided if any other aspects of the financial statements are materially affected by this transaction (such as the allowance for loan losses).
- Changes in aggregate outstandings to certain countries experiencing liquidity problems are required to be presented in tabular form in compliance with Instruction (6)(b) to Item III.C.3. In this table, Existing Obligations exchanged for the Bonds would generally be included in the aggregate cross-border outstandings at the beginning of the period during which the exchange occurred. For registrants using the alternative method, the amount of Existing Obligations which were exchanged would be included as a deduction in the "other changes" caption in the table. In addition, a footnote will be provided to the table as follows:
- Relates primarily to the exchange of unsecured Mexican outstandings for Mexican bonds. The principal amount of these bonds is secured at maturity by $___ face U.S. Zero Coupon Treasury Securities which mature on the same date and have a current fair value of $___. Future interest on the bonds remains a cross-border risk.]
310-942-S99-3
The following is the text from SAB Topic 11.I, Reporting of an Allocated Transfer Risk Reserve in Filings under the Federal Securities Laws:
- Facts: The Comptroller of the Currency, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation jointly issued final rules, pursuant to the International Lending Supervision Act of 1983, requiring banking institutions to establish special reserves (Allocated Transfer Risk Reserve "ATRR") against the risks presented in certain international assets when the Federal banking agencies determine that such reserves are necessary. The rules provide that the ATRR is to be accounted for separately from the General Allowances for Possible Loan Losses, and shall not be included in the banking institution's capital or surplus. The rules also provide that no ATRR provisions are required if the banking institution writes down the assets in the requisite amount.
- Question: How should the ATRR be reported in filings under the Federal Securities Laws?
- Interpretive Response: It is the staff's understanding that the three banking agencies believe that those bank holding companies that have not written down the designated assets by the requisite amount and, therefore, are required to establish an ATRR should disclose the amount of the ATRR. The staff believes that such disclosure should be part of the discussion of Loan Loss Experience, Item IV of Guide 3. Part A under Item IV calls for an analysis of loss experience in the form of a reconciliation of the allowance for loan losses, and the staff believes that it would be appropriate to show and discuss separately the ATRR in the context of that reconciliation.
- Registrants should recognize that the amount provided as an ATRR, or the write off of the requisite amount, represents the identification of an amount which those regulatory agencies have determined should not be included as a part of the institution's capital or surplus for purposes of administration of the regulatory and supervisory functions of those agencies. In this context, the staff believes that disclosure of the ATRR, as part of the footnote required to be presented in a registrant's financial statements by Item 7(d) of Rule 9-03 of Regulation S-X, may provide a more complete explanation of charge offs and provisions for loan losses. It should be noted, however, that the ATRR amount to be excluded from the institution's capital and surplus does not address the more general issue of the adequacy of allowances for any particular bank holding company's loans. It is still the responsibility of each registrant to determine whether GAAP require an additional provision for losses in excess of the amount required to be included in an ATRR (or the requisite amount written off).