§1835 Insured Depository Institution Capital Requirements for Transfers of Small Business Obligations

Summary

Banks must report transfers of small business loans or leases with recourse using generally accepted accounting rules. If a transfer is a sale under those rules, the bank must set aside a reserve that covers its estimated recourse liability. For capital calculations, the bank only counts the amount of recourse it keeps as part of its risk-weighted assets. A bank is "qualified" if it is well capitalized or is adequately capitalized with the regulator’s approval. All retained recourse for qualified banks can’t be more than 15 percent of the bank’s risk-based capital unless the regulator allows a higher limit. If a bank later stops being qualified or goes over the limit, these rules still apply to transfers made while it was qualified. These rules do not change how regulators calculate prompt corrective action capital categories. Federal banking agencies had to issue final implementing rules within 180 days after September 23, 1994. Regulators may use a different system instead if it requires equal or greater capital and reserves; transfers made before that new system starts keep the old treatment. Definitions (short): adequately capitalized — the same meaning used in federal banking law. appropriate Federal banking agency — the federal agency that supervises the bank. capital standards — the capital rules used by federal banking law. Federal banking agencies — federal agencies that regulate banks. insured depository institution — a bank or similar institution insured under federal law. other capital measures — other capital tests used in bank rules. recourse — the meaning given by generally accepted accounting principles. small business — as defined by the Small Business Administration. well capitalized — the same meaning used in federal banking law.