Title 12, Banks and BankingRelease 119-110

§3904 Reserves

Title 12 › CHAPTER 40 — INTERNATIONAL LENDING SUPERVISION › § 3904

Last updated Sep 22, 2026|Official source

Summary

Federal banking agencies must require banks to set up and keep special reserves when a bank’s foreign loans are harmed by a long inability of borrowers in another country to pay. Signs include missed interest payments, broken restructured loan terms, or a country failing to follow IMF or similar programs, or when there is no clear chance debt service will be restored. These reserves must come from current income and cannot be counted as capital, surplus, or as loan-loss allowances for rules or reporting. Agencies must also review foreign loan rescheduling deals, judge the loss risk those deals show, and use their capital rules (see section 3907) to make sure U.S. banks have enough capital and reserves. Agencies had to issue the needed regulations within 120 days after November 30, 1983.

Full Legal Text

Title 12, §3904

Banks and Banking, Source: USLM XML via OLRC

(a)Establishment and maintenance of special reserves

(1)Each appropriate Federal banking agency shall require a banking institution to establish and maintain a special reserve whenever, in the judgment of such appropriate Federal banking agency—

(A)the quality of such banking institution’s assets has been impaired by a protracted inability of public or private borrowers in a foreign country to make payments on their external indebtedness as indicated by such factors, among others, as—

(i)a failure by such public or private borrowers to make full interest payments on external indebtedness;

(ii)a failure to comply with the terms of any restructured indebtedness; or

(iii)a failure by the foreign country to comply with any International Monetary Fund or other suitable adjustment program; or

(B)no definite prospects exist for the orderly restoration of debt service.

(2)Such reserves shall be charged against current income and shall not be considered as part of capital and surplus or allowances for possible loan losses for regulatory, supervisory, or disclosure purposes.

(b)Accommodation of potential losses on foreign loans by United States banks

The appropriate Federal banking agencies shall analyze the results of foreign loan rescheduling negotiations, assess the loan loss risk reflected in rescheduling agreements, and, using the powers set forth in section 3907 of this title (regarding capital adequacy), ensure that the capital and reserve positions of United States banks are adequate to accommodate potential losses on their foreign loans.

(c)Regulations and orders of Federal banking agencies

The appropriate Federal banking agencies shall promulgate regulations or orders necessary to implement this section within one hundred and twenty days after November 30, 1983.

Reference

Citations & Metadata

Citation

12 U.S.C. § 3904

Title 12, Banks and Banking

Last Updated

Sep 22, 2026

Release point: 119-110