12 C.F.R. § 28.52 – Allocated transfer risk reserve.

(a) Establishment of allocated transfer risk reserve. A banking institution shall establish an allocated transfer risk reserve (ATRR) for specified international assets when required by the OCC in accordance with this section.
(b) Procedures and standards—(1) Joint agency determination. At least annually, the Federal banking agencies shall determine jointly, based on the standards set forth in paragraph (b)(2) of this section, the following:
1. (i) Which international assets subject to transfer risk warrant establishment of an ATRR;
2. (ii) The amount of the ATRR for the specified assets; and
3. (iii) Whether an ATRR established for specified assets may be reduced.
4. (2) Standards for requiring ATRR—(i) Evaluation of assets. The Federal banking agencies shall apply the following criteria in determining whether an ATRR is required for particular international assets:
  1. (A) Whether the quality of a banking institution's assets has been impaired by a protracted inability of public or private obligors in a foreign country to make payments on their external indebtedness as indicated by such factors, among others, as whether:
    (1) Such obligors have failed to make full interest payments on external indebtedness;
    (2) Such obligors have failed to comply with the terms of any restructured indebtedness; or
    (3) A foreign country has failed to comply with any International Monetary Fund or other suitable adjustment program; or
  2. (B) Whether no definite prospects exist for the orderly restoration of debt service.
  3. (ii) Determination of amount of ATRR.
    1. (A) In determining the amount of the ATRR, the Federal banking agencies shall consider:
      (1) The length of time the quality of the asset has been impaired;
      (2) Recent actions taken to restore debt service capability;
      (3) Prospects for restored asset quality; and
      (4) Such other factors as the Federal banking agencies may consider relevant to the quality of the asset.
    2. (B) The initial year's provision for the ATRR shall be 10 percent of the principal amount of each specified international asset, or such greater or lesser percentage determined by the Federal banking agencies. Additional provision, if any, for the ATRR in subsequent years shall be 15 percent of the principal amount of each specified international asset, or such greater or lesser percentage determined by the Federal banking agencies.
5. (3) Notification. Based on the joint agency determinations under paragraph (b)(1) of this section, the OCC shall notify each banking institution holding assets subject to an ATRR:
  1. (i) Of the amount of the ATRR to be established by the institution for specified international assets; and
  2. (ii) That an ATRR to be established for specified assets may be reduced.
(c) Accounting treatment of ATRR—(1) Charge to current income. A banking institution shall establish an ATRR by a charge to current income and the amounts so charged shall not be included in the banking institution's capital or surplus.
(2) Separate accounting. A banking institution shall account for an ATRR separately from the Allowance for Possible Loan Losses, and shall deduct the ATRR from “gross loans and leases” to arrive at “net loans and leases.” The ATRR must be established for each asset subject to the ATRR in the percentage amount specified.
(3) Consolidation. A banking institution shall establish an ATRR, as required, on a consolidated basis. Consolidation should be in accordance with the procedures and tests of significance set forth in the instructions for preparation of Consolidated Reports of Condition and Income (FFIEC 031, 032, 033 and 034). For bank holding companies, the consolidation shall be in accordance with the principles set forth in the “Instructions to the Bank Holding Company Financial Supplement to Report F.R. Y-6” (Form F.R. Y-9). Edge corporations and Agreement corporations engaged in banking shall report in accordance with instructions for preparation of the Report of Condition for Edge corporations and Agreement corporations (Form F.R. 2886b).
(4) Alternative accounting treatment. A banking institution need not establish an ATRR if it writes down in the period in which the ATRR is required, or has written down in prior periods, the value of the specified international assets in the requisite amount for each such asset. For purposes of this paragraph, international assets may be written down by a charge to the Allowance for Possible Loan Losses or a reduction in the principal amount of the asset by application of interest payments or other collections on the asset. However, the Allowance for Possible Loan Losses must be replenished in such amount necessary to restore it to a level which adequately provides for the estimated losses inherent in the banking institution's loan portfolio.
(5) Reduction of ATRR. A banking institution may reduce an ATRR when notified by the OCC or, at any time, by writing down such amount of the international asset for which the ATRR was established.