Dow Jones Newswires

  FFIEC Issues Guidance On Derivatives
  Accounting For Banks

  Dow Jones Newswires

  WASHINGTON -- A group of federal banking regulators Tuesday
  issued guidance on how banks should treat derivatives in their financial
  reporting and regulatory capital.

  The action by the Federal Financial Institutions Examination Council
  (FFIEC) - an umbrella group that includes the Office of the Comptroller of
  the Currency, the Federal Reserve Board, the Federal Deposit Insurance
  Corp. and the Office of Thrift Supervision - addresses questions that arose
  with the June 1998 issuance of Statement of Financial Accountings
  Standards No. 133 (FAS 133), a new accounting method for derivatives.

  Under FAS 133, derivatives are to be recorded on balance sheets as
  assets or liabilities at their fair value. The rule becomes effective with fiscal
  years beginning after June 15, 1999, but banks may choose to adopt the
  standard early.

  For purposes of regulatory reporting, FFIEC said changes in the fair value
  of many derivatives are to be reflected in net income. Banks filing call
  reports and bank holding companies filing consolidated financial
  statements should report changes in fair value on the same lines used to
  register net unrealized holding gains (losses) on available-for-sale
  securities. Savings associations should treat changes as components of
  equity capital.

  In addition, FFIEC said the component of equity resulting from cash flow
  hedges should be excluded from regulatory capital until agencies determine
  otherwise. The existing risk-based capital treatment for derivatives remains
  in effect, pending further review, FFIEC said.