BC - 240
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type:  Banking Circular
Subject:  Push Down Policy

TO:	Chief Executive Officers of All National Banks, Deputy Comptrollers,
     District Administrators, Division Directors, and All Examining
     Personnel

PURPOSE

The Federal Financial Institutions Examination Council (the "FFIEC") has
approved a reporting requirement, effective October 1, 1989, to use push
down accounting in certain acquisitions of national banks, state member
banks and insured state nonmember banks. This reporting requirement is an
addition to the Glossary to the Instructions to the Consolidated Reports
of Condition and Income ("Call Report"). This banking circular explains
the policy and provides an illustration of the application of push down
accounting.

BACKGROUND

Push down accounting establishes a new accounting basis for the financial
statements of an acquired bank. Under push down accounting, when a bank is
acquired by another entity either directly or indirectly (e.g., a bank
holding company) in a purchase acquisition, yet retains its separate
corporate existence, the assets and liabilities of the acquired bank are
restated to fair value as of the acquisition date. In addition, the equity
accounts of the acquired bank are restated to equal the purchase price
paid by the buyer.

POLICY

A bank is required to use push down accounting in preparing its Call
Report if an unaffiliated arm's-length purchase acquisition of at least 95
percent of its voting stock has occurred, and it does not have an
outstanding issue of publicly traded debt of preferred stock.

In these circumstances, a bank must use push down accounting if it has
been acquired in a business combination accounted for as a purchase
acquisition in accordance with Accounting Principles Board Opinion 16,
"Business Combinations". Banks acquired in business combinations accounted
for as a pooling of interests are prohibited from using push down
accounting because there is no adjustment to the historical cost basis
under generally accepted accounting principles. Reference should be made
to the glossary entry in the Call Report entitled "Business Combinations"
for additional information on a purchase acquisition versus a pooling of
interests.

Push down accounting will also be required for Call Reports if the bank's
financial statements are presented on a push down basis in reports filed
with the Securities and Exchange Commission.

In addition, push down accounting may be used in an arm's-length purchase
of at least 80 percent of the voting stock of an acquired bank, where the
OCC and the bank's independent accountant concur that the use of push down
accounting is appropriate.

To apply push down accounting, capital accounts of the acquired bank must
be adjusted to equal the purchase price. The purchase price is the total
cash, stock, debt and other consideration paid to acquire the voting stock
of the bank. After the push down adjustments, total capital -- stock and
surplus -- of the bank will equal the price paid by the purchaser.
Undivided profits must be recorded at zero as in the formation of a new
bank.

Asset and liability accounts of the acquired bank are adjusted to equal
their fair value amounts. To the extent the purchase price exceeds those
fair value amounts, the excess should be recorded on the books of the
acquired bank as intangible assets. However, in no case should the net
assets recorded at fair value exceed the purchase price. An illustration
of the application of push down accounting is attached.

For Call Reports, a bank will report the initial increase or decrease
occurring in its equity capital from the application of push down
accounting on Schedule RI-A, "Changes in Equity Capital."

In purchase acquisitions not meeting the criteria above, purchase
adjustments would be recorded on the books of the consolidated company.
The acquired bank would retain its original historical based cost account
balances.

Push down accounting may be used to record acquisitions consummated
between December 31, 1988, and the date of this policy that meet the
criteria for push down accounting. In these circumstances, banks should
contact the Bank Accounting Division of the Office of the Chief National
Bank Examiner (202) 874-5180.


Originating Office:


Chief National Bank Examiner
Bank Accounting Division
Washington, D.C. 20219



Donald G. Coonley
Chief National Bank Examiner


Attachment

Date: September 7, 1989