Bank Accounting Practices
1.11 of Investment Securities Regulation of the Comptroller of the Currency
provides that when an investment security is purchased at a premium over
par, the bank shall charge off the entire premium at the time of purchase
or provide for amortization of the premium so that it shall be entirely
extinguished at or before maturity of the security.
1.10 of the Comptroller's regulation provides that when a bank purchases
an investment security convertible into stock or with stock purchase warrants
attached, the bank shall at time of purchase write down the cost of the
security to investment value of the security considered independently
of the conversion feature or attached stock purchase warrants.
Giving effect to such write-down, if investment value results in
a premium still, Section 1.11 of the Investment Securities Regulation
then applies, requiring a program of amortization of such remaining portion
of the original total premium, so that it shall be entirely extinguished
at or before maturity of the security.
Comptroller's ruling number 7550 explicitly provides that discount (accretion
of discount) on any bond, including a public of investment security, whether
arising upon original issue or purchase in the market, may be accrued
if there is concurrent accrual of income tax on such discount.
The Comptroller of the Currency furnishes "Report of Income and
Dividends" forms and instructions for their preparation and filing annually
for the 12-month period ending December 31st (Comptroller's
Regulations, 12 CFR 4.11(3)).
state member banks of the Federal Reserve system, and for other state
banks insured by the Federal Deposit Insurance Corporation, Regulation
F of the Board of Governors of the Federal Reserve System and companion
regulation by the Federal Deposit Insurance Corporation specify that securities
accounts, for both the statement of condition and income statement, shall
reflect cost adjusted for amortization of premium and, at the option of
the bank, for accretion of discount.
If the reporting bank does not accrete bond discount, the amount
that could have been accreted shall be set forth in footnote.
is the position of the Board of Governors of the Federal Reserve System
that a member state bank may not lawfully invest in a convertible security
whose price exceeds, by more than an insignificant amount, the investment
value of the obligation, considered independently of the conversion feature.