[Federal Register: May 31, 2000 (Volume 65, Number 105)]
[Notices]
[Page 34801-34819]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31my00-116]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
Proposed Agency Information Collection Activities; Comment
Request
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Notice and request for comment.
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SUMMARY: In accordance with the requirements of the Paperwork Reduction
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC
(the ``agencies'') may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. The Federal Financial Institutions Examination Council
(FFIEC), of which the agencies are members, has approved the agencies'
publication for public comment of proposed revisions to the
Consolidated Reports of Condition and Income (Call Report), which are
currently approved collections of information. At the end of the
comment period, the comments and recommendations received will be
analyzed to determine the extent to which the FFIEC should modify the
proposed revisions prior to giving its final approval. The agencies
will then submit the revisions to OMB for review and approval.
DATES: Comments must be submitted on or before July 31, 2000.
ADDRESSES: Interested parties are invited to submit written comments to
any or all of the agencies. All comments, which should refer to the OMB
control number(s), will be shared among the agencies.
OCC: Written comments should be submitted to the Communications
Division, Office of the Comptroller of the Currency, 250 E Street, SW,
Third Floor, Attention: 1557-0081, Washington, DC 20219. In addition,
comments may be sent by facsimile transmission to (202) 874-5274, or by
electronic mail to regs.comments@occ.treas.gov. Comments will be
available for inspection and photocopying at the OCC's Public Reference
Room, 250 E Street, SW, Washington, DC 20219 between 9 a.m. and 5 p.m.
on business days. Appointments for inspection of comments may be made
by calling (202) 874-5043.
Board: Written comments should be addressed to Jennifer J. Johnson,
Secretary, Board of Governors of the Federal Reserve System, 20th and C
Streets, NW, Washington, DC 20551, submitted by electronic mail to
regs.comments@federalreserve.gov, or delivered to the Board's mail room
between 8:45 a.m. and 5:15 p.m., and to the security control room
outside of those hours. Both the mail room and the security control
room are accessible from the courtyard entrance on 20th Street between
Constitution Avenue and C Street, NW. Comments received may be
inspected in room M-P-500 between 9 a.m. and 5 p.m., except as provided
in section 261.12 of the Board's Rules Regarding Availability of
Information, 12 CFR 261.12(a).
FDIC: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th Street, NW, Washington, DC 20429. Comments may be
hand-delivered to the guard station at the rear of the 550 17th Street
Building (located on F Street), on business days between 7 a.m. and 5
p.m. [FAX number: (202) 898-3838; Internet address: comments@fdic.gov].
Comments may be inspected and photocopied in the FDIC Public
Information Center, Room 100, 801 17th Street, NW, Washington, DC,
between 9 a.m. and 4:30 p.m. on business days.
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: Alexander T. Hunt, Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 3208, Washington, DC 20503.
FOR FURTHER INFORMATION CONTACT: Draft copies of the two versions of
the Call Report forms that are proposed to replace the current four
versions of the Call Report may be obtained at the FFIEC's web site
(www.ffiec.gov) and at the FDIC's web site.\1\ Draft copies of
[[Page 34802]]
these proposed revised Call Report forms also may be requested from any
of the agency clearance officers whose names appear below.
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\1\ On the FDIC's web site, draft copies of the proposed Call
Report forms will be attachments to the Financial Institution Letter
that transmits this proposal to all institutions that file Call
Reports. Financial Institution Letters can be accessed at http://
www.fdic.gov/news/financial-institution-letters/index.html.
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OCC: Jessie Dunaway, OCC Clearance Officer, or Camille Dixon, (202)
874-5090, Legislative and Regulatory Activities Division, Office of the
Comptroller of the Currency, 250 E Street, SW, Washington, DC 20219.
Board: Mary M. West, Chief, Financial Reports Section, (202) 452-
3829, Division of Research and Statistics, Board of Governors of the
Federal Reserve System, 20th and C Streets, NW, Washington, DC 20551.
Telecommunications Device for the Deaf (TDD) users may contact Diane
Jenkins, (202) 452-3544, Board of Governors of the Federal Reserve
System, 20th and C Streets, NW, Washington, DC 20551.
FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907,
Office of the Executive Secretary, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION: Proposal to revise the following currently
approved collections of information:
Report Title: Consolidated Reports of Condition and Income.
Form Number: Current form numbers: FFIEC 031, 032, 033, and 034.
Proposed form numbers: FFIEC 031 and 041.\2\
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\2\ The FFIEC 031 report form would continue to be filed by
banks with domestic and foreign offices. At present, the FFIEC 032
report form is filed by banks with domestic offices only and $300
million or more in total assets, the FFIEC 033 report form is filed
by banks with domestic offices only and $100 million or more but
less than $300 million in total assets, and the FFIEC 034 report
form is filed by banks with domestic offices only and less than $100
million in total assets. The proposed FFIEC 041 report form would
replace the FFIEC 032, 033, and 034 report forms and would be filed
by all banks with domestic offices only.
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Frequency of Response: Quarterly.
Affected Public: Business or other for-profit.
For OCC:
OMB Number: 1557-0081.
Estimated Number of Respondents: 2,400 national banks.
Estimated Time per Response: 41.76 burden hours.
Estimated Total Annual Burden: 400,865 burden hours.
For Board:
OMB Number: 7100-0036.
Estimated Number of Respondents: 1,014 state member banks.
Estimated Time per Response: 47.56 burden hours.
Estimated Total Annual Burden: 192,903 burden hours.
For FDIC:
OMB Number: 3064-0052.
Estimated Number of Respondents: 5,734 insured state nonmember
banks.
Estimated Time per Response: 30.81 burden hours.
Estimated Total Annual Burden: 706,633 burden hours.
The estimated time per response is an average which varies by
agency because of differences in the composition of the banks under
each agency's supervision (e.g., size distribution of banks, types of
activities in which they are engaged, and number of banks with foreign
offices). The time per response for a bank is estimated to range from
14 to 500 hours, depending on individual circumstances. In addition,
the effect on the time per response of the proposed changes to the Call
Report that are discussed in this notice will vary from bank to bank.
After adjusting to the proposed revisions to the reporting
requirements, many smaller banks should experience a decrease in time
per response because they do not have trust powers and are not involved
in the activities for which new information would be collected. In
contrast, the time per response for some large banks is expected to
increase because the proposed new information would be applicable to
them and because the reporting of trust activities would be moved into
the Call Report from two separate trust activities reports.\3\
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\3\ The Annual Report of Trust Assets (FFIEC 001) and the Annual
Report of International Fiduciary Activities (FFIEC 006): for the
OCC, OMB Number 1557-0127; for the Board, OMB Number 7100-0031; and
for the FDIC, OMB Number 3064-0024. The FDIC does not collect the
FFIEC 006.
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General Description of Report
This information collection is mandatory: 12 U.S.C. 161 (for
national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C.
1817 (for insured state nonmember commercial and savings banks). Except
for selected items, this information collection is not given
confidential treatment. Small businesses (i.e., small banks) are
affected.
Abstract
Banks file Call Reports with the agencies each quarter for the
agencies' use in monitoring the condition, performance, and risk
profile of reporting banks and the industry as a whole. In addition,
Call Reports provide the most current statistical data available for
evaluating bank corporate applications such as mergers, for identifying
areas of focus for both on-site and off-site examinations, and for
monetary and other public policy purposes. Call Reports are also used
to calculate all banks' deposit insurance and Financing Corporation
assessments and national banks' semiannual assessment fees.
Current Actions
I. Overview
The agencies are requesting comment on proposed revisions to the
Call Report that are intended to make the content of the report more
relevant to the agencies. The more significant revisions include:
An approximate 10 percent decrease in the number of
currently existing separately reportable data items (outside of
regulatory capital information) whose collection is no longer
warranted;
A new regulatory capital reporting approach that uses
step-by-step ``building blocks'' to compute the key elements of the
capital ratios;
Combining the three separate report forms for banks of
different sizes that have only domestic offices into a single form
while retaining the separate form for banks with foreign offices;
New information on:
--Nontraditional and higher risk bank activities, i.e., subprime loans,
securitizations and asset sale activities, additional categories of
noninterest income, and restructured derivative contracts; and
--Federal Home Loan Bank advances and other borrowings;
Replacing the two separate trust activities reports with a
single, streamlined trust Call Report schedule;
Eliminating the confidential treatment for loans, leases,
and other assets that are past due 30 through 89 days; and
Eliminating the additional 15-day period that banks with
more than one foreign office are given for submitting their Call
Reports.
These revised reporting requirements are also designed to
complement the agencies' emphasis on risk-focused supervision.
Furthermore, the proposal addresses certain aspects of sections 307(b)
and (c) of the Riegle Community Development and Regulatory Improvement
Act of 1994 (the Riegle Act). These sections direct the federal banking
agencies to work jointly toward more uniform reporting, review the
information that institutions currently report, and eliminate existing
reporting requirements that are not warranted for safety and soundness
or other public policy purposes.
Type of Review: Revision of a currently approved collection.
The proposed revisions to the Call Report have been approved for
[[Page 34803]]
publication by the FFIEC. The agencies would implement these proposed
Call Report changes as of the March 31, 2001, report date. Nonetheless,
as is customary for Call Report changes, banks are advised that, for
the March 31, 2001, report date only, reasonable estimates may be
provided for any new or revised item for which the requested
information is not readily available. The specific wording of the
captions for the new and revised Call Report items and the numbering of
the items in the report forms should be regarded as preliminary.
II. Streamlining the Existing Reporting Requirements
The agencies have carefully reviewed the purposes for which and
extent to which they use each data item that they currently collect
from banks in the Call Report. This process involved requesting
feedback from the staffs within the three agencies on the specific uses
of each Call Report item. The agencies also considered the magnitude of
the aggregate amounts reported for each item in the Call Report, the
number and size distribution of banks reporting amounts for each Call
Report item, and bankers' comments about the most burdensome aspects of
the Call Report. Based on this information, the agencies identified
items that appeared to be of lesser significance to them, taking into
account the effect that eliminating certain items and reducing the
amount of detail in certain schedules would have on the agencies. In
addition, the agencies considered ways to limit the number of banks
that are required to complete certain items and schedules based on bank
size or other criteria in order to focus the collection of this
information on those institutions for which the data are most relevant.
Based on the agencies' evaluations of their users' input, the
agencies are proposing to implement numerous revisions that will
streamline the existing reporting requirements. While the effect of
these revisions on reporting burden, either through the outright
elimination of items or reductions in the amount of detail required in
certain areas, will vary across the four existing sets of reporting
requirements, many of the recommended revisions will affect information
currently reported by substantially all banks. In other cases, the
recommended changes will apply only to a subset of banks such as those
with foreign offices or banks within a particular size range. This
burden-reducing effort will produce an approximate 10 percent decrease
in the number of separately reportable items on the four existing sets
of Call Report forms (outside of regulatory capital information) before
considering the agencies' new information needs, which are discussed in
Section III below. These eliminations and reductions in detail will
help the agencies achieve the objective set forth in section 307(c) of
the Riegle Act, which directs the agencies to review the information
that institutions currently report in the Call Report and eliminate
existing reporting requirements that are not warranted for safety and
soundness or other public policy purposes.
As part of the streamlining process, the agencies are proposing
several reporting changes that will introduce more uniformity to
certain aspects of bank regulatory reporting. These changes will
provide more uniformity to the Call Report requirements themselves and
will bring some elements of the regulatory reporting requirements for
banks, savings associations, and bank holding companies into closer
alignment.\4\ In this regard, over the past several years, banking
organizations have sought greater consistency among the reporting
requirements imposed on banks, savings associations, and bank holding
companies. Thus, for example, the agencies are proposing to eliminate
the differing definitional schemes for loans that now exist within the
Call Report for banks of different sizes and to conform other Call
Report definitions to those used by savings associations. Moreover, the
proposed new regulatory capital reporting approach incorporates some
elements of the format used by bank holding companies to report
regulatory capital information. Other proposed modifications to the
Call Report are intended to make its form and content more closely
resemble the manner in which information is presented in financial
statements that banks prepare in accordance with generally accepted
accounting principles (GAAP) for other financial reporting purposes.
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\4\ These three types of financial institutions file different
regulatory report forms. Banks file Call Reports, savings
associations file Thrift Financial Reports, and bank holding
companies subject to consolidated reporting requirements file the FR
Y-9C reports.
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An additional outcome of this streamlining effort is that the
agencies believe that there is no longer a need for three separate
versions of the Call Report based on asset size for banks with domestic
offices only. The agencies are therefore proposing to combine these
three reports (FFIEC 032, 033, and 034) into a single report (FFIEC
041). Nevertheless, within this single report, certain schedules or
items would only be applicable to banks that meet specified criteria,
e.g., asset size. The agencies would retain the separate version of the
Call Report for banks with foreign offices (FFIEC 031).
Increasing the uniformity of the Call Report requirements, both
among banks and among the different types of institutions supervised by
the federal financial institution regulators, is a necessary step
toward achieving the goal of a single set of reporting requirements for
the filing of core information that is set forth in section 307(b) of
the Riegle Act. It should also reduce reporting burden for banking
organizations comprised of two or more separate entities that must file
regulatory reports with their primary federal regulators.
A. Specific Proposed Deletions, Reductions in Detail, Changes To
Increase Uniformity in Regulatory Reporting, and Revisions To Conform
With GAAP (Outside of Regulatory Capital Reporting)
The agencies propose to delete existing items from or reduce the
amount of detail currently required in most of the schedules of the
Call Report. Other changes throughout the existing report will be made
to bring about more uniformity in the reporting requirements for banks
or among banks and other types of financial institutions insured or
supervised by the agencies or to better conform with the requirements
of GAAP. In addition, the specific location of certain items within the
Call Report will be modified so that it better matches the presentation
required by GAAP or followed in practice by most institutions. Some of
these revisions will affect information that is now collected in all
four versions of the Call Report (FFIEC 031, 032, 033, and 034) while
other changes may affect only one report form.
A schedule-by-schedule listing of these proposed revisions, using
the current numbers and captions for the affected items, follows:
Schedule RC--Balance Sheet: For all banks:
(1) Item 15.b, ``Demand notes issued to the U.S. Treasury,'' would
be eliminated as a separate item and would be reported instead as part
of item 16, ``Other borrowed money.''
(2) Items 26.b, ``Net unrealized holding gains (losses) on
available-for-sale securities,'' 26.c, ``Accumulated net gains (losses)
on cash flow hedges,'' and 27, ``Cumulative foreign currency
translation adjustments,'' would be combined and reported as
``Accumulated other comprehensive
[[Page 34804]]
income.'' \5\ In addition, any minimum pension liability adjustment
recognized in accordance with Financial Accounting Standards Board
(FASB) Statement No. 87, Employers' Accounting for Pensions, which
banks have to net against ``Undivided profits and capital reserves''
due to the constraints of the current Call Report balance sheet, would
be included in this new item for ``Accumulated other comprehensive
income.'' This change would conform the presentation of the equity
capital section of the Call Report balance sheet to FASB Statement No.
130, Reporting Comprehensive Income.
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\5\ The first two of these components of ``Accumulated other
comprehensive income'' would be separately identified in the
proposed new regulatory capital schedule, which is discussed in
Section II.B. below.
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(3) Loans and leases held for sale are currently included on the
balance sheet in item 4.a, ``Loans and leases, net of unearned
income,'' together with loans that the bank has the intent and ability
to hold for the foreseeable future or until maturity or payoff, but
loans and leases held for sale are separately identified in the loan
schedule in Schedule RC-C, part I, Memorandum item 5. The agencies
propose to move ``Loans and leases held for sale'' onto the balance
sheet as an asset category separate from the loan portfolio. This
change will bring the Call Report balance sheet presentation of these
two categories of loans into conformity with GAAP. However, loans and
leases held for sale would continue to be reported with the bank's
other loans in the loan schedule (Schedule RC-C, part I).
(4) Item 4.c, ``Allocated transfer risk reserve,'' would be deleted
from the balance sheet, but would be reported in the new regulatory
capital schedule, which is discussed in section II.B. below. Banks
would report their loans and leases net of any allocated transfer risk
reserve in the loan schedule (Schedule RC-C, part I).
(5) A new item for ``Other equity capital components'' would be
added to the equity capital section of the balance sheet. This item
would cover treasury stock and unearned Employee Stock Ownership Plan
shares which, under GAAP, are to be reported in a contra-equity account
on the balance sheet. Due to the constraints of the equity capital
section of the current Call Report balance sheet, banks are forced to
report these amounts as reductions of undivided profits. Thus, this
change will make the equity capital section more consistent with GAAP
and with the equity capital section of the balance sheet in the Thrift
Financial Report.
(6) Memorandum item 1 requires all banks to report the highest
level of comprehensive external auditing work they have had performed
during the previous year. In November 1999, the agencies issued a joint
policy statement that encourages banks with less than $500 million in
total assets to consider engaging an independent public accountant to
perform a full scope annual audit or, alternatively, an attestation
engagement to examine management's assessment of the effectiveness of
their internal control structure over financial reporting or an audit
of the bank's balance sheet. A new code category would be added to
Memorandum item 1 to capture data on internal control attestations.
Also, the instructions for code categories 1 and 2 of Memorandum item
1, which currently apply to full scope audits, would be revised to
include balance sheet audits performed in accordance with generally
accepted auditing standards.
Schedule RC-A--Cash and Balances Due From Depository Institutions:
At present, this schedule appears only on the FFIEC 031, 032, and 033
forms, which means that the schedule is not completed by banks with
domestic offices only and total assets of less than $100 million. The
agencies are proposing to reduce the number of banks with domestic
offices only to which this schedule applies by raising the size
threshold for the schedule from $100 million to $300 million in total
assets. All banks with foreign offices would continue to complete
Schedule RC-A. However, for all banks to which the schedule would
remain applicable, the agencies propose to delete Memorandum item 1,
``Noninterest-bearing balances due from commercial banks in the U.S.''
Schedule RC-B--Securities: For all banks:
(1) The three separate items for ``General obligations,'' ``Revenue
obligations,'' and ``Industrial development and similar obligations''
(items 3.a, 3.b., and 3.c, respectively) would be combined into a
single item for ``Securities issued by states and political
subdivisions in the U.S.''
(2) Item 6.b, ``All other equity securities,'' i.e., equity
securities without readily determinable fair values, would be moved to
a new item in Schedule RC-F--Other Assets. These equity securities are
outside the scope of FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Therefore, including them in
the Call Report with available-for-sale securities in Schedule RC-B,
albeit at historical cost rather than at fair value, has not been
consistent with GAAP. Moving equity securities without readily
determinable fair values to the other assets schedule is intended to
eliminate this inconsistency.
(3) In Memorandum items 2.a and 2.b, which provide maturity and
repricing data for debt securities (except collateralized mortgage
obligations (CMOs), real estate mortgage investment conduits (REMICs),
and stripped mortgage-backed securities), banks currently report their
floating rate debt securities by repricing frequency. The agencies are
proposing to change this reporting method so that floating rate debt
securities would instead be reported based on their next repricing date
in these two memorandum items. The interest rate risk measurement
models in use at most banks take the next repricing date, not the
repricing frequency, of floating rate debt securities into
consideration. Therefore, this proposed change would bring the Call
Report treatment of these securities into line with banks' internal
risk measurement systems.
Additionally, banks now filing the FFIEC 034, i.e., banks with
domestic offices only and less than $100 million in total assets, would
begin to report ``Foreign debt securities'' as a separate category of
securities. These banks currently report foreign debt securities, if
any, in item 5, ``Other debt securities.'' Uniform reporting of foreign
debt securities by all banks is consistent with the agencies' emphasis
on risk-focused supervision. This proposed change would not
significantly increase overall reporting burden because of the small
percentage of banks filing the FFIEC 034 that hold ``Foreign debt
securities.''
Schedule RC-C, Part I--Loans and Leases:
(1) For all banks:
(a) The definition of ``Construction and land development'' loans
(item 1.a) and, hence, the definitions for the other categories of
loans secured by real estate (items 1.b through 1.e) would be revised
to make them consistent with reporting requirements in this area for
savings associations on the Thrift Financial Report. The Call Report
instructions for ``Construction and land development'' loans currently
direct banks to exclude from this loan category: (i) Loans to acquire
and hold vacant land and (ii) construction loans with original
maturities greater than 60 months. These two types of loans are instead
reported as loans secured by farmland, 1-4 family residential
properties, multifamily residential properties, or nonfarm
nonresidential properties, as appropriate. The agencies are proposing
[[Page 34805]]
to revise the definitions for the five categories of ``Loans secured by
real estate'' so that land loans and long-term construction loans are
reported in a recaptioned item 1.a, ``Construction, land development,
and other land loans.''
(b) The separate loan categories for ``Loans to depository
institutions'' and ``Acceptances of other banks'' (items 2 and 5,
respectively) would be combined.
(c) Item 6.a, ``Credit cards and related plans'' to individuals for
household, family, and other personal expenditures, would be split into
separate loan categories for ``Credit cards'' and ``Other revolving
credit plans.'' For banks with foreign offices, this breakdown would be
provided for both the consolidated bank and for domestic offices; the
amount of ``Other'' consumer loans, currently reported for the
consolidated bank only, would also begin to be reported for domestic
offices.
(d) A single memorandum item for the total amount of a bank's
``Loans and leases restructured and in compliance with modified terms''
would replace the multiple memorandum items in which banks must
currently report information about such restructured credits
(Memorandum items 1.a and 1.b on the FFIEC 034, Memorandum items 2.a
and 2.b on the FFIEC 033, and Memorandum items 2.a through 2.c on the
FFIEC 031 and 032). Restructured loans secured by 1-4 family
residential properties and restructured consumer loans would continue
to be excluded from the revised Memorandum item.
(e) In Memorandum items 2.a and 2.b on the FFIEC 034 and in
Memorandum items 3.a and 3.b on the FFIEC 031, 032, and 033, which
provide maturity and repricing data for loans and leases, banks
currently report their floating rate loans by repricing frequency. The
agencies are proposing to change this reporting method so that floating
rate loans would instead be reported based on their next repricing date
in these two memorandum items. The interest rate risk measurement
models in use at most banks take the next repricing date, not the
repricing frequency, of floating rate loans into consideration.
Therefore, this proposed change would bring the Call Report treatment
of these loans into line with banks' internal risk measurement systems.
(f) The Memorandum items for ``Loans secured by nonfarm
nonresidential properties with a remaining maturity of over five
years'' and ``Commercial and industrial loans with a remaining maturity
of over three years'' (Memorandum items 2.d and 2.e on the FFIEC 034
and Memorandum items 3.d and 3.e on the FFIEC 031, 032, and 033) would
be deleted.
(2) For banks that currently file the FFIEC 033, i.e., banks with
domestic offices only and total assets of $100 million or more but less
than $300 million:
(a) The five-way breakdown of ``Loans to depository institutions''
(items 2.a.(1) through 2.c.(2)) would be replaced with a single item
for the total amount of such loans (plus acceptances of other banks, as
discussed above).
(b) The breakdown of ``Commercial and industrial loans'' between
those to U.S. addressees and those to non-U.S. addressees (items 4.a
and 4.b) would be eliminated in favor of a single item for total
``Commercial and industrial loans.''
(c) Item 9.a, ``Loans for purchasing or carrying securities,'' and
item 9.b, ``All other loans,'' would be combined into a single item for
``Other loans.''
(3) Banks now filing the FFIEC 034, i.e., banks with domestic
offices only and less than $100 million in total assets, would begin to
report ``Loans to foreign governments and official institutions'' as a
separate loan category. At present, these banks report these loans, if
any, in item 8, ``All other loans.'' This proposed change would result
in uniform reporting of these foreign exposures by all banks and would
enhance the agencies' risk-focused supervision. However, it would not
significantly increase overall reporting burden because of the nominal
number of banks filing the FFIEC 034 that have ``Loans to foreign
governments and official institutions.''
(4) Banks now filing the FFIEC 031 and 032, i.e., banks with
foreign offices or with $300 million or more in total assets, currently
report a U.S.-non-U.S. addressee breakdown of their ``Loans secured by
real estate'' when they report their past due and nonaccrual loans in
Schedule RC-N and their loan charge-offs and recoveries in Schedule RI-
B, part I. However, these banks are not currently required to report
the amount of ``Loans secured by real estate'' to U.S. and non-U.S.
addressees as of the report date in Schedule RC-C, part I. In order to
enhance their ability to evaluate the performance of real estate loans
by addressee, the agencies are proposing to add a memorandum item to
Schedule RC-C, part I, for ``Loans secured by real estate to non-U.S.
addressees (domicile)'' that would be completed by banks that would
currently file the FFIEC 031 and 032.
Schedule RC-D--Trading Assets and Liabilities: This schedule must
currently be completed by banks with either $1 billion or more in total
assets or $2 billion or more in par/notional amount of derivative
contracts. To reduce reporting burden for banks of this asset size that
have minimal trading activity while, at the same time, focusing for the
first time on banks with less than $1 billion in assets that are
engaging in this activity, the criteria for completing this schedule
would be revised. Thus, the agencies are proposing that banks that
reported a quarterly average for trading assets of $2 million or more
(in Schedule RC-K, item 7) for any quarter of the preceding year would
complete Schedule RC-D. Banks with domestic offices only and less than
$100 million in total assets would continue to be exempt from reporting
this quarterly average and from completing Schedule RC-D.
Schedule RC-E--Deposit Liabilities: For all banks:
(1) The reporting of demand deposits by category of depositor in
column B of the body of the deposits schedule would be eliminated, with
banks reporting instead only the total amount of their demand deposits
in this column. Banks would continue to provide a category-by-category
breakdown of their total transaction accounts in column A, which
includes their demand deposits, but the current duplicate reporting of
demand deposits by category in both columns A and B would end.
(2) The number of categories of depositors used in the breakdowns
of transaction and nontransaction accounts in the body of the deposit
schedule would be reduced.
(a) ``Certified and official checks'' (item 6 on the FFIEC 034 and
item 8 on the FFIEC 031, 032, and 033) would be combined with deposits
of ``Individuals, partnerships, and corporations'' (item 1).
(b) Deposits of ``Commercial banks in the U.S.'' (item 4) and
``Other depository institutions in the U.S.'' (item 5) would be
combined.
However, in order to achieve uniformity in depositor categories for
all banks, institutions that currently file the FFIEC 034 would begin
to report deposits of ``Banks in foreign countries'' separately from
deposits of ``Foreign governments and official institutions'' instead
of on a combined basis (in current item 7). This change for banks
filing the FFIEC 034 would not significantly increase reporting burden
because of the limited number of these banks that currently hold
deposits from these categories of depositors.
(3) Memorandum item 3, ``All NOW accounts,'' would be deleted.
(4) In Memorandum items 5.a and 6.a, which provide maturity and
repricing data for time deposits, banks currently
[[Page 34806]]
report their floating rate time deposits by repricing frequency. The
agencies are proposing to change this reporting method so that floating
time deposits would instead be reported based on their next repricing
date in these two memorandum items. The interest rate risk measurement
models in use at most banks take the next repricing date, not the
repricing frequency, of floating rate time deposits into consideration.
Therefore, this proposed change would bring the Call Report treatment
of these deposits into line with banks' internal risk measurement
systems.
In addition, for banks that file the FFIEC 031, i.e., banks with
foreign offices, the agencies are proposing to modify the reporting of
deposits in foreign offices by category of depositor (in part II of
Schedule RC-E). As was proposed above for domestic deposits,
``Certified and official checks'' in foreign offices (item 5) would be
combined with deposits of ``Individuals, partnerships, and
corporations'' (item 1). Deposits of U.S. depository institutions other
than banks, currently reported in ``All other deposits'' in foreign
offices (item 6), would be removed from this category and included with
deposits of ``U.S. banks'' (item 2). This would leave only deposits of
the U.S. Government and of states and political subdivisions in the
U.S. remaining in what is now the ``All other deposits'' category, so
this category would be recaptioned accordingly.
Schedule RC-F--Other Assets: For all banks:
(1) The scope of item 1, ``Income earned, not collected on loans,''
would be expanded to cover all ``Accrued interest receivable.''
Broadening this category to include interest earned, not collected on
earning assets other than loans would be more consistent with the
typical presentation of accrued interest receivable in financial
statements prepared for other financial reporting purposes.
(2) The requirement that significant components of the residual
``Other'' assets item in Schedule RC-F (item 4) be itemized and
described would be retained. However, to improve the usefulness of this
information, the agencies plan to add preprinted captions for those
components of ``Other'' assets most commonly itemized and described by
banks.\6\ At present, several banks may describe the same type of
``Other'' asset using different terminology, which makes it difficult
for the agencies and other users of the Call Report to identify and
compare banks holding particular types of ``Other'' assets in amounts
exceeding the threshold for itemization. In addition to the specific
captions that would be included for ``Other'' assets, the agencies
would also provide blank text fields like those presently found in
Schedule RC-F for assets not listed among the preprinted captions.
Furthermore, the agencies request comment on suggested alternatives to
the current threshold for itemizing and describing significant
components of ``Other'' assets, i.e., 25 percent of the total amount
reported for ``Other'' assets.
---------------------------------------------------------------------------
\6\ An example of a component of ``Other'' assets for which a
preprinted caption would need to be added to the Call Report in 2001
would be ``Derivatives held for purposes other than trading that
have a positive fair value.''
---------------------------------------------------------------------------
(3) Memorandum item 1, ``Deferred tax assets disallowed for
regulatory capital purposes,'' would be moved to the revised regulatory
capital schedule (Schedule RC-R), which is discussed in Section II.B.
below. This proposed change is part of an effort by the agencies to
place all items collected principally for regulatory capital
calculation purposes in a revised Schedule RC-R rather than having
these items scattered across various Call Report schedules as they are
at present.
Schedule RC-G--Other Liabilities: For all banks:
(1) Item 3, ``Minority interest in consolidated subsidiaries,''
would be moved to the liability side of the balance sheet (Schedule
RC). As a result, the location where this liability category appears on
the Call Report balance sheet would correspond to the location where
banks and bank holding companies are instructed by Article 9 of the
Securities and Exchange Commission's Regulation S-X to report any
minority interest on balance sheets filed with the Securities and
Exchange Commission.
(2) A specific new item for the ``Allowance for credit losses on
off-balance sheet credit exposures,'' which must be reported separately
on the balance sheet from the allowance for loan and lease losses,
would be added to Schedule RC-G. At present, the limited number of
banks that have an allowance for credit losses on off-balance credit
exposures combine this allowance with their allowance for loan and
lease losses when completing Schedule RI-B, part II--Changes in
Allowance for Credit Losses. Because the allowance for loan and lease
losses is reported on the Call Report balance sheet (Schedule RC), the
amount of the allowance for credit losses on off-balance sheet
exposures can be derived. However, as discussed below, the agencies are
proposing to revise the scope of Schedule RI-B, part II. That change
creates the need for the proposed new item in Schedule RC-G so that the
agencies can identify the amount, if any, of a bank's allowance for
credit losses on off-balance sheet exposures.
(4) The requirement that significant components of the residual
``Other'' liabilities item in Schedule RC-G (item 4) be itemized and
described would be retained. However, consistent with the proposed
change described above for the ``Other'' assets item in Schedule RC-F,
the agencies plan to add preprinted captions for those components of
``Other'' liabilities most commonly itemized and described by banks.
Likewise, the agencies would provide blank text fields like those
presently found in Schedule RC-G for liabilities not listed among the
preprinted captions. The agencies also request comment on suggested
alternatives to the current threshold for itemizing and describing
significant components of ``Other'' liabilities, i.e., 25 percent of
the total amount reported for ``Other'' liabilities.
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
(FFIEC 031 only): This schedule is completed by banks with foreign
offices. Memorandum items 1 and 2 for the ``Net due from the IBF of the
domestic offices of the reporting bank'' or the ``Net due to the IBF''
of these offices would be deleted. In addition, consistent with the
proposed change to the reporting of equity securities without readily
determinable fair values discussed under Schedule RC-B above, item 16.b
of Schedule RC-H, ``All other equity securities,'' would be renumbered
so that it is no longer included as part of a bank's total held-to-
maturity and available-for-sale securities in item 17 of Schedule RC-H.
Schedule RC-I--Selected Assets and Liabilities of IBFs (FFIEC 031
only): This schedule is completed by banks with IBFs and other types of
foreign offices. The agencies are proposing to eliminate item 2,
``Total IBF loans and lease financing receivables,'' item 3, ``IBF
commercial and industrial loans,'' item 5, ``IBF deposit liabilities
due to banks, including other IBFs,'' and item 6, ``Other IBF deposit
liabilities.''
Schedule RC-K--Quarterly Averages: For all banks:
(1) The categories of securities for which averages would be
collected would be uniform for all banks and would better correspond
with the securities categories in Schedule RC-B. In addition, the
number of quarterly averages of securities that banks are required to
report would be reduced or remain the same. Banks would report
[[Page 34807]]
quarterly averages for the three following categories of securities:
(a) U.S. Treasury securities and U.S. Government agency obligations,
(b) mortgage-backed securities; and (c) all other securities.
(2) The categories of loans (in domestic offices) for which
averages would be collected would also be defined uniformly for all
banks required to report these averages. The loan category definitions
used by all banks in Schedule RC-K would correspond to the standard
definitions used in the loan schedule, Schedule RC-C. This would end
the separate loan reporting scheme for banks with domestic offices only
and less than $300 million in assets which currently permits these
banks to define for themselves which of their loans to include in the
general loan categories used in Schedule RC-K (and three other
schedules) on the FFIEC 033 and 034. Adopting uniform categories and
standard definitions will enable the agencies to obtain more consistent
loan information for monitoring trends and critical ratios across banks
and within individual institutions and is a necessary step toward
achieving the Riegle Act's goal of a single set of reporting
requirements for core information.
Thus, banks would report a quarterly average for total loans (in
domestic offices) and for the five following categories of loans (in
domestic offices): (a) Loans secured by real estate; (b) loans to
finance agricultural production and other loans to farmers (except as
noted below); (c) commercial and industrial loans; (d) credit cards to
individuals for household, family, and other personal expenditures; and
(e) other consumer loans. Banks with foreign offices would also
continue to report a quarterly average for their total loans in foreign
offices. The agencies would retain the existing Schedule RC-K reporting
threshold for agricultural loans for banks with domestic offices only
and less than $300 million in assets. These banks would not be required
to report a quarterly average for ``Loans to finance agricultural
production and other loans to farmers'' if these loans are less than or
equal to 5 percent of total loans. In addition, a request for comment
on the reporting of average loans by loan category by banks with
domestic offices only and less than $25 million in assets is addressed
in Section V.B. below.
(3) The quarterly averages for ``Money market deposit accounts''
and ``Other savings deposits'' (items 9.a and 9.b on the FFIEC 034;
items 11.a and 11.b on the FFIEC 031, 032, and 033) would be combined.
Banks would report a single quarterly average for all ``Savings
deposits.''
In addition, for banks that currently file the FFIEC 034, i.e.,
banks with domestic offices only and less than $100 million in assets,
the option to report the quarterly averages for securities, loans,
leases, and total assets using an average of four month-end figures
would be eliminated. These averages, like the other averages in
Schedule RC-K, would be calculated using either daily or weekly figures
for the quarter, which are the other options presently available to
these banks.
Schedule RC-L--Off-Balance Sheet Items:
(1) For all banks:
(a) Item 6, ``Participations in acceptances acquired by the
reporting (nonaccepting) bank,'' and Memorandum item 3, ``Unused
commitments with an original maturity exceeding one year,'' would be
collected only on the proposed new regulatory capital schedule,
discussed in Section II.B. below, and would be deleted from Schedule
RC-L.
(b) Item 7, ``Securities borrowed,'' would no longer be collected
from all banks. Instead, the amount of borrowed securities would be
reported, when appropriate, in item 12, ``Other off-balance sheet
liabilities.''
(c) The information collected in items 9.a, 9.b, and 9.c on the
outstanding principal balance of and amount of recourse on three
categories of financial asset transfers would be moved from Schedule
RC-L and incorporated into the proposed new schedule on securitization
and asset sale activities, which is discussed in Section III.B. below.
(d) The requirement that off-balance sheet liabilities and assets
that exceed 25 percent of equity capital be itemized and described in
items 12 and 13 would be retained. However, consistent with the
proposed changes described above for ``Other'' assets and ``Other''
liabilities in Schedules RC-F and RC-G, the agencies plan to add
preprinted captions for those off-balance sheet items most often
itemized and described by banks.
The agencies would also retain blank text fields like those
presently found in Schedule RC-L for off-balance sheet items not listed
among the preprinted captions.
(e) Item 16.b for the gross notional amount of derivative contracts
held for purposes other than trading that are not marked to market
would be deleted. All derivative contracts, including those held for
purposes other than trading, will be marked to market once a bank
adopts FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is effective for fiscal years beginning
after June 15, 2000. Thus, item 16.b will no longer have any relevance
in 2001.
(2) For banks that file the FFIEC 031, 032, and 033, i.e., banks
with foreign offices or with $100 million or more in total assets:
(a) Items 17.c.(1) and (2) for the gross positive and gross
negative fair values of derivatives held for purposes other than
trading that are not marked to market would be deleted because of the
effect of FASB Statement No. 133.
(b) Memorandum item 3.a, ``Participations in commitments with an
original maturity exceeding one year conveyed to others,'' would be
eliminated.
(3) For banks that file the FFIEC 031 and 032, i.e., banks with
foreign offices or with $300 million or more in total assets:
(a) Memorandum item 4, ``Standby letters of credit (and foreign
office guarantees) issued to non-U.S. addressees (domicile),'' would be
deleted.
(b) The information collected in Memorandum items 5.a, 5.b, and 5.c
on three categories of consumer loans that have been securitized and
sold would be moved from Schedule RC-L and incorporated into the
proposed new schedule on securitization and asset sale activities,
which is discussed in section III.B. below.
Schedule RC-M--Memoranda:
(1) For all banks:
(a) Items 4.a through 4.d, in which banks report a six-way
breakdown of the ``Outstanding principal balance of 1-4 family
residential mortgage loans serviced for others'' would be moved from
Schedule RC-M and condensed into a two-way servicing breakdown in the
proposed new schedule on securitization and asset sale activities,
which is discussed in Section III.B. below.
(b) Item 6.e, ``Amount of intangible assets that have been
grandfathered or are otherwise qualifying for regulatory capital
purposes,'' item 7, ``Mandatory convertible debt, net of common or
perpetual preferred stock dedicated to redeem the debt,'' item 9,
``Noncumulative perpetual preferred stock and related surplus,'' and
Memorandum item 1, ``Reciprocal holdings of banking organizations''
capital instruments,'' would no longer be collected as specific items
in Schedule RC-M, but would be incorporated into the calculation of
Tier 1, Tier 2, and total risk-based capital in the proposed new
regulatory capital
[[Page 34808]]
schedule, which is discussed in Section II.B. below.
(c) Item 6.c, ``Goodwill,'' would be moved from this schedule and
would appear on the balance sheet (Schedule RC) as a specific item.
This proposed change would be made to conform to the FASB's proposed
accounting standard, Business Combinations and Intangible Assets, which
would require all goodwill to be aggregated and presented as a separate
line item on the balance sheet.
(d) Items 10.a through 10.f, which collect data on quarterly sales
of annuities, mutual funds, and proprietary products, would be
eliminated. In place of these items, each bank would respond to a
``yes'' or ``no'' question asking whether it sells private label or
third party mutual funds and annuities. In addition, banks would report
the total assets under the reporting bank's management in proprietary
mutual funds and annuities. For banks with proprietary mutual funds and
annuities, reporting the amount of assets under management should be
significantly less burdensome than reporting the quarterly sales volume
for these proprietary products.
(e) Item 11, ``Net unamortized realized deferred gains (losses) on
off-balance sheet derivative contracts included in assets and
liabilities reported in Schedule RC,'' and item 12, ``Amount of assets
netted against nondeposit liabilities (and deposits in foreign offices)
on the balance sheet (Schedule RC) in accordance with generally
accepted accounting principles,'' would be eliminated.
(2) For banks that file the FFIEC 034, i.e., banks with domestic
offices only and less than $100 million in total assets, items 3.a,
``Noninterest-bearing balances due from commercial banks in the U.S,''
and 3.b, ``Currency and coin,'' would be deleted.
(3) For banks that file the FFIEC 031, 032, and 033, i.e., banks
with foreign offices or with $100 million or more in total assets:
(a) Item 2, ``Federal funds sold and securities purchased under
agreements to resell with U.S. branches and agencies of foreign
banks,'' would be deleted.
(b) Item 13, ``Outstanding principal balance of loans other than 1-
4 family residential mortgage loans that are serviced for others,''
would be moved from Schedule RC-M to the proposed new schedule on
securitization and asset sales activities, which is discussed in
section III.B. below. This information would continue to be reported
when this balance is more than $10 million. The current requirement
that the balance must also exceed 10 percent of total assets in order
for it to be reported would be eliminated.
(4) For banks with $1 billion or more in total assets that file the
FFIEC 031 and 032, the U.S.-non-U.S. addressee breakdown of
``Customers'' liability to this bank on acceptances outstanding'' in
items 5.a and 5.b would be eliminated.
Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other
Assets:
(1) The categories of loans and leases for which past due and
nonaccrual information would be collected would be defined uniformly
for all banks, but banks with foreign offices or with $300 million or
more in total assets would provide more detail for certain loan
categories and for leases than other banks would. The loan category
definitions used by all banks in Schedule RC-N would correspond to the
standard definitions used in the loan schedule, Schedule RC-C. As
discussed above under Schedule RC-K, this proposed change would end the
separate loan reporting scheme for banks currently filing the FFIEC 033
and 034 which permits these banks to define for themselves the
composition of the general loan categories used in Schedule RC-N (and
three other schedules). Thus, all banks would report past due and
nonaccrual information for the following categories of loans and
leases: (a) Loans secured by real estate using the current breakdown
from the Memoranda section of the schedule (Memorandum item 4 on the
FFIEC 033 and 034; Memorandum item 3 on the FFIEC 031 and 032); \7\ (b)
loans to depository institutions and acceptances of other banks; (c)
loans to finance agricultural production and other loans to farmers
(except as noted below); (d) commercial and industrial loans; (e)
credit cards to individuals for household, family, and other personal
expenditures; (f) all other consumer loans; (g) loans to foreign
governments and official institutions; (h) all other loans; and (i)
lease financing receivables.
---------------------------------------------------------------------------
\7\ In addition to the categories of loans secured by real
estate in the current breakdown, banks that file the FFIEC 031,
i.e., banks with foreign offices, would also separately report their
past due and nonaccrual loans secured by real estate in foreign
offices, but they would no longer separately report their past due
and nonaccrual loans secured by real estate to U.S. addressees.
---------------------------------------------------------------------------
Banks with foreign offices or with $300 million or more in assets
would also continue to report past due and nonaccrual information for:
(a) Loans secured by real estate to non-U.S. addressees; (b) loans to
foreign banks; (c) commercial and industrial loans to non-U.S.
addressees; and (d) lease financing receivables of non-U.S. addressees.
The agencies would retain the existing Schedule RC-N reporting
threshold for agricultural loans for banks with domestic offices only
and less than $300 million in assets. These banks would not be required
to report past due and nonaccrual data for ``Loans to finance
agricultural production and other loans to farmers'' if these loans are
less than or equal to 5 percent of total loans.
(2) For banks that currently file the FFIEC 031 and 032, i.e.,
banks with foreign offices or with $300 million or more in assets,
Memorandum item 4.b, ``Replacement cost of [past due derivative]
contracts with a positive replacement cost,'' would be deleted. Once
banks adopt FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, all of their derivative contracts
will be carried on the balance sheet at fair value. Since the
replacement cost of a derivative contract is its fair value and its
book value will also be its fair value, Memorandum items 4.a., ``Book
value of amounts carried as assets,'' and 4.b would duplicate each
other. The caption for Memorandum item 4.a would be revised to read
``Fair value of amounts carried as assets.''
Schedule RI--Income Statement:
(1) For all banks:
(a) Consistent with the approach for reporting loan information
discussed above under Schedules RC-K and RC-N, the categories of loans
for which loan income (in domestic offices) would be collected would be
defined uniformly for all banks required to report loan income by
category. The loan category definitions used in Schedule RI would
correspond to the standard definitions used in the loan schedule,
Schedule RC-C. As previously discussed, this proposed change would end
the separate loan reporting scheme for banks currently filing the FFIEC
033 and 034 which permits these banks to define for themselves the
composition of the general loan categories used in Schedule RI (and
three other schedules).
The agencies are proposing to have banks report interest and fee
income for the following seven categories of loans (in domestic
offices): (a) Loans secured by real estate; (b) loans to finance
agricultural production and other loans to farmers (except as noted
below); (c) commercial and industrial loans; (d) credit cards to
individuals for household, family, and other personal expenditures; (e)
all other consumer loans; (f) loans to foreign governments and official
institutions; and (g) all other
[[Page 34809]]
loans. Banks with foreign offices would also continue to report the
total amount of their interest and fee income on loans in foreign
offices. The agencies would retain the existing Schedule RI reporting
threshold for agricultural loans for banks with domestic offices only
and less than $300 million in assets. These banks would not be required
to report interest and fee income on ``Loans to finance agricultural
production and other loans to farmers'' if these loans are less than or
equal to 5 percent of total loans. In addition, a request for comment
on the reporting of loan income by loan category by banks with domestic
offices only and less than $25 million in assets is addressed in
section V.B. below.
(b) The method of reporting tax-exempt income from loans and leases
to states and political subdivisions in the U.S. used by banks that
currently file the FFIEC 034 would be extended to all banks. Thus, the
agencies are proposing to have all banks report the combined amount of
their tax-exempt loan and lease income in a single income statement
Memorandum item. This would mean that, going forward, the body of the
income statement (Schedule RI) would contain only a single item (item
1.b) for income from lease financing receivables and it would no longer
contain any items for income on ``Obligations (other than securities
and leases) of states and political subdivisions in the U.S.''
(c) The categories of securities for which interest and dividend
income would be collected would be uniform for all banks and would
correspond with the securities categories for which quarterly averages
are collected in Schedule RC-K. In addition, the number of categories
of securities income that banks are required to report would be reduced
or remain the same. Banks would report their income for the three
following categories of securities in the body of the income statement:
(a) U.S. Treasury securities and U.S. Government agency obligations;
(b) mortgage-backed securities; and (c) all other securities. Banks
would report their ``Income on tax-exempt securities issued by states
and political subdivisions in the U.S.'' in a new income statement
Memorandum item rather than in the income statement (Schedule RI)
itself.
(d) The agencies are proposing to add a new item for ``Other
interest income'' to the interest income section of Schedule RI. This
new item would be used for reporting interest income on assets other
than those properly reported in items 1 through 5 of the Call Report
balance sheet (Schedule RC), e.g., interest income on interest-only
strips receivable (not in the form of a security) that are reported in
Schedule RC-F, item 3. In addition, because this proposed new item is
currently included in the interest income section of the income
statement in the Board's FR Y-9C bank holding company report, this
change would increase the uniformity between that report's income
statement and Call Report Schedule RI.
(e) The separate interest expense items for interest on ``Money
market deposit accounts'' and ``Other savings deposits'' (items
2.a.(2)(a) and (b) on the FFIEC 032, 033, and 034; items 2.a.(1)(b)(1)
and (2) on the FFIEC 031) would be combined. Banks would report an
interest expense item for interest on all ``Savings deposits.''
(f) Item 4.a, ``Provision for credit losses,'' would be revised so
that it includes only the provision for loan and lease losses. Banks
would report any provision for credit losses on off-balance sheet
exposures in ``Other noninterest expense'' and they would itemize and
describe this provision in Schedule RI-E--Explanations, if it is
significant.
(g) Item 4.b, ``Provision for allocated transfer risk,'' would be
eliminated as a specific income statement item. Banks would report any
provision for allocated transfer risk in ``Other noninterest expense''
and itemize and describe it in Schedule RI-E if it is significant.
(h) Memorandum item 12, ``Deferred portion of total applicable
income taxes included in Schedule RI, items 9 and 11,'' would be
deleted.
(2) For banks currently filing the FFIEC 031, 032, and 033, i.e.,
banks with foreign offices or with total assets of $100 million or
more:
(a) A threshold test would be added to determine which banks should
complete Memorandum items 8.a through 8.d, which provide a breakdown of
trading revenue by risk exposure. At present, regardless of the amount
of a bank's trading revenue, the bank must report the breakdown. To
take a more risk-focused approach to reporting this information, the
agencies are proposing to require that only those banks that reported a
quarterly average for trading assets of $2 million or more (in Schedule
RC-K, item 7) for any quarter of the preceding year would report the
trading revenue breakdown. This is the same threshold test proposed for
Schedule RC-D--Trading Assets and Liabilities. In addition, Section
III.C. below discusses the agencies' proposal to collect separate
information on trading revenue from cash instruments from banks with $5
billion or more in notional amount of derivatives.
(b) Memorandum items 9.a through 9.c request banks to disclose the
impact of derivatives held for purposes other than trading on interest
income, interest expense, and noninterest income (expense). For
reporting beginning in 2001 when FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, is in effect, the
instructions for these items, and possibly the items themselves, will
need to be revised because all derivatives will be reported on the
balance sheet at fair value and the accounting for fair value and cash
flow hedges under Statement No. 133 differs from current hedge
accounting practices. The agencies request comment on how the existing
instructions for Memorandum items 9.a through 9.c, or these three items
themselves, should be modified in response to Statement No. 133. In
particular, banks are encouraged to describe the information they plan
to provide for internal management purposes on the effect of
derivatives held for purposes other than trading on their earnings.
(3) Banks currently filing the FFIEC 031 and 032, i.e., banks with
foreign offices or with total assets of $300 million or more, must
report the amount of ``Credit losses on off-balance sheet derivatives''
in Memorandum item 10. With all derivatives carried on the balance
sheet at fair value after banks adopt FASB Statement No. 133, credit
losses related to derivatives will be reflected in the fair value of
these instruments and no allowances for credit losses on derivatives
should be maintained. Thus, the agencies request comment on how the
existing instructions for Memorandum item 10 should be revised in
response to Statement No. 133. The agencies would be especially
interested in comments explaining how banks plan to measure and report
credit losses on derivatives for internal management purposes.
Schedule RI-A--Changes in Equity Capital: For all banks:
(1) The agencies are proposing to change the manner in which the
previous year-end balance of equity capital is reported in this
schedule so that it better corresponds with how this balance is
presented in financial statements prepared in accordance with GAAP. At
present, banks must report the ``Total equity capital originally
reported'' in the Call Report for the previous year-end in item 1. If
the bank has filed any amendments to this previous year-end Call Report
that affected its originally reported total equity capital, these
equity capital adjustments are reported in item 2, and the amended
equity capital balance for
[[Page 34810]]
the previous year-end is reported in item 3. The agencies are proposing
to eliminate item 2 and, in effect, have banks report what is now
reported in item 3 as their previous year-end equity capital balance.
Thus, as Schedule RI-A would be revised, banks would report the ``Total
equity capital most recently reported'' for the previous year-end in
item 1. Next, the agencies propose to combine items 9, ``Cumulative
effect of changes in accounting principles from prior years,'' and 10,
``Corrections of material accounting errors from prior years,'' and
designate the combined items as item 2, ``Restatements due to
corrections of material accounting errors and changes in accounting
principles,'' of revised Schedule RI-A. The next item in revised
Schedule RI-A (item 3) would then be captioned ``Balance end of
previous calendar year as restated.''
(2) The net amount of a bank's treasury stock transactions, which
is now included in item 5, ``Sale, conversion, acquisition, or
retirement of capital stock, net,'' would be reported in a new item.
This item would enable the agencies to monitor the volume and extent of
this activity during the year-to-date reporting period. Moreover, this
proposed change would bring the reporting of treasury stock
transactions in Schedule RI-A into closer conformity with the reporting
of these transactions in the corresponding schedule in the Board's FR
Y-9C bank holding company report.
(3) Items 11.a, ``Change in net unrealized holding gains (losses)
on available-for-sale securities,'' and 11.b., ``Change in accumulated
net gains (losses) on cash flow hedges,'' (and, on the FFIEC 031 only,
item 12, ``Foreign currency translation adjustments'') would be
combined and replaced by an item for ``Other comprehensive income.''
This item would also include any minimum pension liability adjustment
recognized during the year-to-date in accordance with GAAP, which banks
currently have to report elsewhere in Schedule RI-A. Identifying
``Other comprehensive income'' in the changes in equity capital
schedule is consistent with FASB Statement No. 130, Reporting
Comprehensive Income.
In addition, banks now filing the FFIEC 034, i.e., banks with
domestic offices only and less than $100 million in total assets, would
begin to complete Schedule RI-A quarterly rather than annually as of
December 31. Sound financial reporting practices dictate that an
institution prepare a year-to-date reconcilement of equity capital in
its workpapers each quarter to ensure that it properly measures the
total equity capital to be reported on the Call Report balance sheet.
Thus, completing Schedule RI-A each quarter should not represent a
significant increase in burden for most banks that file the FFIEC 034.
Compared to annual reporting, quarterly completion of this schedule
should also improve the accuracy of the reported data by enabling the
agencies to more promptly identify any direct entries to equity capital
that should have been recorded in earnings or another account. In
addition, banks that file the FFIEC 034 currently report the amount of
cash dividends declared during the calendar year-to-date in Schedule
RI, Memorandum item 5, in the quarters when they do not complete
Schedule RI-A. As part of this proposed change, Memorandum item 5 would
be deleted.
Schedule RI-B--Charge-Offs and Recoveries on Loans and Leases and
Changes in Allowance for Credit Losses: For all banks:
(1) The proposed changes to the categories of loans and leases for
which charge-offs and recoveries are reported in Part I of this
schedule would be the same as those discussed above for past due and
nonaccrual loans and leases in Schedule RC-N. Thus, the loan and lease
categories in Schedule RI-B, part I, would be defined uniformly for all
banks using the standard definitions from the loan schedule (Schedule
RC-C), but banks with foreign offices or with $300 million or more in
total assets would provide more detail for certain loan categories and
for leases than other banks would. As previously mentioned, this
proposed change would end the separate loan reporting scheme for banks
currently filing the FFIEC 033 and 034 which permits these banks to
define for themselves the composition of the general loan categories
used in Schedule RI-B, part I. Thus, banks would report past due and
nonaccrual information for the following categories of loans and
leases: (a) Loans secured by real estate using the current breakdown
from Memoranda item 5; \8\ (b) loans to depository institutions and
acceptances of other banks; (c) loans to finance agricultural
production and other loans to farmers (except as noted below); (d)
commercial and industrial loans; (e) credit cards to individuals for
household, family, and other personal expenditures; (f) all other
consumer loans; (g) loans to foreign governments and official
institutions, (h) all other loans, and (i) lease financing receivables.
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\8\ In addition to the categories of loans secured by real
estate in the current breakdown, banks that file the FFIEC 031,
i.e., banks with foreign offices, would also separately report their
charge-offs and recoveries on loans secured by real estate in
foreign offices, but they would no longer separately report their
charge-offs and recoveries on loans secured by real estate to U.S.
addressees.
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Banks with foreign offices and banks with domestic offices only and
$300 million or more in assets would also continue to report past due
and nonaccrual information for: (a) Loans secured by real estate to
non-U.S. addressees; (b) loans to foreign banks; (c) commercial and
industrial loans to non-U.S. addressees; and (d) lease financing
receivables of non-U.S. addressees. The agencies would retain the
existing Schedule RI-B, part I, reporting threshold for agricultural
loans for banks with domestic offices only and less than $300 million
in assets. These banks would not be required to report past due and
nonaccrual data for ``Loans to finance agricultural production and
other loans to farmers'' if these loans are less than or equal to 5
percent of total loans.
(2) The scope of part II would be revised to cover changes in the
allowance deleted.for loan and lease losses rather than the entire
allowance for credit losses. In addition, similar to the proposal
discussed above for Schedule RI-A--Changes in Equity Capital, the
agencies would change the manner in which the previous year-end balance
of the allowance is reported in Schedule RI-B, part II, so that it
better corresponds with its presentation in financial statements
prepared in accordance with GAAP. At present, banks report the balance
of the allowance as ``originally reported'' in their previous year-end
Call Report in item 1. The effects of any amendments to the previous
year-end Call Report on the allowance as originally reported are
included in item 5, ``Adjustments.'' The agencies are proposing to
revise item 1 to eliminate the need to report these adjustments from
amended Call Reports in item 5. Thus, banks would report the ``Balance
most recently reported'' for the previous year-end allowance for loan
and lease losses in item 1.
In addition, banks now filing the FFIEC 034, i.e., banks with
domestic offices only and less than $100 million in total assets, would
begin to complete Schedule RI-B, part II, quarterly rather than
annually as of December 31 for the same reasons cited above in the
discussion of quarterly reporting of Schedule RI-A. The principal items
that enter into the year-to-date reconcilement of the allowance for
loan and lease losses are charge-offs, recoveries, and the provision
for loan and lease losses, all of which each bank already reports
quarterly. Thus, completing Schedule RI-B, part II, each quarter should
not represent a
[[Page 34811]]
significant increase in burden for most banks that file the FFIEC 034.
Schedule RI-D--Income From International Operations (FFIEC 031
only):
(1) In part I--Estimated Income From International Operations, the
reporting of interest income and expense by booking location and
related adjustments in items 1 and 2 would be streamlined and replaced
with items that are more consistent with the approach used in the
remainder of part I for international operations. Thus, those banks
that are required to complete this schedule would report their ``Gross
interest income'' and their ``Gross interest expense'' attributable to
international operations. From these two figures, banks would report
their ``Net interest income attributable to international operations.''
Because of this streamlined approach, Memorandum items 1 and 2 on
intracompany interest income and expense, respectively, would be
deleted.
(2) Part II--Supplementary Details on Income from International
Operations, which has been collected to accommodate certain data needs
of the Departments of Commerce and Treasury, would be eliminated.
Schedule RI-E--Explanations: For all banks:
(1) The requirement that banks itemize and describe significant
components of other noninterest income and other noninterest expense in
items 1 and 2 would be retained. However, similar to proposals
discussed above for Schedules RC-F, RC-G, and RC-L, the agencies
propose to add preprinted captions for the most commonly itemized and
described categories of other noninterest income and expense. Blank
text fields like those presently contained in items 1 and 2 would be
retained for noninterest income and expense items not specifically
covered in the preprinted captions. Furthermore, the agencies request
comment on the current thresholds for itemizing and describing
significant components of other noninterest income and other
noninterest expense, i.e., 10 percent of the total amount reported for
other noninterest income and other noninterest expense, respectively.
In particular, the agencies request comment on whether it would be more
appropriate to base the threshold for itemizing and describing
significant components of both other noninterest income and other
noninterest expense on the sum of ``Net interest income'' plus ``Total
noninterest income.''
(2) Item 2.a, ``Amortization expense of intangible assets,'' would
be moved from Schedule RI-E to the income statement (Schedule RI),
where it would be split into separate items for ``Amortization expense
of intangible assets (excluding goodwill)'' in the noninterest expense
section and ``Goodwill charges.'' This latter item would be reported on
a net-of-tax basis and placed after item 10, whose caption would be
revised to read ``Income (loss) before goodwill charges, extraordinary
items, and other adjustments.'' The ``Goodwill charges'' item would be
followed by a new item captioned ``Income (loss) before extraordinary
items and other adjustments.'' The agencies are proposing these changes
in response to the FASB's proposed accounting standard, Business
Combinations and Intangible Assets, which requires this method of
financial statement presentation for goodwill charges and the
amortization expense for intangible assets other than goodwill. The
agencies will monitor the progress of this proposed accounting standard
in order to ensure that the presentation of these items in the Call
Report income statement conforms to the presentation required by the
FASB's final standard on business combinations and intangible assets.
(3) To conform to the changes proposed above for Schedules RI-A and
RI-B:
(a) Item 4, ``Equity capital adjustments from amended Reports of
Income (from Schedule RI-A, item 2),'' would be deleted.
(b) Items 5, ``Cumulative effect of changes in accounting
principles from prior years (from Schedule RI-A, item 9),'' and 6,
``Corrections of material accounting errors from prior years (from
Schedule RI-A, item 10),'' would be combined and recaptioned as
``Restatements due to corrections of material accounting errors and
changes in accounting principles from prior years (from Schedule RI-A,
item 2).''
(c) The scope of item 8 would be revised to cover ``Adjustments to
allowance for loan and lease losses (from Schedule RI-B, part II, item
4).''
As the preceding listing of proposed revisions shows, even though
the agencies are proposing to reduce the number of different versions
of the Call Report from four to two, there will continue to be
differences in the amount of information that banks will be required to
report to the agencies. These differences are primarily based on
whether a bank has any foreign offices (as defined in the Call Report
instructions) and on a bank's total assets.\9\ For example, Schedule
RC-A--Cash and Balances Due From Depository Institutions would be
completed by all banks with foreign offices or with $300 million or
more in total assets. In some cases, the threshold for determining
which banks must report certain information is based on other criteria.
For example, to implement a more risk-focused approach to the reporting
of trading activity, the agencies are proposing that banks (with
foreign offices or with $100 million or more in total assets) that
reported a quarterly average for trading assets of $2 million or more
(in Schedule RC-K, item 7) for any quarter of the preceding year must
complete Schedule RC-D--Trading Assets and Liabilities each quarter of
the current year.
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\9\ Unless otherwise specified, the measurement date for
determining whether a bank meets a particular reporting threshold,
such as the total assets threshold, is June 30 of the preceding
year.
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However, questions have been raised as to whether using reporting
thresholds, other than those based on total assets or other readily
available information that all banks must report, is an effective
method for exempting banks from reporting certain information in the
Call Report and thereby reducing reporting burden. For example, if the
agencies ask banks to report the amount of a certain type of asset only
if a bank has more than a specified dollar amount of this type of
asset, is this less burdensome than simply requiring all banks to
report the amount of this type of asset? In other words, what effect
would Call Report reporting thresholds of this type have on the
reporting burden imposed on individual banks and on banks as a whole?
B. Proposed New Regulatory Capital Reporting Approach
The agencies propose to revise the regulatory capital schedule
(Schedule RC-R) by incorporating many of the reporting concepts of the
Call Report's optional regulatory capital worksheet as well as some of
those contained in the regulatory capital schedule currently filed by
bank holding companies on the FR Y-9C report form. Under the agencies'
proposal, all banks would be required to complete the entire revised
regulatory capital schedule.
In general, the proposed revised format would use a systematic,
step-by-step ``building block'' approach under which all banks would
report the various components and adjustments that determine Tier 1,
Tier 2, and total capital, as well as risk-weighted assets. This means
that all bank capital ratios--the Tier 1 leverage ratio, the Tier 1
risk-based capital ratio, and the total risk-based capital ratio--would
be derived
[[Page 34812]]
directly from the items that banks report on this schedule. These
ratios would also be disclosed in the schedule. To eliminate redundant
reporting, the agencies expect that the Call Report preparation
software products used by most banks would automatically take, i.e.,
carry forward, the carrying values of all on-balance sheet asset values
and the face value or notional amount of most off-balance sheet items
used in the capital calculations from other areas of the Call Report
and enter these amounts into the proposed revised schedule. These
carried-forward values would function as ``control totals'' and banks
would allocate these amounts to the appropriate risk weight categories
in accordance with the risk-based capital guidelines.
Currently, banks with total assets of less than $1 billion that
have total capital greater than or equal to 8 percent of ``adjusted
total assets,'' as defined, need to complete only existing items 1-3.f
on Schedule RC-R. All other banks must complete the current version of
Schedule RC-R in its entirety. Existing item 3 requires the reporting
of the major capital categories--Tier 1, Tier 2, Tier 3, and total
risk-based capital--as well as risk-weighted assets and average total
assets, which is used in the Tier 1 leverage ratio. The amounts
reported in these existing items should be the amounts determined by
banks for their own internal capital analyses consistent with the
applicable capital standards. These items, i.e., items 3.a through 3.f,
are so-called ``self-reported'' capital items. The first part of the
proposed revised regulatory capital schedule would essentially
replicate the steps that banks are already going through to determine
the major capital categories on a ``self-reported'' basis and therefore
should not impose significant additional reporting burden. Moreover, to
facilitate this proposed step-by-step ``building block'' approach to
computing these capital categories, the agencies propose to move a
number of items that are collected principally for regulatory capital
calculation purposes from their currently scattered locations in other
Call Report schedules to their more logical position in the proposed
revised capital schedule. For example, the item for ``Deferred tax
assets disallowed for regulatory capital purposes'' that is currently
collected in Schedule RC-F--Other Assets, would now be included in the
proposed revised Schedule RC-R. In addition, existing Schedule RC-R
items 2.a and 2.b, which require the reporting of qualifying limited-
life capital instruments that are includible in Tier 2 capital, would
be collected on a combined basis in the proposed revised schedule.
Existing items 4-9 of Schedule RC-R would be replaced with a format
that closely resembles the format of Part 2 of the current Call Report
optional regulatory capital worksheet (and portions of Schedule HC-I of
the bank holding company FR Y-9C report). Banks' Call Report software
would take the carrying values of banks' balance sheet asset
categories, as reported on Schedule RC, and automatically carry these
amounts forward to column A of the on-balance sheet portion of the
proposed revised capital schedule. Banks would then allocate these
asset values to the appropriate risk weight categories in accordance
with the risk-based capital guidelines to the same extent that they do
at present for their own internal capital analyses, which is part of
the same process banks currently use when determining net risk-weighted
assets for ``self-reported'' item 3.d.(1) of Schedule RC-R.\10\ During
the allocation, column B of the on-balance sheet portion of the
proposed schedule would be used by banks to report assets that are not
subject to risk weighting under the capital guidelines. For banks that
currently complete Schedule RC-R in its entirety, column B would be
equivalent to existing item 8 of Schedule RC-R.
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\10\ For risk-based capital purposes, banks are not required to
identify each on-balance sheet asset and off-balance sheet item that
qualifies for a risk weight of less than 100 percent (50 percent for
derivatives). Thus, when completing the proposed revised Schedule
RC-R, each bank would decide for itself how detailed an analysis of
its assets and off-balance sheet items it wishes to perform and how
many of the specific lower risk-weighted items it wishes to
identify. In other words, a bank can pick and choose among the asset
items and the credit equivalent amounts of off-balance sheet items
that have a risk weight that is less than the maximum and risk-
weight them accordingly, or simply risk-weight some or all of these
items at a 100 percent risk weight (50 percent for derivatives).
---------------------------------------------------------------------------
Similarly, banks' Call Report software would automatically take the
face value or notional amount of those off-balance sheet items included
in the calculation of risk-weighted assets that are reported elsewhere
in the Call Report (generally, in Schedule RC-L) and include these
amounts in column A of the off-balance sheet portion of the proposed
regulatory capital schedule. However, banks would need to separately
identify the amounts of their low-level recourse transactions and other
financial assets sold with recourse. The Call Report software products
would likely embed the credit conversion factors applicable to the
various off-balance sheet items into the software for this
schedule.\11\ The software should then calculate the credit equivalent
amount for each off-balance sheet item (column B) by multiplying the
face or notional amount by the credit conversion factor. Banks would
next allocate the credit equivalent amounts to the appropriate risk
weight categories like they do for their own internal risk-based
capital analyses.\12\ As with the on-balance sheet items, banks must
currently follow this same allocation process for their off-balance
sheet items in order to complete the calculation of their net risk-
weighted assets for ``self-reported'' item 3.d.(1) of Schedule RC-R.
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\11\ For the retained recourse on financial assets sold with
low-level recourse, banks would have the ability to apply their
institution-specific factors if they use the ``direct reduction
method'' for converting low-level exposures to credit equivalent
amounts.
\12\ For example, if a bank has $100 face value of performance
standby letters of credit and the credit conversion factor for these
letters of credit is 50 percent, then the credit equivalent amount
is $50. The bank would assign the credit equivalent amount of $50 to
the appropriate risk weight categories according to the obligor or,
if relevant, the guarantor or the nature of the collateral in
accordance with the risk-based capital guidelines.
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An advantage to this ``building block'' approach is that banks, the
agencies, and other Call Report users would be assured that the sum of
the amounts allocated to each risk weight category (plus the on-balance
sheet items not subject to risk weighting) would agree to the balance
sheet total for each asset category and the credit equivalent amount
for each off-balance sheet item. This type of approach has been used
for many years in the bank holding company FR Y-9C report and, from
comments the agencies have received in the past, seems to be the
preferred risk-based capital reporting format by bankers who must
complete both the Call Report and the FR Y-9C. Furthermore, via the
Call Report preparation software products used by most banks, a large
portion of the inputs to the proposed schedule's risk-weighting process
for both on- and off-balance sheet items would be taken automatically
from other parts of the Call Report. These software products should
also perform the final calculation of total risk-weighted assets as
well as the risk-based and leverage capital ratios reported in the
proposed schedule. Thus, the power of the software should help minimize
reporting burden.
Overall, the agencies believe that the proposed revisions to the
regulatory capital schedule of the Call Report provide a rational,
systematic approach to reporting the elements of capital as well as the
components of risk-weighted assets. The proposed approach should offer
both enhanced and efficient
[[Page 34813]]
reporting for both banks and Call Report users.
III. Proposed New Information
In addition to streamlining the existing Call Report requirements
by eliminating information that is no longer of significant value, the
agencies are also endeavoring to improve the relevance of the Call
Report by identifying new types of information that are considered
critical to the agencies' supervisory data needs going forward. In so
doing, the agencies have focused primarily on new activities and other
recent developments that may expose institutions to new or different
types of risk. The agencies expect that most of the proposed new
reporting requirements discussed below will affect a relatively small
percentage of banks because of the limited number of institutions that
are involved in the activities these reporting requirements address.
Furthermore, by proposing to implement the following new reporting
requirements in the same reporting period as the Call Report
streamlining changes, banks will be able to make all of the necessary
systems changes at one time. The agencies believe that combining these
various types of revisions into a single package should result in lower
start-up costs and reporting burden for banks from a systems
perspective.
The agencies are currently reviewing various provisions of the
Gramm-Leach-Bliley Act (Pub. L. 106-102, codified at 15 U.S.C. 6801 et
seq.), which was signed into law on November 12, 1999. Because of the
new affiliations that banks are permitted to have and the new
activities in which banks and bank subsidiaries may engage, the
agencies may need to implement changes to the Call Report in the future
on account of this new law.
A. Subprime Loans
Subprime lending is a high-risk activity that poses increased risk
to the institutions involved and to the deposit insurance funds if
appropriate safeguards are not in place. Insured institutions have
increasingly entered the subprime lending market in recent years, and
industry analysts predict that many nonbank subprime specialists will
seek to be acquired by insured institutions to take advantage of the
relatively less expensive, more stable funding source that insured
deposits provide. The exact number of institutions involved in subprime
lending is not known with certainty; however, the FDIC has estimated
that approximately 150 insured institutions currently have significant
exposures in the subprime lending business. Despite a favorable
economic environment, a disproportionate number of insured institutions
that engage in subprime lending are problem institutions. The estimated
number of insured subprime lenders represents just over one percent of
all insured institutions, yet they account for nearly 20 percent of all
problem institutions.
The actual extent of insured institutions' involvement in subprime
lending is not known because there is no periodic reporting of this
activity to the banking agencies. The estimates that have been made
come from examination data, but the quality and timeliness of the
subprime lending data gleaned from examination reports is constrained
by inconsistent reporting and by the length of the examination cycle.
The issue of timeliness is particularly troublesome from a safety and
soundness perspective, since subprime lending tends to be a volume-
oriented business that encourages rapid portfolio growth. Consequently,
there is no reliable way to regularly monitor individual institutions'
subprime lending programs. In several instances, this has resulted in
the unexpected and severe deterioration in the condition of an
institution from one examination to the next.
Accordingly, the agencies are proposing to add a number of new
items to the Call Report on subprime lending. These proposed items
would make possible the early detection and proper supervision of
subprime lending programs through offsite monitoring procedures. Banks
involved in subprime lending would report quarter-end data for the
following eight categories of subprime loans in their loan portfolios:
(1) Revolving, open-end loans secured by 1-4 family residential
properties extended under lines of credit, (2) closed-end loans secured
by first liens on 1-4 family residential properties, (3) closed-end
loans secured by junior liens on 1-4 family residential properties, (4)
loans secured by other properties, (5) credit cards to individuals for
household, family, and other personal expenditures, (6) consumer loans
secured by automobiles, (7) other consumer loans, and (8) other
subprime loans. This information would be reported in new Memorandum
items in the loan schedule (Schedule RC-C, part I). Thus, for example,
the proposed Memorandum item for subprime closed-end loans secured by
first liens on 1-4 family residential properties should contain all
subprime loans that are included in Schedule RC-C, part I, item
1.c.(2)(a). Banks involved in subprime lending would also report their
past due and nonaccrual subprime loans and the year-to-date charge-offs
and recoveries on these loans in new Memorandum items in Schedules RC-N
and RI-B, part I. In these two areas, two broader loan categories would
be used: loans secured by real estate and loans not secured by real
estate.
The quality and validity of the proposed subprime lending
information to be collected in the Call Report hinges on a workable
definition of subprime lending. Furthermore, subprime loans could be
defined on the basis of either (a) loan portfolios or programs that
possess certain characteristics or (b) individual loans with these
characteristics. Whether the portfolio or program approach or the
individual loan approach ultimately is adopted, the agencies are
proposing the following definition of subprime loans for purposes of
reporting information on these loans in the Call Report:
Subprime loans are extensions of credit to borrowers who, at the
time of the loan's origination, exhibit characteristics indicating a
significantly higher risk of default than traditional bank lending
customers. Risk of default may be measured by traditional credit
risk measures, e.g., credit/repayment history and debt-to-income
levels, or by alternative measures such as credit scores. Subprime
borrowers represent a broad spectrum of debtors ranging from those
who have exhibited repayment problems prior to origination of their
loans due to an adverse event, such as job loss or medical
emergency, to those who persistently mismanage their finances and
debt obligations. Subprime lending does not include loans to
borrowers who have had minor, temporary credit difficulties since
the origination of their loans but are now current. Subprime loans
may take the form of direct extensions of credit; loans purchased
from other lenders, including delinquent or credit impaired loans
purchased at a discount; and automobile or other financing paper
purchased from other lenders or dealers.
The agencies invite comment on all aspects of the proposed new Call
Report items on subprime lending. In particular, the agencies seek
comment on the proposed definition of subprime loans generally and on
the following issues relating to this definition:
(1) Should all individual subprime loans be reported in the
proposed new Call Report items or should only those subprime loans that
are held in a segregated portfolio or program be reported? Do you
foresee any difficulties in reporting individual subprime loans or
segregated groups of subprime loans?
(2) Based on the proposed definition of subprime loans above,
approximately what percentage of your bank's loan portfolio would
currently be categorized
[[Page 34814]]
as subprime? Using your bank's own internal definition of a subprime
loan, what percentage of your loan portfolio does your bank currently
classify as subprime? Please indicate whether these percentages are
based on an individual subprime loan approach or a segregated portfolio
or program approach. To the extent possible, provide percentages for
your bank's loan portfolio under both approaches.
(3) What criteria does your bank use to determine which loans are
subprime? Are the criteria the same for all types of loans, e.g.,
mortgage, automobile, and credit cards? If not, how do they differ?
(4) In defining subprime loans, which factor(s) listed below are
the best indicators of a higher risk of default?
(a) Higher loan fees.
(b) Higher interest rates. For example, should all loans made at a
contract rate 200 basis points above the rate that is offered to a
traditional bank customer for the same type of loan be included as
subprime loans?
(c) Debt-to-income ratios. For example, should a loan to a borrower
with a specific debt-to-income ratio above a stipulated level
automatically be a subprime loan?
(d) Delinquency history. For example, should a loan be categorized
as subprime if the customer's credit history at the time of the loan's
origination indicates that he or she had two or more payments that were
30 days past due in the last 12 months or had loans charged off in the
last 12 months? When would your bank consider that a customer's
delinquency history makes that customer a subprime borrower?
(e) Loan-to-value ratio. Is there a loan-to-value ratio above which
a loan secured by real estate would be considered subprime?
(f) Credit scores or other ratings. If your bank uses credit
scoring to determine whether a loan should be categorized as subprime,
are the scores custom or generic bureau scores?
(1) If generic bureau scores were used, below what score cutoff
would a loan be considered subprime?
(2) Does the score cutoff differ by loan type?
(g) Bankruptcy status. For example, how far back in the customer's
credit history would your bank go to determine whether a bankruptcy
should affect your categorization of a loan?
(h) Lack of credit history.
(i) Other factors. Please identify any other factor that should be
considered an indicator of a higher risk of default and explain why it
should be considered.
(5) Should the definition of subprime be identical for all types of
loans, or should it differ by type of loan, e.g., mortgage, automobile,
and credit cards?
(6) Can your bank determine from its records whether borrowers with
subprime characteristics have credit support (e.g., public or private
guarantees, co-signers, and insurance) on specific loans? If yes, do
you categorize loans with such credit support as subprime loans?
(7) The proposed subprime loan definition relies on differences
between traditional and ``higher risk'' borrowers? How should the
agencies take into account shifts in that difference (e.g., what
happens if ``traditional'' lending standards drop)?
(8) Should the subprime loan definition distinguish between
institutions that target higher risk borrowers as opposed to those
institutions that serve a community in an economically disadvantaged
area where the repayment ability of area borrowers can be or has been
adversely affected?
(9) Should there be a de minimus level of subprime loans below
which reporting is not required?
(10) Should smaller institutions be treated differently from larger
institutions for reporting purposes?
(11) What types of loans or lending programs, if any, should be
excluded from the definition of subprime loans or, if included in the
definition, reported separately from other subprime loans? Please
explain the reasons for the exclusion or separate reporting.
(12) Should the proposed Call Report items on subprime loans be
treated as confidential for a limited period of time in order to give
banks time to resolve issues surrounding which loans should and should
not be reported as subprime?
Although this proposal would create several new Call Report items,
the burden of reporting this information will fall only upon those
institutions engaged in subprime lending as it will be defined. Even if
the number of banks involved in this activity turns out to be, say,
four times the current estimate, these proposed new reporting
requirements would affect only 6 percent of the banks that file Call
Reports. The agencies would welcome any additional information
commenters can provide on the number of banks that are subprime lenders
in order to improve the agencies' assessment of the potential reporting
burden of this proposal.
B. Bank Securitization and Asset Sale Activities
At present, the Call Report includes several items in various
schedules that the agencies use to assess bank involvement in
securitization and asset sale activities. The items generally focus on
the securitization and sale of 1-4 family residential mortgages and
consumer loans. However, over the past few years, the scope and volume
of bank asset securitization activities have expanded significantly
beyond the traditional 1-4 family residential mortgage and consumer
loan areas into other areas, most notably into the areas of home equity
and commercial lending. The agencies propose to revise and expand the
information collected in the Call Report to facilitate more effective
analysis of the impact of securitization and asset sale activities on
bank credit exposures. In this regard, the agencies are proposing to
introduce a separate new Call Report schedule (Schedule RC-S) that
would comprehensively capture information related to bank
securitization and asset sale activities.
Under this proposal, banks involved in securitization and asset
sale activities would report quarter-end (or year-to-date) data for
seven loan categories similar to the manner in which they report their
loan portfolios. These data would cover 1-4 family residential loans,
home equity lines, credit card receivables, auto loans, other consumer
loans, commercial and industrial loans, and all other loans. For each
loan category, banks would report: (1) The outstanding principal
balance of assets sold and securitized with recourse or seller-provided
credit enhancements, (2) the maximum amount of credit exposure arising
from recourse or credit enhancements to securitization structures
(separately for those sponsored by the reporting bank and those
sponsored by other institutions), (3) the past due amounts and charge-
offs and recoveries on the underlying securitized assets, (4) the
amount of any commitments to provide liquidity to the securitization
structures, (5) the outstanding principal balance of assets sold with
recourse or seller-provided credit enhancements that have not been
securitized, and (6) the maximum amount of credit exposure arising from
assets sold with recourse or seller-provided credit enhancements that
have not been securitized. A limited amount of information would also
be collected on bank credit exposures to asset-backed commercial paper
conduits.
For the home equity line, credit card receivable, and the
commercial and industrial loan categories, banks would also report the
amount of any ownership (or seller's) interests in securitizations that
are carried as securities and the past due amounts and charge-offs and
recoveries on the assets underlying
[[Page 34815]]
these seller's interests. The agencies request comment on whether these
proposed items for ownership (or seller's) interests in securitizations
should also include seller's interests not in security form that
continue to be carried as loans on the balance sheet or whether
information on these non-security seller's interests should be
collected separately. Expanding the proposal to incorporate data on
seller's interests that are not in security form would provide the
agencies a complete picture of this element of banks' securitization
activities. The agencies also request comment on whether banks are
engaging in transactions in which they retain ownership (or seller's)
interests in asset securitizations that involve loans outside of the
three categories included in the proposal (i.e., home equity lines,
credit card receivables, and commercial and industrial loans).
In addition, the agencies request comment on the manner in which
banks' internal management reports capture information on asset
securitization activities. In particular, do bank management reports
primarily furnish information on the basis of whether the bank provides
recourse or credit enhancements (which is the basis upon which proposed
Schedule RC-S is structured, consistent with the agencies' risk-based
capital requirements) or do these reports primarily furnish information
on the basis of whether the bank performs the servicing on the
underlying assets?
With the collection of this expanded information on bank
securitization and asset sale activities, the following existing Call
Report items on Schedule RC-L would be eliminated:
(1) For all banks, items 9.a.(1) and (2) on the outstanding
principal balance and amount of recourse exposure on first lien 1-4
family residential mortgage loans sold with recourse, and items 9.b.(1)
and (2) on the outstanding principal balance and amount of recourse
exposure on other financial assets sold with recourse.
(2) For banks filing the FFIEC 031 and 032, i.e., banks with
foreign offices or with $300 million or more in total assets,
Memorandum items 5.a, 5.b, and 5.c on the outstanding amount of auto
loans, credit cards, and other consumer loans that have been
securitized and sold (with servicing retained).
In addition, the six items on 1-4 family residential mortgage loan
servicing that all banks currently complete on Schedule RC-M (items 4.a
through 4.d) would be combined into two items and moved to the proposed
new securitization and asset sale activities schedule. These two items
would cover residential mortgages serviced for others with credit
enhancements and with no credit enhancements. The separate Schedule RC-
M item on the servicing of all other loans (item 13), which is
currently reported by banks filing the FFIEC 031, 032, and 033, i.e.,
banks with foreign offices or with $100 million or more in total
assets, would be moved to the proposed new schedule and would be
applicable to all banks. This servicing item would continue to be
reported only if the amount is more than $10 million, but the agencies
would eliminate the additional current threshold that it must exceed 10
percent of total assets in order to be reported.
Based on a review of the Call Report information currently
collected on assets transferred with recourse, mortgages serviced with
recourse, and securitized consumer loans, the agencies estimate that
approximately 5 percent of all banks are currently involved in
securitization and asset sale activities. Thus, although the proposed
new schedule would collect a considerable amount of information on
these activities, most banks will not be affected by Schedule RC-S and
the increase in reporting burden associated with the schedule's new or
expanded information will be confined to a relatively small segment of
the banking industry.
On a related matter, the agencies also propose to collect
information to facilitate more effective assessments of bank credit and
other exposures related to their portfolios of asset-backed securities.
Currently, virtually all non-mortgage asset-backed securities are
reported in a single Call Report item, i.e., Schedule RC-B, item 5,
``Other debt securities.'' The proposed segregation of specific
categories of asset-backed securities from ``Other debt securities''
would promote risk-focused supervision by enhancing the agencies'
ability to assess credit exposures and asset concentrations. Under the
proposal, banks would report quarter-end fair value and amortized cost
information for six categories of asset-backed securities that are
currently included in the item for ``Other debt securities.'' The six
categories are securities backed by: (1) Home equity lines, (2) credit
card receivables, (3) auto loans, (4) other consumer loans, (5)
commercial and industrial loans, and (6) all other loans.
C. Additional Categories of Noninterest Income
Noninterest income has grown substantially over the last few years
as a source of revenue for banks. For 1999, noninterest income in the
aggregate for commercial banks accounted for 42 percent of their net
interest income plus noninterest income, 8 percentage points higher
than in 1994. Most of this growth in noninterest income has come from
new or expanded services provided by banks. A more detailed breakdown
of noninterest income would provide the agencies with valuable
supervisory information on the amount and type of fee-generating
activities within the bank.
Therefore, the agencies are proposing to add several new
noninterest income categories to those currently collected in the Call
Report income statement (Schedule RI). These categories were selected
in part based on a review of noninterest income information currently
reported by banks in Schedule RI-E--Explanations. In this schedule,
banks must itemize and describe, using their own terminology, their
most significant categories of ``Other noninterest income.'' Three of
the proposed new income statement categories represent items, or
modifications of items, for which specific preprinted captions
currently appear in Schedule RI-E (items 1.a, 1.b, and 1.c and items
2.b, 2.c, and 2.d). As a result, these items would no longer be
reported in Schedule RI-E.
The categories of noninterest income that would be added as
specific items on the Call Report income statement are: (1) Investment
banking, advisory, brokerage, and underwriting fees and commissions,
(2) venture capital revenue, (3) net servicing fees, (4) net
securitization income, (5) insurance commissions and fees, (6) loan and
other credit-related fees (not reported as part of interest and fee
income on loans), (7) net gains (losses) on sales of loans, (8) net
gains (losses) on sales of other real estate owned, and (9) net gains
(losses) on sales of other assets (excluding securities). The current
income statement item for ``Other fee income'' (item 5.b.(1) on the
FFIEC 034; item 5.f.(1) on the FFIEC 031, 032, and 033) would be
discontinued. These new noninterest income items would be included on
the report forms for all banks. However, in most cases, small banks are
not likely to be involved in several of these activities or
transactions and, therefore, will be subject to only limited additional
reporting burden in this area.
The new noninterest income items would provide greater
comparability among the categories of noninterest income currently
reported by banks. Some of the proposed noninterest income categories
would represent the only information provided in the Call
[[Page 34816]]
Report on certain bank activities. By collecting more detailed
noninterest income data, the significance of each of these activities
can be compared to other income-generating activities of the bank.
Finally, for the limited number of large banks that have $5 billion
or more in notional amount of derivatives held for trading, the
agencies are proposing to modify the information currently collected on
trading revenue by risk exposure (in Schedule RI, Memorandum item 8).
In order to distinguish between trading revenue from cash instruments
and from derivative contracts, these banks would begin to report their
revenue from cash instruments by risk exposure in addition to their
total trading revenue by risk exposure.
D. Federal Home Loan Bank Advances
As of year-end 1999, over 5,300 or approximately three fifths of
the 8,600 insured commercial banks were members of the Federal Home
Loan Bank System. Nearly all of the more than 1,600 thrift
institutions, including FDIC-supervised savings banks, also were
members. Many commercial banks have joined the Federal Home Loan Bank
System in recent years in order to gain a new source of funding. As a
result, the volume of Federal Home Loan Bank advances to commercial
banks has risen dramatically. The Federal Home Loan Bank System had
advances outstanding of $155 billion to about 3,700 commercial banks at
the end of 1999 according to aggregate data that the Federal Housing
Finance Board (FHFB) supplied to the agencies. These advances
represented almost 40 percent of total advances of $392 billion to all
Federal Home Loan Bank System members at the end of 1999. Federal Home
Loan Bank advances to banks and thrifts are expected to further
increase because recent legislation expands the types of assets that
institutions can pledge as collateral for advances.
At present, Federal Home Loan Bank advances are reported as part of
a bank's ``Other borrowed money'' in the Call Report (Schedule RC, item
16). The aggregate amount of ``Other borrowed money'' at commercial
banks has increased significantly over the past few years, growing at a
faster rate than the total liabilities of commercial banks. Between
year-end 1994 and 1999, aggregate ``Other borrowed money'' more than
doubled to $508 billion. Thus, about 30 percent of aggregate ``Other
borrowed money'' currently consists of advances from Federal Home Loan
Banks. While the agencies have been able to obtain information on
advances indirectly through the FHFB and relate it to Call Report data
on borrowings, the agencies' future ability to obtain timely and
consistent data on advances may be more difficult after the FHFB
implements its plan to give the 12 Federal Home Loan Banks more
autonomy and reporting responsibility.
Therefore, to improve their monitoring and understanding of
individual banks' funding sources, asset-liability management, and
liquidity, the agencies are proposing to have banks report Federal Home
Loan Bank advances separately from their remaining ``Other borrowed
money,'' including the existing three-way maturity breakdown of these
borrowings. This would also provide more consistent information on
borrowings by banks and savings associations because the latter already
report the amount of their Federal Home Loan Bank advances on the
Thrift Financial Report.
In addition to Federal Home Loan Bank advances, ``Other borrowed
money'' includes other types of nondeposit liabilities to third parties
that may be partially or fully secured by bank assets. Examples of
these collateralized borrowings include loans sold under repurchase
agreements that mature in more than one business day, mortgage
indebtedness on bank premises, and borrowings from Federal Reserve
Banks. The FDIC is currently evaluating the effect of bank assets that
secure borrowings in the context of risk to the insurance funds and the
setting of appropriate deposit insurance assessment rates. Accordingly,
the agencies seek comment on the existing availability of information
in bank records on the collateralization of bank borrowings and the
amounts and types of collateral involved. To the extent it is not
currently available, comment is requested on the burden associated with
developing and maintaining this information. Data on the collateral
securing bank borrowings would also enable the agencies to more
efficiently evaluate the cost of resolving a failed or failing
institution and market it to potential acquirers.
E. Restructured Derivative Contracts
The agencies propose to require that banks with foreign offices or
with $300 million or more in total assets report the fair value of
derivative contracts carried as assets that have been restructured or
renegotiated for reasons related to the counterparty's financial
difficulties. This new item would exclude derivative contracts that are
30 days or more past due. The purpose for adding this item is to obtain
better and more complete information about the general credit quality
and performance of banks' derivatives. Currently, the Call Report
collects past due information on these contracts (Schedule RC-N,
Memorandum item 4); however, this item rarely shows significant volumes
of delinquent derivative contracts because the contracts are often
either renegotiated and restructured or charged off before they become
more than 30 days past due. Because counterparty credit risk is a
significant consideration in the assessment of derivative transactions,
information on restructured contracts is important for supervisory
purposes and will complement the data that banks already report on past
due derivatives and on credit losses on derivatives.
Based on December 31, 1999, Call Report data, less than 500 banks
currently report that they have derivative contracts outstanding.
Moreover, the seven largest commercial bank participants in the
derivatives market hold 95 percent of the notional amount of all
derivatives held by commercial banks. Approximately 90 percent of the
Call Report information currently collected on derivative contracts is
reported by banks with total assets of $1 billion or more. Thus, the
burden associated with the collection of the proposed new item on
restructured derivative contracts would be concentrated in large banks.
IV. Reporting of Trust Data
The agencies propose to change the manner in which banks report
information on their trust activities. Thus, for banks, the agencies
would replace the existing Annual Report of Trust Assets (FFIEC 001)
and the Annual Report of International Fiduciary Activities (FFIEC 006)
with a Fiduciary and Related Services Schedule (Fiduciary Schedule).
This new schedule (Schedule RC-T) would become part of the bank Call
Report. Under this proposal, banks that have total fiduciary assets
greater than $100 million or fiduciary income greater than 10 percent
of their combined net interest and noninterest income, as well as all
nondeposit trust companies that file Call Reports, would be required to
report certain trust information in Schedule RC-T quarterly.\13\ This
[[Page 34817]]
information includes the number of accounts and the market value of
trust assets for eight categories of fiduciary activities and a
fiduciary and related services income statement. This group of
quarterly reporters would include approximately one-half of the 2,300
institutions conducting fiduciary activities. In the aggregate, these
institutions hold more than 90 percent of total fiduciary assets. These
institutions would also report data on corporate trust activities,
collective investment funds and common trust funds, fiduciary
settlements and other losses, and types of assets held in personal
trust and agency accounts at year-end only. The remaining trust
institutions would report the preceding information, except the
fiduciary income statement and fiduciary settlements and other losses,
annually as they do at present. The fiduciary and related services
income statement and the items on fiduciary settlements and other
losses would be treated as confidential information on an individual
institution basis, which would maintain the treatment accorded this
information in the Annual Report of Trust Assets. The agencies have
applied this confidential treatment to this trust income and loss
information because these data generally pertain to only a portion of a
reporting institution's total operations and not to the institution as
a whole.
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\13\ A number of entities that do not submit Call Reports to the
agencies file the existing trust reports. In this regard, savings
associations and savings and loan service corporations with trust
powers currently file the FFIEC 001. Likewise, state-chartered
nondeposit trust companies that are subsidiaries of a bank or
savings association, bank holding company, savings and loan holding
company, or savings and loan service corporation also file the FFIEC
001. Bank subsidiaries located outside the United States, and bank
holding companies with subsidiaries or affiliates located outside
the United States, that provide trust services at any foreign
location currently file the FFIEC 006. This Call Report proposal
does not address the trust reporting requirements that would be
applicable to these entities in 2001.
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Collecting certain data in the new Fiduciary Schedule from the
larger trust institutions each quarter will provide the agencies with
critical supervisory information relating to both national and
international fiduciary activities on a more timely basis. This will
enable the agencies to identify trends and changing risk profiles
relating to fiduciary activities more quickly.
Most of the 51 data items that would be reported quarterly in the
Fiduciary Schedule are currently included in the annual trust reports.
Modifications have been made to some of the existing items to improve
their value and usefulness. An additional 48 data items would only be
collected annually in the December 31 report. The total number of
separately reportable data items in the proposed Fiduciary Schedule
represents a decrease of almost 60 percent in the number of reportable
items in the FFIEC 001 and FFIEC 006 combined. Although roughly half of
the trust institutions would have a new quarterly filing requirement
under which they would report trust data they now report only annually,
these institutions should already have a reporting system in place to
track this information. In addition, small trust institutions would at
most have to provide trust data in 69 items once each year. Thus, the
agencies believe this proposal should not produce a significant overall
increase in reporting burden for trust institutions.
The agencies are proposing to add the new Fiduciary Schedule to the
Call Report instead of retaining separate trust reports in order to
facilitate the timely collection and processing of the information.
Institutions filing the current annual trust reports generally must
submit their reports within 45 days after year-end. Electronically
submitted annual trust reports, first allowed for year-end 1998
reporting, have a 75-day filing deadline. By moving the reporting of
fiduciary information into the Call Report, the submission deadline for
the Call Report would apply to this reporting requirement. Consistent
with the proposal discussed in Section V.D. below to shorten the Call
Report submission period for banks with foreign offices, the length of
time that trust institutions would have for completing the Fiduciary
Schedule would be reduced from 45 days to 30 days for most institutions
and from 75 days to 30 days for institutions that file electronically.
The agencies invite comment on all aspects of the proposed
Fiduciary Schedule. In particular, the agencies seek comment on the
following issues relating to this schedule:
(1) Do the proposed criteria for determining which institutions
should report quarterly adequately capture those institutions that
should report fiduciary activities more frequently than annually
because of the extent of their involvement with these activities? If
not, what should the criteria be?
(2) What types of difficulties, if any, will institutions encounter
in complying with the proposed reduction in the amount of time for
reporting trust information in spite of the significant decrease in the
amount of data that institutions would be required to report?
(3) Are the categories of trust accounts for which asset and income
information would be reported in the proposed Fiduciary Schedule an
improvement over the current reporting structure of the Annual Report
of Trust Assets (FFIEC 001) and are the proposed trust account
categories clear? Is there an alternative categorization of trust
accounts for asset and income reporting purposes that would increase
the schedule's usefulness?
(4) Is net fiduciary and related services income, as it would be
reported in the proposed schedule, a useful performance measure? Is the
proposed single item for ``Expenses'' too broad or restrictive to allow
for meaningful peer analysis? Should intracompany income credits be
included, as proposed, in computing net fiduciary and related services
income?
(5) Should individual institution fiduciary income and loss
information continue to be accorded confidential treatment with only
aggregate income and loss data made available to the public or should
the agencies make some or all of this individual institution data
publicly available?
(6) What fiduciary-related trends and ratios should be reported in
the Bank Performance Report and how should they be presented?
(7) The FFIEC currently issues an annual publication, ``Trust
Assets of Financial Institutions,'' containing data reported in the
Annual Report of Trust Assets (FFIEC 001). Should the FFIEC continue to
produce such a publication and, if so, which types of data from the
proposed schedule should the publication contain and how often should
the FFIEC publish the data?
(8) The proposed schedule would replace the Annual Report of
International Fiduciary Activities (FFIEC 006). The information on
fiduciary accounts in foreign offices in the proposed schedule is
currently reported in the FFIEC 006, but the agencies have not made the
information collected in the FFIEC 006 available to the public. In
contrast, the foreign office fiduciary account information in the
proposed Fiduciary Schedule would be publicly available. Should the
agencies continue to treat this foreign office information as
confidential and, if so, for what reasons?
V. Other Issues for Which Public Comment is Requested
A. Subchapter S Bank Dividends Distributed to Cover Shareholders'
Personal Tax Liabilities
Approximately 1,300 banks have so far elected Subchapter S status
for federal income tax purposes, thereby shifting the liability for the
payment of taxes on the bank's taxable income from the bank to its
shareholders. As a result, Subchapter S banks typically increase their
dividend payments to shareholders to provide them with sufficient funds
to cover their personal tax liabilities for their share of the bank's
earnings. However, the agencies have not been
[[Page 34818]]
fully successful in estimating the effect that Subchapter S status has
on a bank's earnings and dividends by adjusting for an assumed tax rate
in the Uniform Bank Performance Report (UBPR). This approach has been
questioned by bankers at some Subchapter S banks who have felt the
results disclosed in the UBPR were inaccurate for their individual
institutions. As a consequence, the agencies have found it difficult to
make valid comparisons of the dividend rates and after-tax earnings of
Subchapter S banks and banks that are subject to federal corporate
income taxes, i.e., Subchapter C banks.
For this reason, the agencies are considering whether to add a new
Call Report item in which Subchapter S banks would report the dollar
amount of dividends being distributed to shareholders to cover their
personal tax liabilities for the bank's taxable income. Based on
comments made by bankers from some Subchapter S banks, they already
determine this dividend amount after consulting with their larger
shareholders.
These bankers believe that it would be more accurate for the UBPR
to adjust their reported earnings and dividends using these dollar
amounts in place of a calculation that applies an assumed tax rate to
bank earnings. Therefore, the agencies request comment on:
(1) Whether Subchapter S banks normally perform such an analysis as
part of their dividend-setting process,
(2) How these banks determine the amount to distribute to
shareholders given the shareholders' differing personal tax positions,
(3) Whether the amounts distributed to cover shareholders' personal
tax liabilities are measured consistently from year to year, and
(4) Whether the agencies should add a new Call Report item in which
Subchapter S banks would report the amount of dividends distributed to
cover shareholders' personal tax liabilities.
B. Reporting of Loan Income and Averages by Small Banks
Banks with domestic offices only and less than $25 million in
assets are not currently required to report a breakdown of their total
loan income by loan category or their quarterly average for total loans
by loan category. This reporting approach for the smallest banks took
effect in 1984 and was intended to limit the reporting burden on these
institutions at a time when their loan systems were believed to be
primarily manual rather than automated. These small banks do, however,
report a breakdown of their loan portfolios by loan category as of each
quarter-end report date and they also report their past due and
nonaccrual loans and their charge-offs and recoveries by loan category
each quarter. With the increased use of technology, even by small
banks, since 1984, and the requirement to file Call Reports
electronically, the reason for exempting banks with less than $25
million in assets from reporting loan income and averages by loan
category may no longer be valid.
Removing this small bank exemption would improve the agencies'
offsite monitoring capability for these banks, thereby enhancing their
risk-focused supervision. The agencies would be able to detect changes
in the loan yields for the separate loan categories within an
individual small bank's loan portfolio and compare this to changes in
the loan volume in those categories and to the yields on these loan
categories at peer group banks. This would provide the agencies a means
to more promptly identify a small bank's move to higher risk, higher
yielding loans. Removing this exemption would also increase the
consistency of the information available on bank lending for all banks,
which may prove useful to the management of small banks as they
evaluate their own institution's performance.
If the exemption from reporting loan income and averages were
eliminated for banks with domestic offices only and less than $25
million in assets, these banks would report a breakdown of their total
interest and fee income on loans using the following loan categories:
(1) Loans secured by real estate, (2) commercial and industrial loans,
(3) credit cards to individuals for household, family, and other
personal expenditures, (4) other consumer loans, (5) loans to foreign
governments and official institutions, and (6) all other loans. In
addition, those banks with less than $25 million in assets that have
``Loans to finance agricultural production and other loans to farmers''
(Schedule RC-C, part I, item 3) exceeding 5 percent of total loans
would report the amount of income on these agricultural loans. Banks
with domestic offices only and less than $25 million in assets would
report quarterly averages for: (1) Loans secured by real estate, (2)
commercial and industrial loans, (3) credit cards to individuals for
household, family, and other personal expenditures, and (4) other
consumer loans. Those banks meeting the 5 percent of total loans test
would also report a quarterly average for their ``Loans to finance
agricultural production and other loans to farmers.''
Thus, the agencies request comment on the merits of eliminating the
exemption from reporting loan income and averages by loan category for
banks with domestic offices only and less than $25 million in assets.
In particular, the agencies request comment on the extent to which
these banks' loan systems are automated and on the availability of this
loan category information.
C. Eliminating Confidential Treatment for Certain Past Due and
Nonaccrual Data
An important public policy issue for the agencies has been how to
use market discipline to complement supervisory resources. Market
discipline relies on market participants having information about the
risks and financial condition of banking organizations. The Call
Report, in particular, is widely used by securities analysts, rating
agencies, and large institutional investors as sources of bank-specific
data. Disclosure that increases transparency should lead to more
accurate market assessments of risk and value. This, in turn, should
result in more effective market discipline on banking organizations.
Despite this emphasis on market discipline, the FFIEC and the
agencies currently accord confidential treatment to the information
banks report in Schedule RC-N of the Call Report on the amounts of
their loans, leases, and other assets that are past due 30 through 89
days and still accruing (and on the amount of restructured loans and
leases that are past due 90 days or more and still accruing or in
nonaccrual status). This is the only financial information currently
collected on the Call Report that is treated as confidential on an
individual bank basis. The agencies publish aggregate data derived from
these confidential items. In contrast, the information banks report on
the amounts of their loans, leases, and other assets that are 90 days
or more past due and still accruing or that are in nonaccrual status
has been publicly available since June 30, 1983. Nevertheless, the
agencies have not precluded banks from publicly disclosing the past due
and restructured data that the agencies treat as confidential, provided
individual borrower information is not released. In order to give the
public, including banks, more complete information on the level of and
trends in bank asset quality at individual institutions, the agencies
are proposing to eliminate the confidential treatment for the 30-89
days past due (and restructured) items beginning with the amounts
reported as of March 31, 2001.
[[Page 34819]]
In addition, the agencies request comment on whether they should
also make publicly available the individual bank 30-89 day past due
(and restructured) Call Report information for some number of quarters
prior to the first quarter of 2001. This would enable Call Report users
outside the agencies to better understand the trend of delinquent loans
by giving these users current data that they can compare to the 30-89
day past due (and restructured) information for quarters ending
December 31, 2000. If prior quarters' data are made publicly available,
comment is requested on which past quarter should be chosen as the
earliest quarter for which the agencies make these data publicly
available, e.g., March 31, 2000, or March 31, 1996.
D. Shortening the Submission Period for Banks with Foreign Offices
Banks are required to submit their Call Reports electronically so
that they are received by the banking agencies' electronic collection
agent no later than 30 days after the quarter-end report date, e.g., by
April 30 for the March 31 report. However, banks that have (or have
previously had) more than one foreign office, other than a ``shell''
branch or an International Banking Facility, are permitted an
additional 15 days to file their Call Reports, e.g., by May 15 for the
March 31 report. These banks with foreign offices have been provided
this additional time to complete and submit their reports since at
least 1980. This privilege was granted, at least in part, because of
the length of time it took these banks to receive information from
overseas offices that was needed for Call Report purposes.
The agencies begin using individual bank Call Report data for
monitoring and other analytical purposes as soon as the report has been
received without waiting for the editing and validation process to be
completed. However, for the banks with more than one foreign office, a
group that includes the banking system's largest institutions, this
process cannot begin until as much as 45 days after the quarter-end
report date. Thus, the agencies' monitoring and analysis of risk
exposures in individual banks and for the banking system as whole is
impeded by the delayed submission of Call Report data by banks with
more than one foreign office. Furthermore, with the technological
advances over the past 20 years, bank systems have the ability to
receive data from overseas offices on a much more timely basis.\14\ The
15-day extension also gives banks with foreign offices a comparative
advantage over the remainder of the industry that must submit its data
within 30 days. The compilation and timely analysis of aggregate
statistics on the banking industry's condition and performance also
suffers from having to contend with the two different submission
deadlines, particularly because the banks whose data are received the
latest hold the bulk of the banking system's assets, liabilities,
capital, and earnings.
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\14\ For example, internationally active banking organizations
routinely provide the securities markets with consolidated financial
information long before their bank subsidiaries with foreign offices
file their Call Reports.
---------------------------------------------------------------------------
Accordingly, the agencies believe that there may no longer be
sufficient justification for banks with more than one foreign office to
have a lengthier submission period than other institutions. The
agencies are therefore proposing to eliminate the additional 15-day
period that these banks have for filing their Call Reports. Banks that
would be affected by this proposed change are specifically invited to
comment on any difficulties that this change would present.
VI. Request for Comment
In addition to the issues upon which comment has been requested
above, comments are invited on:
(a) Whether the proposed revisions to the Call Report collections
of information are necessary for the proper performance of the
agencies' functions, including whether the information has practical
utility;
(b) The accuracy of the agencies' estimates of the burden of the
information collections as they are proposed to be revised, including
the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments submitted in response to this Notice will be shared among
the agencies and will be summarized or included in the agencies'
requests for OMB approval. All comments will become a matter of public
record. Written comments should address the accuracy of the burden
estimates and ways to minimize burden as well as other relevant aspects
of the information collection request.
Dated: May 22, 2000.
Mark J. Tenhundfeld,
Assistant Director, Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency.
Board of Governors of the Federal Reserve System, May 23, 2000.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, DC, this 22nd day of May, 2000.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 00-13511 Filed 5-30-00; 8:45 am]
BILLING CODES OCC: 4810-33-P, Board: 6210-01-P, FDIC: 6714-01-P