FDIC Federal Register Citations

[Federal Register: February 21, 1997 (Volume 62, Number 35)]

[Notices]

[Page 8078-8084]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21fe97-145]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

Federal Reserve System

Federal Deposit Insurance Corporation

Agency Information Collection Activities: Submission for OMB

Review; 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 of information collection to be submitted to OMB for

review and approval under the Paperwork Reduction Act of 1995.

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SUMMARY: On September 16, 1996, the OCC, the Board, and the FDIC (the

agencies) requested public comment for 60 days on proposed revisions to

the Consolidated Reports of Condition and Income (Call Report), which

are currently approved collections of information. After considering

the comments the agencies received, the Federal Financial Institutions

Examination Council (FFIEC), of which the agencies are members, adopted

several modifications to the revised reporting requirements initially

proposed.

In accordance with the requirements of the Paperwork Reduction Act

of 1995 (44 U.S.C. chapter 35), the agencies may not conduct or

sponsor, and the respondent is not required to respond to, an

information collection that has been extended, revised, or implemented

on or after October 1, 1995, unless it displays a currently valid

Office of Management and Budget (OMB) control number. Comments are

invited on: a. whether the proposed revisions to the following

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 collection on respondents, including through the use of

automated collection techniques or other forms of information

technology; and e. estimates of capital or startup costs and costs of

operational, maintenance, and purchase of services to provide

information.

DATES: Comments must be submitted on or before March 24, 1997.

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,

S.W., Washington, D.C. 20219; Attention: Paperwork Docket No. 1557-0081

[FAX number (202) 874-5274; Internet address:

Regs.comments@occ.treas.gov]. Comments will be available for inspection

and photocopying at that address.

Board: Written comments should be addressed to Mr. William W.

Wiles, Secretary, Board of Governors of the Federal Reserve System,

20th and C Streets, N.W., Washington, D.C. 20551, 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, N.W. Comments

received may be inspected in room M-P-500 between 9:00 a.m. and 5:00

p.m., except as provided in Sec. 261.8 of the Board's Rules Regarding

Availability of Information, 12 CFR 261.8(a).

FDIC: Written comments should be addressed to the Office of the

Executive Secretary, Federal Deposit Insurance Corporation, 550 17th

Street, N.W., Washington, D.C. 20429. Comments may be hand-delivered to

Room F-402, 1776 F Street, N.W., Washington, D.C. 20429, on business

days between 8:30 a.m. and 5:00 p.m. Comments may be sent through

facsimile to: (202) 898-3838 or by the Internet to: comments@fdic.gov.

Comments will be available for inspection at the FDIC Public

Information Center, Room 100, 801 17th Street, N.W., Washington, D.C.,

between 9:00 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 Hunt, Office of Information and

Regulatory Affairs, Office of Management and Budget, New Executive

Office Building, Room 3208, Washington, D.C. 20503.

FOR FURTHER INFORMATION CONTACT: A copy of the revised collection of

information may be requested from any of the agency clearance officers

whose names appear below.

OCC: Jessie Gates, OCC Clearance Officer, (202) 874-5090, Office of

the

[[Page 8079]]

Comptroller of the Currency, 250 E Street, S.W., Washington, D.C.

20219.

Board: Mary M. McLaughlin, Board Clearance Officer, (202) 452-3829,

Division of Research and Statistics, Board of Governors of the Federal

Reserve System, 20th and C Streets, N.W., Washington, D.C. 20551.

Telecommunications Device for the Deaf (TDD) users only, Dorothea

Thompson, (202) 452-3544, Board of Governors of the Federal Reserve

System, 20th and C Streets, N.W., Washington, D.C. 20551.

FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907,

Office of the Executive Secretary, Federal Deposit Insurance

Corporation, 550 17th Street N.W., Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: Request for OMB approval to extend, with

revision, the following currently approved collections of information:

Report Title: Consolidated Reports of Condition and Income

Form Number: FFIEC 031, 032, 033, 034. ¹

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\1\ The FFIEC 031 report form is filed by banks with domestic

and foreign offices. The FFIEC 032 report form is filed by banks

with domestic offices only and total assets of $300 million or more.

The FFIEC 033 report form is filed by banks with domestic offices

only and total assets of $100 million or more but less than $300

million. The FFIEC 034 report form is filed by banks with domestic

offices only and total assets of less than $100 million.

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Frequency of Response: Quarterly.

For OCC:

OMB Number: 1557-0081.

Affected Public: National Banks.

Estimated Number of Respondents: 2,800 national banks.

Estimated Time per Response: 39.92 burden hours.

Estimated Total Annual Burden: 447,132 burden hours.

For Board:

OMB Number: 7100-0036.

Affected Public: State Member Banks.

Estimated Number of Respondents: 1,002 state member banks.

Estimated Time per Response: 45.80 burden hours.

Estimated Total Annual Burden: 183,566 burden hours.

For FDIC:

OMB Number: 3064-0052.

Affected Public: Insured State Nonmember Commercial and Savings

Banks.

Estimated Number of Respondents: 6,374 insured state nonmember

banks.

Estimated Time per Response: 29.67 burden hours.

Estimated Total Annual Burden: 756,511 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

15 to 400 hours, depending on individual circumstances.

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 select sensitive items, this

information collection is not given confidential treatment. Small

businesses (i.e., small banks) are affected.

Abstract: Call Reports are filed quarterly with the agencies for

their use in monitoring the condition and performance of reporting

banks and the industry as a whole. The call reports also are used to

calculate banks' deposit insurance assessments and for monetary policy

and other public policy purposes.

Current Actions: Revisions initially proposed for the Call Report

consisted of: the deletion or combining of a number of existing items;

the revision of the Call Report instructions to eliminate instructions

that differ from generally accepted accounting principles (GAAP) and

the addition of a small number of new items to meet supervisory or

insurance assessment calculation data needs resulting from this move to

GAAP; the addition of new items and modification of existing items to

enhance the agencies' ability to monitor interest rate risk, identify

bank usage of credit derivatives, and support the FDIC's calculation of

deposit insurance assessments for Oakar institutions; and changes to

several other instructions. After considering the comments, the FFIEC

approved several modifications to the initial set of proposed

revisions. The comments on the initial proposal and the changes made in

response to the comments are discussed below.

Type of Review: Revision.

On September 16, 1996, the agencies jointly published a notice

soliciting comments for 60 days on proposed revisions to their

currently approved Call Report information collections (61 FR 48687).

The notice described the specific changes that the agencies, with the

approval of the FFIEC, were proposing to implement as of March 31,

1997.

In response to this notice, the agencies collectively received 38

comment letters: 16 from community banks, 12 from large banks, 5 from

bankers' associations, 2 from accounting organizations, 1 from another

specialized trade association, 1 from a state banking authority, and 1

from a law firm. In general, most large banks and bankers' associations

commented on several, but not necessarily all, of the areas in which

the agencies proposed to change the Call Report requirements. Each of

the remaining commenters typically addressed only one or two aspects of

the proposal. The agencies and the FFIEC have considered all of the

comments received on the proposal.

With respect to the proposed deletions and reductions in detail,

commenters agreed with these changes, but several of them stated that

the agencies had not gone far enough in their efforts to eliminate

items and reduce reporting burden. Furthermore, as discussed further

below, virtually all of the commenters expressing opinions on the Call

Report revisions designed to enhance the agencies' ability to monitor

interest rate risk opposed these proposed changes. They found them to

be unnecessary and contrary to the statutory mandate to the agencies

set forth in section 307 of the Riegle Community Development and

Regulatory Improvement Act of 1994. In this regard, the agencies and

the Office of Thrift Supervision, through the FFIEC's Task Force on

Reports, are working to develop a common core report and supplemental

schedules that will satisfy the requirements of section 307. The

proposed Call Report changes for 1997 were not intended to fulfill

those requirements in their entirety, but the deletions and reductions

in detail as well as the adoption of GAAP represent important initial

steps in that direction.

More specific information on the comments received is presented

below.

Comments on Proposed Deletions and Reductions in Detail--The

agencies had proposed to eliminate the separate Schedule RC-L items for

``Gross commitments to purchase'' and ``Gross commitments to sell''

when-issued securities (items 10.a and 10.b) and, instead, to have

these commitments reported as forward contracts in the off-balance

sheet derivative contract portion of that schedule. This change was

proposed because of the relatively small number of banks reporting

when-issued securities commitments and because these commitments are

treated as derivative contracts under the agencies' risk-based capital

standards. However, one commenter observed that the Financial

Accounting Standards Board (FASB) defined the term ``derivative

financial instrument'' in its June 1996 exposure draft of the proposed

accounting standard ``Accounting for Derivative and Similar Financial

Instruments and for Hedging Activities'' as a financial instrument

[[Page 8080]]

that generally does not require the holder or writer of the instrument

to own or deliver the underlying. This commenter felt it would be

confusing to report when-issued securities as derivatives in Schedule

RC-L if they are not reported as such for other financial reporting

purposes. The FFIEC agreed and decided that institutions that do not

include when-issued securities commitments as part of their disclosures

about derivatives for other financial reporting purposes would be

permitted to report commitments to sell when-issued securities as

``other off-balance sheet assets'' and commitments to purchase when-

issued securities as ``other off-balance sheet liabilities'' in

Schedule RC-L. There would be no change in the risk-based capital

treatment of these contracts regardless of the Schedule RC-L item in

which they are reported.

The agencies had proposed to combine items 1.d, ``Securities

underwriting,'' and 1.e. ``Other unused commitments,'' on Schedule RC-

L--Off-Balance Sheet Items, because only a small number of banks report

that they have securities underwriting commitments. However, because of

regulatory and possible statutory changes, the extent of bank

involvement in securities underwriting may increase in the near future.

Therefore, upon further consideration by the agencies, item 1.d is

being retained.

Comments on the Elimination of Call Report Instructions That Differ

From GAAP, Related New Items, and Other Affected Call Report Items and

Instructions--Commenters addressing the adoption of GAAP as the

reporting basis for the balance sheet, income statement, and related

schedules in the Call Report expressed broad support for this concept.

However, many of these commenters had opinions on certain issues

relating to the implementation of GAAP-based reporting in the Call

Report.

First, the proposal stated that the Call Report ``instructions will

continue to contain and the FFIEC and the agencies will continue when

necessary to issue specific reporting guidance that falls within the

range of acceptable practice under GAAP.'' ^{2 The proposal further}

noted that ``[e]ach agency also will retain existing authority to

require an institution to report a transaction in the Call Report in

accordance with that agency's interpretation of GAAP.'' Commenters

considered these practices contrary to the proposal's objective of

moving to GAAP and expressed concern that the exercise of this

authority would cause the Call Report to fall back into a reporting

mode similar to the current situation in which the instructions contain

departures from GAAP. Moreover, permitting individual agencies the

discretion to interpret GAAP for Call Report purposes may affect

consistency and comparability among the reported information. Several

commenters recommended that any plans to require a specific reporting

practice within the range of acceptable GAAP or to interpret GAAP in a

way that departs from industry practice should first be issued as a

proposal for public comment by all of the agencies.

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\2\ Call Report instructions providing such specific reporting

guidance include the nonaccrual rules, the treatment of impaired

collateral dependent loans, the Glossary entry for the ``Allowance

for Loan and Lease Losses'' which references the 1993 Interagency

Policy Statement on this subject, the separate entity method of

accounting for income taxes of bank subsidiaries of holding

companies, push down accounting, and property dividends.

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The agencies and the FFIEC have in the past limited the number of

circumstances in which they have adopted specific Call Report guidance

that falls within GAAP to those few situations where safety and

soundness objectives argue for a single reporting rule for all

institutions or where the GAAP alternatives for reporting a transaction

produce accounting results with a significant lack of comparability.

When the agencies have previously considered implementing specific GAAP

guidance, the FFIEC's Task Force on Reports has normally consulted with

the staffs of the FASB and the Securities Exchange Commission (SEC). If

reporting guidance of a supervisory nature is being pursued, the

agencies and the FFIEC also decide whether public comment should be

solicited. These practices are expected to continue and the adoption of

specific Call Report instructions that fall within the range of GAAP

should remain infrequent in the future.

In addition, the Call Report instructions have for many years

stated that when a bank and its primary federal regulator have

differing interpretations of how GAAP should be applied to a specific

transaction, the agency may require the bank to report the transaction

in the Call Report in accordance with the agency's interpretation and,

if appropriate, to amend previously submitted reports. The agencies do

not believe they have excessively or improperly invoked this authority

in the past and would not expect this to change. In practice, when

issues of GAAP interpretation are raised with an agency's Washington

Office, the staff normally consults with the other agencies and with

the FASB and SEC staffs and considers the views of the bank and its

accountant before reaching a decision. This authority is essentially

the same as the authority the SEC exercises over the public financial

statements filed with it. The SEC can and does challenge registrants

over their application of GAAP to specific events or transactions

reflected in their financial statements. The SEC also can require

restatement when it concludes that a registrant has not properly

applied GAAP given the facts and circumstances surrounding an event or

transaction. Therefore, the agencies believe it is appropriate to

retain this authority.

Second, the proposal reminded banks that their regulatory capital

ratios will continue to be calculated in accordance with the agencies'

capital standards rather than in accordance with GAAP. At least five

commenters responded to this statement. As long as the capital

standards differ from GAAP, some felt that true relief from the burden

of regulatory reporting requirements will not be achieved. Three

suggested that the agencies should adopt GAAP for purposes of measuring

regulatory capital. On the other hand, one commenter strongly supported

the agencies' ability to decide whether to adopt new accounting

standards for regulatory capital purposes. Revisions to the agencies'

capital standards fall outside the scope of the Call Report proposal

for 1997 and would need to be addressed by each agency, in consultation

with the other agencies, as part of a rulemaking. Appropriate agency

staff have been advised of this request.

Along a similar vein, two commenters observed that there are other

laws and regulations that are based on income or capital levels that

are reported in Call Reports such as legal lending limits, dividend

limitations, loans to insiders, and permissible investment activities.

One of these two commenters, which had recommended that the agencies

adopt GAAP for regulatory capital purposes, also urged the agencies to

adopt GAAP for purposes of these other laws and regulations as well as

for all supervisory purposes. The other commenter requested that the

agencies provide guidance to institutions and examiners on how these

other laws and regulations would be applied under the GAAP basis of

reporting in the Call Report. Appropriate agency staff have been

advised of this request.

Third, several commenters questioned how the agencies would define

``materiality'' when they interpret GAAP for Call Report purposes. It

was stated that the agencies cannot truly ``adopt'' GAAP without

adopting the

[[Page 8081]]

consideration of materiality in the application of accounting

standards. Materiality is a qualitative characteristic of accounting

information which is defined in FASB's Statement of Financial

Accounting Concepts No. 2. At the end of each Statement of Financial

Accounting Standards, the FASB states that the Statement's provisions

``need not be applied to immaterial items.'' Commenters indicated that

the agencies' failure to recognize the concept of materiality for

regulatory reporting purposes would add to the cost and regulatory

burden of the Call Report. One commenter complained that regulators

consider all items material, regardless of size.

The General Instructions section of the Call Report instructions

discusses the applicability of GAAP to regulatory reporting

requirements. While not specifically referring to materiality, banks

generally are directed to follow GAAP when reporting events and

transactions in the Call Report except where the instructions do not

follow GAAP. When discussing the need for banks to amend previous

reports, the General Instructions to the Call Report state that the

agencies may require amendments if reports contain significant errors.

The Glossary entry for ``Accounting Changes'' in the Call Report

instructions states that a bank may be directed to file amended reports

for periods that were significantly affected by a material error.

Consistent with this language, the members of the FFIEC's Task Force on

Reports and their agencies' accounting policy staffs, as a matter of

practice, routinely consider materiality when responding to inquiries

about how banks should account for specific events and transactions for

Call Report purposes. Therefore, when dealing with the recognition and

measurement of events and transactions in the Call Report, the General

Instructions' reference to ``significant'' errors should be interpreted

to mean errors that are ``material'' for the reporting bank.

In addition to situations involving recognition and measurement,

the issue of materiality also arises in connection with how items must

be classified or categorized in the Call Report, i.e., on what line of

the Call Report must an item be reported. The Call Reports are

standardized forms with preprinted captions for specific types of

information. The agencies use the data reported on specific lines of

the Call Report for purposes such as the FDIC's measurement of banks'

assessable deposits in order to calculate deposit insurance premiums.

The Board's research divisions use Call Report data for a variety of

purposes, including for constructing and benchmarking various measures

of the domestic (U.S.) banking system and for construction of the Flow-

of-Funds accounts, all of which are provided to the Board of Governors

and the Federal Open Market Committee, and for providing the Board of

Governors with policy analyses of fundamental banking issues. Because

of uses such as these for Call Report data, the need for banks to

report items on the proper line of the standardized form may not be

fully compatible with the concept of materiality. The agencies will

need to give further study to the issue of materiality in relation to

the classification of items in the Call Report.

Fourth, a number of commenters requested that they be given the

opportunity to review and comment on the Call Report instructions as

they would be revised to bring them into conformity with GAAP before

they are finalized prior to the March 31, 1997, report date. One other

commenter specifically suggested that the agencies provide a comment

period after March 31 in order to permit banks to comment on any Call

Report instructions they feel do not conform to GAAP. These commenters

indicated that this process would help to ensure that the instructions

do not inadvertently contain wording that is inconsistent with GAAP or

otherwise presents problems to banks. Accordingly, the FFIEC's Task

Force on Reports will provide draft instructions to each commenter who

requested this opportunity and to the members of the Inter-Association

Committee on Bank Accounting as they become available. In addition,

once the new or revised instructions for 1997 are issued, the Task

Force on Reports will set a specific time period, which will likely

begin in the second quarter of 1997, during which banks can submit

further comments about instructions that appear inconsistent with GAAP.

Fifth, the agencies proposed to add certain new items and to modify

a number of existing Call Report items because of the effect that the

adoption of GAAP will have on the manner in which several types of

transactions or activities are reported in 1997. In the proposal, the

caption to Schedule RC-F--Other Assets, item 3, ``Excess [first lien 1-

to-4 family] residential mortgage servicing fees receivable,'' was to

be revised to refer to interest-only strips receivable in response to

the provisions of (FASB) Statement No. 125, ``Accounting for Transfers

and Servicing of Financial Assets and Extinguishments of Liabilities''

(FAS 125), which take effect in 1997. The agencies also proposed to add

a new item to this schedule for interest-only strips receivable on

other financial assets. One commenter recommended adding two more new

items for interest-only strips receivable: one for mortgage-related

assets other than first lien 1-to-4 family residential mortgages and

another for credit card-related assets. After considering this

commenter's suggestion, the FFIEC decided that only two items on

interest-only strips receivable should be collected, but that the

coverage of the proposed item for interest-only strips receivable on

first lien 1-to-4 family residential mortgage loans be expanded to

include all mortgage loans. The second proposed item would continue to

refer to all other financial assets, but would no longer include any

amounts related to mortgage loans.

Sixth, the proposal further noted that while the treatment of

assets sold with recourse would be brought into conformity with GAAP

for purposes of the Call Report balance sheet and income statement, the

agencies' risk-based capital standards refer to the existing Call

Report instructions as the source for the definition of asset sales

with recourse. Thus, the Call Report Glossary entry for ``Sales of

Assets'' would be recaptioned ``Sales of Assets for Risk-Based Capital

Purposes.'' The Glossary entry's existing general rule would remain

applicable for identifying those asset sales that would be treated as

recourse transactions for risk-based capital purposes and be reportable

as such in Call Report Schedule RC-R--Regulatory Capital.

The proposal also explained that, in connection with the

implementation of FAS 125 in 1997, banks may be able to reflect as an

asset certain previously nonrecognized (for Call Report purposes)

contractual cash flows (e.g., excess servicing fees that are placed in

so-called ``spread accounts'') that act as credit enhancements for

assets (typically credit card receivables) that have been transferred

and securitized. However, asset transfers that qualify for sale

treatment under GAAP, but which use such cash flows as credit

enhancements and carry them as on-balance sheet assets at a discounted

amount, would be treated as sales with recourse under the ``Sales of

Assets for Risk-Based Capital Purposes'' general rule because the bank

has retained risk of loss with respect to these asset amounts. This

means that a bank would have to hold risk-based capital against the

full amount of assets transferred with recourse, but such transfers may

qualify for low-level recourse capital treatment which would limit the

[[Page 8082]]

required amount of capital to the carrying amount of these contractual

cash flows net of any noncapital GAAP recourse liability account

associated with the asset transfer.

The proposed post-1996 reporting treatment for asset transfers in

which certain contractual cash flows act as credit enhancements was

intended to produce the same regulatory capital outcome as the current

(non-GAAP) nonrecognition of these cash flows. Several commenters

concurred with the agencies' desire for the move to GAAP in this area

to produce no significant change in the risk-based capital ratios

calculated for a bank using the data reported in the Call Report's

risk-based capital schedule. However, they observed that this would not

be the case because a bank's reported assets would increase based on

the carrying amount of these ``spread accounts,'' but the amount by

which its reported undivided profits and Tier 1 capital would increase

would be reduced by the related tax effect. The agencies and the FFIEC

did not intend for the adoption of GAAP to significantly penalize

institutions from a risk-based capital perspective. Accordingly, until

any new regulatory capital rules for recourse arrangements and direct

credit substitutes take effect, the Call Report instructions relating

to the completion of the regulatory capital schedule will permit banks

to apply the low-level recourse capital rule on a net of tax basis to

``spread accounts'' that act as credit enhancements for asset

transfers.

Finally, several commenters addressed specific Call Report

instructions or reporting practices which the proposal had not

indicated would be revised to conform with GAAP. Some of these

commenters offered specific suggestions about changing how the current

instructions tell banks to report various types of income statement and

balance sheet items so that banks are permitted to report this

information in accordance with either the current instructions or

prevalent banking industry practice. These commenters stated that these

instructional changes would help to reduce reporting burden.

Accordingly, as mentioned in the Introduction, a number of instructions

will be revised to accommodate bankers' suggestions. Some commenters

also pointed out certain Call Report instructions with ambiguous

wording that could be interpreted as inconsistent with GAAP. The

agencies plan to clarify these instructions to avoid possible

misinterpretation in a GAAP reporting environment.

At least three commenters addressed the regulatory reporting

practice that calls for transfers of assets (other than cash) between a

bank and an affiliate or other related party to be reported at fair

value rather than book value. While the agencies acknowledge that GAAP

permits such transfers to be recorded at book value, the agencies

believe that the use of fair value falls within the range of acceptable

practice under GAAP when an entity that is consolidated in the GAAP

financial statements of its parent prepares separate financial

statements like the Call Report. In addition, the provision of section

23A of the Federal Reserve Act requiring both covered and exempt

transactions between a bank and an affiliate to ``be on terms and

conditions that are consistent with safe and sound banking practices''

has been interpreted to mean that transfers must be reported at fair

value.

One commenter disagreed with the agencies' proposed approach for

reporting the effect of the retroactive application of GAAP to

transactions previously reported in accordance with Call Report

instructions that differ from GAAP. The agencies proposed that banks

should report the effect of this ``catch-up'' adjustment on a bank's

undivided profits as of January 1, 1997, as a direct adjustment to

equity capital. This commenter believes that the adoption of GAAP for

Call Report purposes represents a change in accounting principle, the

effect of which should be reflected in the income statement rather than

as an equity capital adjustment. The agencies considered this comment

and concluded that they should retain the proposed method of reporting

the effect of the retroactive application of GAAP for Call Report

purposes. Because the agencies are permitting banks to decide for

themselves whether to retroactively apply GAAP to previous transactions

or to continue to report them in accordance with the existing

instructions that differ from GAAP, the agencies believe it is more

appropriate for the retroactive effect to be reported outside of the

Call Report income statement.

Comments on the Subchapter S Election for Federal Income Tax

Purposes--The unanticipated change to Subchapter S of the Internal

Revenue Code enabling banks, savings associations, and their parent

holding companies to elect Subchapter S corporation status for federal

income tax purposes in 1997 occurred when the FFIEC was being asked to

approve by notation vote the publication of the proposed Call Report

changes for 1997 for a 60-day comment period as required by the

Paperwork Reduction Act of 1995. One commenter recommended that the

agencies add a Call Report item for a bank's tax status, indicating

that this would provide federal and state regulatory agencies (and

other users of the Call Report) with one central data source for

identifying those institutions that have elected Subchapter S status.

The agencies and the FFIEC agreed with this recommendation and added a

simple ``yes/no'' question to the Call Report asking whether the

reporting bank has a Subchapter S election in effect for the current

tax year. Such an item should produce a nominal amount of reporting

burden.

Comments on the Reporting of Adjusted Attributable Deposit Amounts

by Oakar Institutions--The FDIC's final rule amending certain

provisions of its assessment regulations that pertain to Oakar

institutions, which was published on December 10, 1996, calls for the

FDIC to take over from Oakar institutions the responsibility for

calculating the Adjusted Attributable Deposit Amount (AADA) resulting

from previous assumptions of secondary-fund deposits. To support this

calculation, the agencies proposed to revise the Call Report for 1997

to replace the existing item for AADAs in Schedule RC-O--Other Data for

Deposit Insurance Assessments with two items that Oakar institutions

currently report on a separate FDIC report form that would be

eliminated and with one new item. The proposal indicated that Oakar

institutions should experience a net reduction in reporting burden from

these proposed reporting changes. However, several commenters that

addressed this reporting change disagreed with this statement because

Oakar institutions have not previously reported the third item that

would be added to Schedule RC-O and because these institutions will now

need to verify the accuracy of the FDIC's calculation of their AADAs

each quarter. Therefore, the burden estimate for the Call Report was

modified.

Comments on Credit Derivatives--The proposal discussed the effect

of credit derivatives on the amounts reported in Call Report Schedule

RC-R--Regulatory Capital and several comment letters addressed this

matter. The agencies and the FFIEC agreed with these commenters that

the instructions for Schedule RC-R should for the time being refer

institutions to the guidance on credit derivatives issued by their

primary federal supervisory agency rather than providing detailed

instructional language in this evolving area.

[[Page 8083]]

Comments on Other Instructional Changes--The agencies proposed to

revise the Call Report instructions in six other areas, two of which

were addressed by commenters.

The first area involves the reporting of full-time equivalent

employees and their compensation expense. Two commenters expressed

concern that the proposal would cause banks to break out the

compensation component of intercompany cost allocations and the related

pro rata full-time equivalent employees. However, this was not the

intent of the proposed change. Instructions will so indicate.

The second area involves the proposed elimination of conflicting

instructions concerning the reporting of loans and leases held for

sale. One commenter did not disagree with this proposed clarification,

but suggested that the agencies also clarify that loans and leases held

for short-term trading purposes and marked-to-market through the income

statement may continue to be reported as trading assets. The agencies

had not intended to change this existing reporting practice which is

consistent with GAAP and will make this additional suggested

instructional clarification.

Comments on Enhanced Interest Rate Risk Information--The industry

comments on the proposed additions to the Call Report for interest rate

risk monitoring purposes were generally unfavorable. Nearly three-

fourths of the commenters, including almost all of the community banks,

addressed the revisions related to interest rate risk. Most considered

these revisions unnecessary, many stated that the expanded data will

increase the cost and burden of the Call Report. Others suggested that

the marginal benefit of these data to the agencies (in terms of earlier

identification of some banks with interest rate risk problems than at

present) would exceed the cost to implement the proposed changes. Some

commenters reported that they or their data processing servicers would

not have sufficient time to make the necessary systems changes by the

proposed March 1997 implementation date and urged the agencies to move

this date until June or September 1997 if they decide to proceed with

their proposal. Some commenters also noted that the agencies just made

some changes to the Call Report's maturity and repricing data in March

1996, are proposing further revisions for 1997, and may make additional

changes as they design the common core report for banks, savings

associations, and bank holding companies which at present is targeted

for implementation not earlier than in 1998. In contrast, one

commenting bankers' association agreed that, in general, ``the proposed

changes are appropriate to analyze interest rate risk,'' but went on to

state that it had some objections, including the cost.

After considering the comments, the agencies still believe that a

revision of the Call Report that is substantially the same as proposed

is necessary in order to obtain information that is better suited for

off-site identification of institutions that have either minimal or

potentially high interest rate risk. Revisions allowing a better

identification of basic repricing/maturity mismatches and the presence

of potential option risk are particularly important. A few commenters

recognized that the proposed revisions accomplish this objective but

commented negatively on the increased burden and the costs incurred in

making programming changes to current systems.

Some commenters questioned the agencies' commitment to developing a

risk assessment approach to determining the capital adequacy of an

institution for interest rate risk. These commenters questioned the

need for any revision to the Call Report given the increased focus on

on-site examination of qualitative and quantitative risk management

factors. Moreover, they viewed these modifications as auguring a shift

in the policy stance taken by the agencies in the June 26, 1996, Joint

Agency Policy Statement on Interest Rate Risk (1996 Policy Statement).

Indeed, some industry commenters questioned whether these revisions

represented a way to eventually implement a standardized model approach

to assessing capital adequacy for interest rate risk.

The agencies remain committed to a risk assessment approach to

determining capital adequacy for interest rate risk. However, the 1996

Policy Statement explicitly noted the Agencies' intent to ``use various

quantitative screens and filters to identify banks that may have high

exposures or complex risk profiles, to allocate examiner resources, and

to set examination priorities. These tools rely on Call Report data and

various economic indicators and data.'' The agencies do not intend,

with or without these Call Report changes, to construct a standardized

supervisory measure of interest rate risk. The recent adoption of the

market risk capital charge clearly signals and establishes precedent

that the agencies will rely increasingly on the internal risk measures

of institutions. The agencies intend to use the data from the Call

Report as it would be revised to develop screens that will permit the

allocation of examiner resources toward the potentially riskier

institutions and away from potentially less risky institutions.

Without the increased identification power provided by the

additional data, the agencies may tend to conduct more in-depth on-site

examinations than might otherwise be conducted. With the revisions to

the Call Report, the agencies will be better equipped to identify both

high and low interest rate risk institutions, off-site, and will be

able to better focus examiner resources to address interest rate risk

in a more efficient and burden sensitive manner.

The agencies recognize that the cost associated with changing the

Call Report is not inconsequential. However, the proposed modifications

will cause institutions to incur a significant one-time reprogramming

cost with a smaller increase in periodic reporting cost. Moreover,

these revisions are a small fraction of the proposed data collection

requirements contained in the Supervisory Policy Statement Concerning a

Supervisory Framework for Measuring and Assessing Banks' Interest Rate

Risk Exposure which the agencies proposed in August 1995. The agencies

have chosen only those modifications that afford the greatest potential

benefit to off-site risk identification and resource allocation. The

increased transparency provided by the changes will enhance the

agencies' ability to distinguish institutions with potentially higher

interest rate sensitivity. Additionally, it extends the agencies'

ability to monitor structural changes in portfolio composition over

time, enhancing the agencies' ability to redirect resources in a timely

fashion as potential risks at individual institutions change.

In response to the burden concerns raised by commenters, the

agencies and the FFIEC reviewed the specific interest rate risk-related

changes that had been proposed and have made some modifications to the

original proposal. First, the FFIEC deferred the effective date for the

interest rate risk revisions to the Call Report from March until June

1997. This will increase the lead time that banks and their servicers

will have to make necessary systems changes. Commercial banks will

report the existing Call Report items that provide maturity and

repricing data in March 1997. FDIC-supervised savings banks will

continue to complete their supplemental interest rate risk schedule

(Schedule RC-J) in March 1997, except for the weighted average cost and

yield factors and the principal payments

[[Page 8084]]

received memorandum items which will be eliminated.

Second, the FFIEC dropped three of the new items that had been

proposed because of their relatively lower importance for interest rate

risk screening purposes. These three items are ``Long positions in

interest rate futures and forwards,'' ``Short positions in interest

rate options,'' and ``Outstanding principal balance of 1-to-4 family

residential mortgage loans held in portfolio that are serviced by

others.'' The first two items would have been added to the off-balance

sheet schedule (Schedule RC-L) and the third would have appeared on the

memoranda schedule (Schedule RC-M).

Third, another proposed memoranda schedule item on servicing,

``Outstanding principal balance of loans other than 1-to-4 family

residential mortgage loans that are serviced for others,'' will not be

completed by all banks. Instead, this item will be applicable only to

those banks filing the FFIEC 031, 032, and 033 report forms that

service more than $10 million of such loans and whose servicing volume

exceeds 10 percent of the reporting bank's assets. This item will not

be applicable to banks with less than $100 million in assets that file

the FFIEC 034 report form.

Fourth, the coverage of one of the proposed off-balance sheet items

on interest rate swaps held for purposes other than trading has been

revised to provide the agencies with a better indication of the volume

of such swaps used for hedging purposes. The proposed item for

``Interest rate swaps where the bank has undertaken a floating rate

obligation'' has been changed to cover those swaps ``where the bank has

agreed to pay a fixed rate.''

Dated: February 14, 1997.

Karen Solomon,

Director, Legislative and Regulatory Activities Division, Office of the

Comptroller of the Currency.

Board of Governors of the Federal Reserve System, February 7,

1997.

William W. Wiles,

Secretary of the Board.

[THIS SIGNATURE PAGE PERTAINS TO THE JOINT NOTICE AND REQUEST FOR

COMMENT, ``SUBMISSION FOR OMB REVIEW; COMMENT REQUEST'']

Dated at Washington, D.C., this 7th day of February, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 97-4363 Filed 2-20-97; 8:45 am]

BILLING CODE OCC: 4810-33-P \1/3\, Board: 6210-01-P \1/3\, FDIC: 6714-

01-P \1/3\