FDIC Federal Register Citations

[Federal Register: January 24, 2008 (Volume 73, Number 16)]

[Notices]

[Page 4220-4229]

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

[DOCID:fr24ja08-84]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

Agency Information Collection Activities: Submission for OMB

Review; Joint Comment Request

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;

Board of Governors of the Federal Reserve System (Board); Federal

Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision

(OTS), Treasury.

ACTION: Notice of information collections to be submitted to OMB for

review and approval under the Paperwork Reduction Act.

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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, the FDIC, and

the OTS (collectively, 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. On September 25, 2006, the agencies, under the

auspices of the Federal Financial Institutions Council (FFIEC),

requested public comment on a proposal to implement new regulatory

reporting requirements for banks \1\ that qualify for and adopt the

Advanced Capital Adequacy Framework to calculate their risk-based

capital requirement or are in the parallel run stage of qualifying to

adopt this framework (71 FR 55981). The agencies have made certain

modifications to the proposed reporting requirements as described in

this notice both in response to comments received and to reflect

requirements of the final rule implementing the Advanced Capital

Adequacy Framework (72 FR 69288, referred to hereafter as the final

rule). The FFIEC, of which the agencies are members, has approved

publication of these reporting requirements and the agencies are

submitting these reporting requirements to OMB for review and approval.

Upon approval, OMB control numbers will be obtained.

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\1\ For simplicity, and unless otherwise indicated, this notice

uses the term ``bank'' to include banks, savings associations, and

bank holding companies (BHCs). The terms ``bank holding company''

and ``BHC'' refer only to bank holding companies regulated by the

Board and do not include savings and loan holding companies

regulated by the OTS. For a detailed description of the institutions

covered by this notice, refer to Part I, Section 1, of the final

rule entitled Risk-Based Capital Standards: Advanced Capital

Adequacy Framework.

DATES: Comments must be submitted on or before February 25, 2008. These

reporting requirements are effective April 1, 2008, and institutions

subject to these requirements must begin reporting data at the end of

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the first quarter in which they have begun their parallel run period.

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: Communications Division, Office of the Comptroller of the

Currency, Public Information Room, Mail Stop 1-5, Attention: 1557-NEW,

250 E Street, SW., Washington, DC 20219. In addition, comments may be

sent by fax to (202) 874-4448, or by electronic mail to regs.comments@occ.treas.gov.

You may personally inspect and photocopy

comments at the OCC's Public Information Room, 250 E Street, SW.,

Washington, DC. For security reasons, the OCC requires that visitors

make an appointment to inspect comments. You may do so by calling (202)

874-5043. Upon arrival, visitors will be required to present valid

government-issued photo identification and submit to security screening

in order to inspect and photocopy comments.

Board: You may submit comments, which should refer to ``FFIEC 101''

by any of the following methods:

Agency Web Site: http://www.federalreserve.gov

Follow the instructions for submitting comments on the http://.

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

E-mail: regs.comments@federalreserve.gov. Include docket

number in the subject line of the message.

FAX: 202-452-3819 or 202-452-3102.

Mail: Jennifer J. Johnson, Secretary, Board of Governors

of the Federal Reserve System, 20th Street and Constitution Avenue,

NW., Washington, DC 20551.

All public comments are available from the Board's Web site at

http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as

submitted, unless modified for technical reasons. Accordingly, your

comments will not be edited to remove any identifying or contact

information. Public comments may also be viewed electronically or in

paper in Room MP-500 of the Board's Martin Building (20th and C

Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FDIC: You may submit comments, which should refer to ``FFIEC 101,''

by any of the following methods: http://www.FDIC.gov/regulations/laws/federal/notices.html..

E-mail: comments@FDIC.gov. Include ``FFIEC 101'' in the

subject line of the message.

Mail: Valerie Best (202-898-3907), Supervisory Counsel,

Attn: Comments, Room F-1070, Federal Deposit Insurance Corporation, 550

17th Street, NW., Washington, DC 20429.

Hand Delivery: 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.

Public Inspection: All comments received will be posted without

change to http://www.fdic.gov/regulations/laws/federal/notices.html

including any personal information provided. Comments may be inspected

at the FDIC Public Information Center, Room E-1002, 3501 Fairfax Drive,

Arlington, VA 22226, between 9 a.m. and 5 p.m. on business days.

OTS: You may submit comments, identified by ``FFIEC 101'' by any of

the following methods:

E-mail address:

infocollection.comments@ots.treas.gov.

Please include ``FFIEC 101'' in the subject line of the message and

include your name and telephone number in the message.

Fax: (202) 906-6518.

Mail: Information Collection Comments, Chief Counsel's

Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,

DC 20552, Attention: ``FFIEC 101.''

Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,

1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:

Information Collection Comments, Chief Counsel's Office, Attention:

``FFIEC 101.''

Instructions: All submissions received must include the agency name

and OMB

[[Page 4221]]

Control Number for this information collection. All comments received

will be posted without change to the OTS Internet Site at

http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1

, including any personal information provided.

Docket: For access to the docket to read background documents or

comments received, go to

http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1

.

In addition, you may inspect comments at the Public Reading Room,

1700 G Street, NW., by appointment. To make an appointment for access,

call (202) 906-5922, send an e-mail to public.info@ots.treas.gov, or

send a facsimile transmission to (202) 906-7755. (Prior notice

identifying the materials you will be requesting will assist us in

serving you.) We schedule appointments on business days between 10 a.m.

and 4 p.m. In most cases, appointments will be available the next

business day following the date we receive a request.

Additionally, commenters may send a copy of their comments to the

OMB desk officer for the agencies by mail to the Office of Information

and Regulatory Affairs, U.S. Office of Management and Budget, New

Executive Office Building, Room 10235, 725 17th Street, NW.,

Washington, DC 20503, or by fax to (202) 395-6974.

FOR FURTHER INFORMATION CONTACT: For further information about the

regulatory reporting requirements discussed in this notice, please

contact any of the agency clearance officers whose names appear below.

In addition, copies of reporting schedules and instructions can be

obtained from the FFIEC's Web site.\2\

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\2\ http://www.ffiec.gov/ffiec_report_forms.htm.

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OCC: Mary Gottlieb, OCC Clearance Officer (202-874-5090),

Legislative and Regulatory Activities Division, Office of the

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Board: Michelle Shore, Federal Reserve Board Clearance Officer,

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

Reserve System, 20th and C Streets, NW., Washington, DC 20551 (202-452-

3829). Telecommunications Device for the Deaf (TDD) users may call

(202) 263-4869.

FDIC: Valerie Best (202-898-3812), Supervisory Counsel, Legal

Division, Federal Deposit Insurance Corporation, 550 17th Street, NW.,

Washington, DC 20429.

OTS: Ira L. Mills at ira.mills@ots.treas.gov, (202) 906-6531, or

facsimile number (202) 906-6518, Regulations and Legislation Division,

Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street,

NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: The agencies are requesting OMB approval to

implement the following new information collection.

Report Title: Advanced Capital Adequacy Framework Regulatory

Reporting Requirements.

Form Number: FFIEC 101.

Frequency of Response: Quarterly.

Affected Public: Business or other for-profit.

OCC

OMB Number: 1557-NEW.

Estimated Number of Respondents: 52 national banks.

Estimated Time per Response: 625 hours.

Estimated Total Annual Burden: 130,000 hours.

Board

OMB Number: 7100-NEW.

Estimated Number of Respondents: 6 state member banks.

Estimated Time per Response: 625 hours.

Estimated Total Annual Burden: 15,000 hours.

OMB Number: 7100-NEW.

Estimated Number of Respondents: 15 BHCs.

Estimated Time per Response: 625 hours.

Estimated Total Annual Burden: 37,500 hours.

FDIC

OMB Number: 3064-NEW.

Estimated Number of Respondents: 19 state nonmember banks.

Estimated Time per Response: 625 hours.

Estimated Total Annual Burden: 47,500 hours.

OTS

OMB Number: 1550-NEW.

Estimated Number of Respondents: 5 savings associations.

Estimated Time per Response: 625 hours.

Estimated Total Annual Burden: 12,500 hours.

General Description of Reports

This information collection is mandatory for banks using the

Advanced Capital Adequacy Framework: 12 U.S.C. 161 (for national

banks), 12 U.S.C. 324 and 12 U.S.C. 1844(c) (for state member banks and

BHCs respectively), 12 U.S.C. 1817 (for insured state nonmember

commercial and savings banks), and 12 U.S.C. 1464 (for savings

associations). This information collection will be given confidential

treatment (5 U.S.C. 552(b)(4)) except for selected data items

(Schedules A and B, and data items 1-2 of the operational risk Schedule

S) that will be released for reporting periods after an institution has

successfully completed its parallel run period and is qualified to use

the advanced approaches for regulatory capital purposes. The agencies

will not publicly release information submitted during an entity's

parallel run period.

Abstract

Each bank that qualifies for and applies the advanced internal

ratings-based approach to calculate regulatory credit risk capital and

the advanced measurement approaches to calculate regulatory operational

risk capital, as described in the final rule, is required to file

quarterly regulatory data. The agencies will use these data to assess

and monitor the levels and components of each reporting entity's risk-

based capital requirements and the adequacy of the entity's capital

under the Advanced Capital Adequacy Framework; to evaluate the impact

and competitive implications of the Advanced Capital Adequacy Framework

on individual reporting entities and on an industry-wide basis; as one

input to develop an interagency study at the end of the second

transitional floor period as described more fully in the final rule

implementing the Advanced Capital Adequacy Framework; and to supplement

on-site examination processes. The reporting schedules will also assist

banks in understanding expectations around the system development

necessary for implementation and validation of the Advanced Capital

Adequacy Framework. Submitted data that is released publicly following

a reporting entity's parallel run period will also provide other

interested parties with information about banks' risk-based capital.

Current Actions

Risk-Based Capital Standards: Advanced Capital Adequacy Framework:

Regulatory Reporting Requirements

I. Background

On September 25, 2006, the agencies issued for comment a joint

notice of proposed regulatory capital reporting requirements (71 FR

55981) for U.S. banks that qualify for and adopt the advanced internal

ratings-based (AIRB) approach for calculating regulatory credit risk

capital and the advanced measurement approaches (AMA) for

[[Page 4222]]

calculating regulatory operational risk capital (together, the advanced

approaches). These proposed regulatory reporting requirements were

issued concurrently with the joint notice of proposed rulemaking

seeking public comment on a new risk-based capital framework for banks

(71 FR 55830). On December 7, 2007, the agencies published final rules

implementing the new risk-based capital framework (72 FR 69288). This

notice describes the final risk-based capital reporting requirements

for banks that qualify for and adopt the new risk-based capital

framework or are in the parallel run stage of qualifying to adopt this

framework.

Data items contained within the reporting proposal pertained to the

risk parameters and drivers of a bank's regulatory capital measures

under the AIRB and AMA approaches. The reporting proposal identified a

number of uses for the data to be submitted, which included the ability

of the agencies to monitor risk-based capital requirements, assess the

components of these requirements, evaluate the impact of implementing

the new advanced approaches, and supplement on-site examination

processes relating to the implementation of the new advanced

approaches. The proposal also indicated that certain summary

information would be made available to the public for reporting periods

after a bank has qualified to use the advanced approaches for

regulatory capital to provide a sufficient degree of public disclosure

to market participants.

The agencies have evaluated comments received on the reporting

proposal and have made changes to the reporting requirements as

described below. Certain changes to the reporting requirements,

collected data elements, and reporting instructions have also been made

to conform reporting to changes made to the final rule.

II. Comment Overview

The agencies received sixteen comment letters that directly

addressed the reporting proposal. In addition to providing responses to

the specific questions posed by the agencies, a number of commenters

identified both general and technical issues relating to the reporting

requirements, report schedules, and reporting instructions. Some

additional comments focused primarily on the Pillar 3 disclosure

requirements of the joint notice of proposed rulemaking, but also

included less specific comments on regulatory reporting.

In general, commenters reflected concerns over the perceived

burdens of the proposed reporting requirements without sufficient

offsetting benefits in terms of the analytical needs of supervisors and

the information needs of investors and other public users of financial

information. Specific areas of concern identified in the comments

covered a range of issues including concerns about (1) the length of

time allowed following a quarter-end to file reports with the agencies,

(2) public disclosures of certain risk estimates used to calculate

risk-weighted assets for credit risk portfolios, (3) public disclosures

of certain data items contained in the operational risk schedule, (4)

the reporting of credit risk portfolios not defined in the proposed

rulemaking, (5) the reporting of data elements not required for

calculation of regulatory capital, and (6) potential duplication or

inconsistencies of the reporting requirements with Pillar 3

disclosures.

The agencies have made a number of modifications to the reporting

requirements in light of these comments. Among the changes that address

concerns about reporting burden, the agencies have eliminated three

schedules and approximately 600 reportable data items, expanded the

submission deadlines during a bank's parallel run period, and allowed

more data items to be reported on an optional basis (depending on

information availability, e.g., information pertaining to pre-credit

risk mitigation risk estimates for wholesale exposures when the

substitution approach is used, and various data items pertaining to

operational risk modeling). Additionally, in recognition of concerns

about report certification requirements, the agencies have adopted

alternative certification language that focuses on meeting the

requirements imposed by the final rule and reporting instructions as

opposed to a statement attesting to the accuracy of data items that

include parameter estimates.

The reporting proposal raised three specific questions for

industry's consideration. First, the agencies asked about the

feasibility of collecting additional information to help isolate the

causes of changes in regulatory credit risk-based capital requirements

(the lookback portfolio approach). The agencies have decided not to

pursue the collection of this additional information at this time but

intend to explore with the industry in the future ways to facilitate

such analyses. Second, the agencies asked about the desirability of

using an alternative approach to fixed bands for reporting wholesale

and retail schedules. Although the majority of commenters favored the

alternative approach, the agencies have decided to retain the fixed

band approach to achieve greater comparability among reporting banks.

Third, the agencies asked about the appropriateness of making certain

data items available to the public for reporting periods subsequent to

a bank's parallel run period. With the exception of certain information

contained in the operational risk schedule (data items 3 through 7 of

this schedule), the agencies have decided to continue to require public

disclosure of all other data items contained in Schedules A and B, and

data items 1 and 2 only of the operational risk schedule, for reporting

periods after a bank has qualified to use the advanced approaches for

regulatory capital purposes. The agencies believe that such disclosures

are consistent with Pillar 3 of the Advanced Capital Adequacy Framework

and will provide useful information to investors and other market

participants about a bank's capital structure, risk exposures, and main

components of a bank's regulatory capital calculations. As in the

reporting proposal, all other information submitted per these reporting

requirements will remain confidential.

One commenter also indicated its belief that the burden estimate

provided in the reporting proposal of 280 hours per respondent was

significantly understated. Although the final reporting requirements

require submission of significantly less data items than under the

reporting proposal, the agencies have revised their estimates of

reporting burden on a per respondent basis upward in recognition of

reporting burdens incurred by banks on other types of regulatory

reports and the level of detail required to be submitted under these

reports.

Certain other modifications, such as the elimination of data items

relating to expected loss given default, were made to conform the

reporting requirements and instructions to the final rule. A complete

discussion of comments, and changes made to the reporting requirements,

is contained in the following sections.

III. Scope and Frequency of Reporting

Banks That Are Required To Submit Reports

The reporting requirements associated with the final rule will

apply, as proposed, to each BHC, on a consolidated basis, and each

depository institution that qualifies for and applies the advanced

approaches (section I of the final rule provides a detailed discussion

of institutions covered by these reporting requirements), as well as

[[Page 4223]]

banks in the parallel run stage of qualifying to use the advanced

approaches. The agencies did not receive any comments objecting to the

scope of application of these reporting requirements as stated.

Frequency of Reports

As proposed, the reports described herein are to be submitted to

the agencies on a quarterly basis. The agencies did not receive

comments that generally opposed quarterly reporting. However, as

discussed below, some commenters argued for less frequent or lagged

reporting of certain data elements relating to operational risk.

Reporting Due Dates

A number of commenters raised concerns over the proposed

requirement to align reporting due dates with those currently required

for banks, savings associations, and BHCs that file Consolidated

Reports of Condition and Income (Call Reports), Thrift Financial

Reports (TFRs), and BHC FR Y-9C reports, respectively. These commenters

offered a range of alternative reporting deadlines but generally argued

for extended deadlines through at least the parallel run and

transitional floor periods. The agencies agree that it is reasonable to

extend reporting deadlines through the parallel run period to 60 days

following the end of a quarter. However, the agencies believe that once

a bank qualifies to use the advanced approaches and enters the

transitional floor period, the bank should have the ability to fully

support regulatory capital calculations to coincide with the timing of

other financial disclosures. Accordingly, after a bank's parallel run

period, the agencies are requiring submission of the information

required by this notice within the same timeframes set forth in the

reporting instructions for the Call Report, TFR, and BHC FR Y-9C filed

by banks, savings associations, and BHCs, respectively.

Report Certification Requirements

Under the reporting proposal, banks would be required to meet the

same reporting standards that are applied to other regulatory reports

including certification by a bank's Chief Financial Officer attesting

to the correctness of the reports. While acknowledging the

reasonableness of requiring certifications of reported information, one

commenter raised concerns over certifications of the accuracy of risk

parameter estimates and the procedures used to validate those

estimates. In recognition of these concerns, the agencies have modified

the certification requirements for this regulatory report submission.

These report certifications are substantially similar to those required

for banks' Pillar 3 disclosures in that they require one or more senior

officers of the reporting entity to attest that the risk estimates and

other information submitted to the agencies meet the requirements set

forth in the final rule and reporting instructions.

Initial Reporting Period

For those banks subject to these reporting requirements, the first

reporting period (as proposed) will correspond to the quarter-end of

the first quarter of a bank's parallel run period. Although no

commenters objected to this requirement, some commenters did raise

concerns over the ability to implement those systems changes necessary

to meet these reporting requirements without a sufficient amount of

time between publishing these requirements and the first reporting

period. The agencies are mindful of the tight timeframes for banks

whose first reporting period corresponds to the quarter-end following

the effective date of the final rule. The agencies expect that systems

development will be an iterative process during the parallel run

period, with steady improvement in overall reporting and gradual

reduction of manual processes prior to qualification.

Relationship to Other Regulatory Reporting of Risk-Based Capital

As proposed, banks subject to these reporting requirements will

submit capital information under both this notice and under the

existing risk-based capital reporting requirements (the general risk-

based capital rules) during their respective parallel run periods and

subsequent transitional floor periods.\3\ A bank would discontinue

reporting under the general risk-based capital rules once it is

permitted to exit its third transitional floor period. The agencies

received no comments on this requirement.

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\3\ General risk-based capital data under the existing risk-

based capital standards are currently captured in the Consolidated

Reports of Condition and Income (Call Report) for banks (Form FFIEC

031 or FFIEC 041); OMB No. 1557-0081 for the OCC, 7100-0036 for the

Board, and 3064-0052 for the FDIC), the Thrift Financial Report

(TFR) for savings associations (OTS Form 1313; OMB No. 1550-0023),

and the Consolidated Financial Statements for Bank Holding Companies

(Board Form FR Y-9C; OMB No. 7100-0128).

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Electronic Submission of Reports

Consistent with requirements for the agencies' reports which

collect data under the existing risk-based capital reporting

requirements, banks subject to these reporting requirements must submit

these reports in an electronic format using file specifications and

formats determined by the agencies.

IV. Overview of the Data Reporting Requirements

The reporting proposal contained 22 separate schedules: One

schedule (Schedule A) detailing banks' capital elements (the numerator

of the risk-based capital calculation); one schedule (Schedule B) that

summarizes the components of risk-weighted assets for categories of

credit risk portfolios, operational risk exposures, and market risk;

and 20 schedules (Schedules C through V) that provide additional detail

on the risk parameters and drivers of credit risk-weighted and

operational risk-weighted assets. For wholesale and retail credit

exposures, the reporting schedules contain information on the risk

parameters used in specific risk-based capital formulas to determine

risk-weighted asset amounts, namely: Probability of default (PD, which

measures the likelihood that an obligor will default over a one-year

horizon); loss given default (LGD, which is an estimate of the economic

loss if a default occurs during downturn economic conditions); exposure

at default (EAD, which is measured in dollars and is an estimate of the

amount that would be owed to the bank at the time of default); and, for

wholesale credit exposures, an exposure's effective maturity (M, which

is measured in years and reflects the effective remaining maturity of

the exposure). The retail credit risk schedules also include

information on loan-to-values, credit bureau scores, and account

seasoning, which are likely to be important risk drivers within these

portfolios. For securitization, equity, and operational risk exposures,

the reporting schedules include data on the main inputs to, and outputs

of, internal models and regulatory risk weight functions used to

determine risk-weighted assets for these exposures.

Several commenters raised concerns about burdens associated with

and the need for reporting of certain types of credit exposures not

explicitly defined outside the reporting proposal. These exposure types

include Construction Income Producing Real Estate (IPRE) and Other

Retail Exposures--Small Business. In response to industry concerns, the

agencies have consolidated several schedules. Specifically, the final

reporting requirements consolidate reporting of Construction IPRE and

non-construction IPRE exposures into one IPRE schedule (new Schedule

F), consolidate reporting

[[Page 4224]]

of Qualifying Revolving Exposures--Credit Cards and Qualifying

Revolving Exposures--All Other into one Qualifying Revolving Exposure

schedule (new Schedule N), and consolidate reporting of Other Retail

Exposures--Small Business and Other Retail Exposures--All Other into

one Other Retail Exposure schedule (new Schedule O). With these

schedule consolidations, the final reporting requirements require the

submission of 19 schedules instead of the 22 schedules contained in the

reporting proposal.

A. Publicly Available Risk-Based Capital Data for the Advanced

Approaches

Content of Schedules A and B

Schedule A contains information about the components of Tier 1 and

Tier 2 capital, as well as adjustments to regulatory risk-based capital

as defined in the final rule. Certain modifications were made to data

item captions, schedule footnotes, and instructions for clarification

purposes and to conform the reporting requirements to the final rule.

More specifically, in Part 1 of Schedule A for banks and BHCs, data

item 6b, ``Qualifying trust preferred securities,'' as well as the

deduction in data item 7b, ``LESS: Cumulative change in fair value of

all financial liabilities accounted for under a fair value option that

is included in retained earnings and is attributable to changes in the

bank's own creditworthiness,'' were added to derive the appropriate

numerator for the Tier 1 risk-based capital calculation. In addition,

the deductions in data items 10a and 16a, ``LESS: Insurance

underwriting subsidiaries' minimum regulatory capital (for BHCs only)''

were added to conform to the final rule and are necessary to derive the

numerator for both the Tier 1 and Tier 2 risk-based capital

calculation. A number of proposed data items relating to the regulatory

leverage capital ratio were also eliminated from Part 1 of the schedule

because they are reported in other regulatory reports.

Schedule B contains summary information about risk-weighted assets

by exposure categories, and for credit risk exposures, outstanding

balances and aggregated information about the estimates that underlie

the calculation of risk-weighted assets. The information in Schedule B

is largely unchanged from the reporting proposal with some minor

modifications. The modifications include: (1) The addition of data item

24 for unsettled transactions (balance sheet amount and risk-weighted

assets) in response to industry comments, (2) the addition of data item

28 for the calculation of total credit risk-weighted assets scaled by

the 1.06 multiplier contained in the final rule, (3) the addition of

data item 29 to recognize risk-weighted asset deductions for excess

eligible credit reserves not included in Tier 2 capital (to be

consistent with paragraph (a)(2) of section 13 of the final rule), (4)

the elimination of three data items for exposure types whose reporting

has been consolidated with other exposure types as described above, and

(5) changes to various caption headings to align them with the

descriptions and definitions contained in the final rule.

The agencies received the following technical comments on data

elements contained in Schedule B, Summary of Risk Weighted Assets for

Banks Approved to Use the Advanced Approaches:

Several commenters recommended re-labeling line 30 in the

reporting proposal from Immaterial Exposures to Credit Exposures on

Other Methods. These commenters argued that a broader exposure category

was needed for the inclusion of unsettled securities transactions and

other exposures where it is not feasible to estimate risk parameters

under the advanced approaches. The agencies have modified Schedule B to

include a separate data item for reporting the balance sheet amounts

and risk-weighted assets associated with unsettled transactions (data

item 24). The agencies note that the final rule specifically addresses

and defines credit exposures that are not included within a defined

exposure category, as well as non-material portfolios of exposures.

Schedule B has been modified to include reporting of the risk-weighted

assets and balance sheet amounts for these categories of exposures as

described in the final rule;

Several commenters sought clarification that the Expected

Credit Loss (ECL) column in Schedule B should be reported after

considering credit risk mitigation (CRM) effects. The agencies confirm

that all ECL data items within the reporting schedules are to be

reported on a post-CRM basis; and

One commenter requested revisions to Schedule B to allow

for agreement between aggregated credit portfolio (balance sheet)

information and amounts listed in other regulatory reports such as Call

Reports and the BHC FR Y-9C report. The agencies acknowledge the

desired objective conveyed by this commenter to ensure that regulatory

capital calculations encompass all exposures within a bank. However,

the agencies believe it is more important to delineate exposures by

exposure categories (and subcategories) as defined within the final

rule since each of these exposures is associated with a specific set of

risk weight curves, risk weight functions, or calculation approaches.

As a result, the agencies have decided not to redefine exposure

categories to be consistent with those defined within other regulatory

reports. The agencies have also decided not to impose additional burden

of reconciling the financial information contained in these reports to

balance sheet information contained in other regulatory reports.

Rather, the agencies believe that the comprehensiveness of these

reports can be confirmed through other means such as on-site reviews.

Publicly Available Information

The agencies received a number of comments relating to the public

disclosure of information reported in Schedules A and B, and data items

1 through 7 of the Operational Risk schedule. These commenters argued

for limited or phased-in disclosure of Schedule B data items in

particular, limiting disclosure of Schedule B data items to risk-

weighted assets by exposure type and related on- and off-balance sheet

amounts, or flexibility in timing of submissions when an institution

views certain information as proprietary in nature. These commenters

generally argued that components of the risk-weighted asset calculation

such as PD, LGD, and EAD are not well understood, are incomplete

measures of risk, are not comparable across institutions, and may be

subject to misinterpretation by investors and other market

participants.

After consideration, the agencies have decided to retain public

disclosure of all data items in Schedules A and B (as modified) for

reporting periods after a bank has qualified to use the advanced

approaches for regulatory capital purposes (i.e., once a bank enters

its first transitional floor period). All reported information will

remain confidential during the bank's parallel run. The agencies

believe such disclosures, at the bank level, are consistent with the

Advanced Capital Adequacy Framework and will provide useful information

to investors and other market participants about a bank's capital

structure, its risk exposures, and the main components and risk drivers

underlying the bank's regulatory capital calculations. Although the

agencies agree with industry comments that care must be taken in making

comparisons of aggregated risk parameters across institutions, the

agencies note that comparability concerns have been substantially

reduced by changes made to the final rule (such as the elimination

[[Page 4225]]

of expected loss given default or ELGD and the adoption of the New

Accord's definition of default for wholesale credit exposures). As with

the Pillar 3 disclosure requirements, the agencies believe public

disclosure of the information in Schedules A and B is consistent with

the objectives of market discipline and transparency advanced within

the final rule and will provide investors and other market participants

with a basic set of summary-level standardized information about the

main components of banks' risk-based capital requirements. As noted in

the proposed reporting requirements, banks may be able to use certain

data items in these disclosures to augment Pillar 3 disclosures

required by the final rule.

Data items 1 and 2 only of the operational risk schedule (Schedule

S), will also be made publicly available for reporting periods after a

bank has qualified to use the advanced approaches for regulatory

capital purposes (i.e., once an institution enters into its first

transitional floor period). This requirement is a modification of the

reporting proposal, which proposed making data items 1 through 7 of

this schedule publicly available along with information in Schedules A

and B. A number of commenters raised concerns that data items 3 through

7 of the operational risk schedule contain proprietary or sensitive

information. In light of these comments, the agencies have reevaluated

whether these data elements are appropriate for public disclosure and

have concluded they are not. Therefore, all operational risk schedule

data items with the exception of data items 1 and 2 will remain

confidential. Commenters generally agreed that data items 1 and 2 of

this schedule were appropriate for public disclosure.

B. Non-Publicly Available Risk-Based Capital Data for the Advanced

Approaches

With the exception of data items 1 and 2 in Schedule S, information

submitted in Schedules C through S will be shared among the four

agencies but will not be released to the public. The data elements

contained in these schedules will provide the agencies with additional,

aggregated detail about the components and main drivers of reporting

banks' risk-based capital levels. The agencies will use this

information to help focus on-site supervisory examination efforts by

facilitating off-site monitoring of banks' regulatory capital

calculations and regulatory capital trends, and to facilitate peer

comparisons of capital and capital risk estimation parameters.

Reporting of Credit Risk by Fixed Supervisory Bands

For the wholesale and retail credit portfolios (Schedules C through

O), aggregated information is reported at the level of fixed

supervisory PD bands as defined within the reporting proposal. The

agencies received a number of comments on the use of supervisory PD

bands for purposes of aggregating information in the wholesale and

retail schedules (question 2 of the reporting proposal). Most

commenters indicated such aggregations would impose reporting burdens

over an alternative approach discussed in the reporting proposal that

would have allowed banks to report information by internal loan grades

and internal segments. One commenter indicated indifference to the two

reporting approaches for wholesale exposures. However, this latter

commenter indicated that reporting of retail exposures by fixed PD

bands would be more practical since reporting by internal segments

could be unwieldy, given the large number of possible segments and

segmentation schemes within a given bank, and would reduce, if not

eliminate, comparability. One commenter supported reporting by fixed PD

band and suggested that reporting burdens could actually increase to

achieve comparability under the alternative approach.

The agencies have considered these comments and have decided to

retain reporting by fixed supervisory PD bands as presented in the

reporting proposal. While the agencies acknowledge some incremental

reporting burden related to this approach, the agencies believe this

reporting format achieves the desired objective of facilitating peer

comparisons of risk-weighted asset and risk parameter estimation

information. Moreover, the agencies believe that the alternative

approach could introduce incremental reporting burdens over the adopted

approach given the need to develop rules for combining and aggregating

the large number of possible segmentation schemes used by banks.

Lookback Portfolio Reporting

The agencies also received many comments opposing the data

collection alternative presented in question 1 of the reporting

proposal. This alternative involved collecting additional information

to help identify causes of changes in credit risk regulatory capital

requirements (the lookback portfolio proposal). Commenters were

strongly opposed to this alternative, citing significant additional

reporting burdens and concerns about the lack of specificity of the

alternative. Many of these same commenters indicated that changes in

regulatory capital could be better and more efficiently identified

through alternative processes such as on-site reviews. After

considering these comments, the agencies have decided at this time not

to require submissions of the additional information suggested by this

alternative lookback reporting proposal.

The agencies continue to see merit in being able to identify

whether changes in a bank's assessment of risk are due to changes in

the mix of exposures held or due to changes in risk assessments. As a

result, the agencies intend to publish a proposal for comment that

would facilitate such analyses. This notice would identify safety and

soundness issues that could be addressed by additional data items

contained in the proposal as well as other alternatives beyond a formal

reporting process for obtaining this information. Comments received on

this proposal will directly influence the agencies' decision whether to

collect additional information beyond what is contained in the

reporting requirements contained in this notice.

Wholesale Exposures

Data reported in Schedules C through J include information about

the risk-weighted assets, balance sheet exposures, number of obligors,

and main components or aggregated risk parameter estimates of the risk-

based capital calculation for wholesale credit exposures. Each schedule

represents a sub-portfolio of the wholesale exposure category and each

portfolio corresponds to a data item on the summary Schedule B. The

wholesale sub-portfolios are as follows: Corporate (Schedule C); Bank

(Schedule D); Sovereign (Schedule E); Income Producing Real Estate or

``IPRE'' (Schedule F); High Volatility Commercial Real Estate or

``HVCRE'' (Schedule G); Eligible Margin Loans, Repo-Style Transactions,

and OTC Derivatives with Cross-product Netting (Schedule H); Eligible

Margin Loans and Repo-Style Transactions without Cross-product Netting

(Schedule I); and OTC Derivatives without Cross-product Netting

(Schedule J). As discussed above, exposures reported in these schedules

are to be grouped into more detailed sub-portfolio segments using the

fixed supervisory PD bands.

Several commenters raised concerns about the reporting proposal's

requirement to calculate and disclose the impact of guarantees and

credit derivatives on risk-weighted assets for wholesale exposures.

These commenters indicated that such a requirement would impose

significant burden on

[[Page 4226]]

institutions whose current practice is not to maintain separate risk

information for obligors and guarantors on certain exposures. Some of

these commenters suggested an alternative reporting approach that would

require reporting of the EAD amounts associated with exposures where

risk is mitigated by guarantees or credit derivatives.

The agencies have considered these comments and note that similar

concerns were raised with respect to the application of the

substitution approach described in the agencies' proposed rule. For

reporting, the agencies have revised the reporting instructions

relating to credit risk mitigation to conform to the final rule.

Specifically, banks need not calculate and report the impact of

guarantees and credit derivatives on risk-weighted assets where a bank

extends credit based solely on the financial strength of a guarantor,

provided the bank applies the PD substitution approach to all exposures

of that obligor. The agencies believe that this modification to the

reporting instructions should alleviate much of the concern expressed

in the comments since reporting the effects of credit risk mitigation

on risk-weighted assets would be required only in those situations

where the bank is required by the final rule to maintain separate

internal risk ratings for a wholesale obligor and the guarantor or

credit provider under a credit derivative. The agencies note that

reporting under the double default approach is not affected by this

modification since separate internal risk ratings are a necessary

requirement to calculate regulatory risk-based capital using this

approach. In those cases where it is feasible to do so, the agencies

are retaining the approach contained in the reporting proposal to

require institutions to report the impact of credit risk mitigation on

risk-weighted assets rather than adopt the suggestion made in some

comments to report the EAD related to exposures eligible for the

substitution, LGD adjustment, or double default approaches.

One commenter also questioned the need for a separate column for

the weighted average LGD percentage before consideration of guarantees

and credit derivatives, arguing that banks have little incentive to use

the LGD adjustment approach since adjustment is subject to a floor

based on the PD substitution approach (i.e., the risk-based capital

requirement for a hedged exposure can never be lower than that of a

direct exposure to the protection provider). Notwithstanding any

disincentives to using the LGD adjustment approach, banks subject to

the advanced approaches have the option of using this approach to

reduce capital requirements against hedged wholesale exposures.

Therefore, the agencies have decided to retain these columns in the

wholesale schedules. The agencies intend to reevaluate the need for

this information in light of actual submissions.

The agencies received the following technical comments relating to

data to be reported in Schedules C through J:

Two commenters indicated possible confusion in Schedule E

of where to reflect the impact of sovereign guarantees since such

guarantees often are used to reduce corporate exposures, not sovereign

exposures. These commenters noted that the confusion could be

eliminated by adopting a recommendation to report the EAD of exposures

eligible for the substitution, LGD adjustment, or double default

approaches. In response, the agencies have modified the reporting

instructions to indicate that while banks should generally use the

underlying obligor as the basis for categorizing wholesale credit

exposures, the categorization of wholesale exposures may be determined

by the guarantor in cases where a PD is not assigned to the obligor;

One commenter sought clarification of the term ``Number of

Obligors'' listed as a column in Schedules C through G under the

following scenarios: (i) When a bank has multiple facilities

outstanding to one borrower; (ii) when a bank lends to both a

subsidiary and to a parent of that same facility; and (iii) when a bank

has two exposures to an obligor, one with no guarantee and the other

with a guarantee. The agencies note that similar comments were received

with respect to the internal risk rating assignment process described

in the proposed rule and that a formal definition for obligor was

adopted in the final rule as a result. For reporting purposes, banks

should apply this same definition when determining how to quantify the

number of obligors to report in Schedules C through G; \4\

---------------------------------------------------------------------------

\4\ The final rule defines an obligor as the legal entity or

natural person contractually obligated on a wholesale exposure

except that a bank may treat the following exposures as having

separate obligors: (1) Exposures to the same legal entity or natural

person denominated in different currencies; (2)(i) an income-

producing real estate exposure for which all or substantially all of

the repayment of the exposure is reliant on cash flows of the real

estate serving as collateral for the exposure; the bank, in economic

substance, does not have recourse to the borrower beyond the real

estate serving as collateral; and no cross-default or cross-

acceleration clauses are in place other than clauses obtained solely

out of an abundance of caution; and (ii) other credit exposures to

the same legal entity; and (3)(i) a wholesale exposure authorized

under section 364 of the U.S. Bankruptcy Code (11 U.S.C. 364) to a

legal entity or natural person who is a debtor-in-possession for

purposes of Chapter 11 of the Bankruptcy Code; and (ii) other credit

exposures to the same legal entity or natural person.

---------------------------------------------------------------------------

One commenter sought clarification that exposures reported

in the new Schedules I and J include transactions not subject to cross-

product netting but may be subject to single-product netting. The

agencies confirm this interpretation; and

One commenter indicated that the PD ranges for the

reporting of eligible margin loans, repo-style transactions, and OTC

derivatives (new Schedules H through J) should be consistent with the

PD ranges contained in other wholesale schedules. The agencies believe

that the different PD ranges for exposures in these schedules, which

contain a larger number of lower-risk PD bands, will likely result in

more meaningful reported distributions of exposures across the credit

quality spectrum for these sub-portfolios. Accordingly, the agencies

have decided to retain the PD bands as proposed. However, to capture a

larger range of low-risk exposures and achieve better comparability

across exposure categories, the agencies have also decided to widen one

of the PD bands and align the end points of two PD bands with those in

other wholesale credit schedules. Specifically, the PD band for line 2

on these schedules was widened to 0.03 to 0.10 (from 0.03 to 0.05 in

the reporting proposal); and the PD bands for lines 3 and 4 were

changed to 0.10 to 0.15 and 0.15 to 0.25, respectively (from 0.05 to

0.10 and 0.10 to 0.25, respectively).

The agencies made two additional clarifications in the instructions

to the wholesale exposure Schedules C through J to conform reporting to

the final rule. Both of these clarifications relate to the basis for

assigning exposures to the fixed supervisory PD bands specified within

each wholesale exposure schedule. Generally, these assignments should

be based on the PD estimates associated with the internal loan rating

assigned to the obligor. However, consistent with the final rule, an

exception is made in cases where the bank extends credit based solely

on the financial strength of the guarantor provided that all of the

bank's exposures to an obligor are fully covered by eligible guarantees

and the bank applies the PD substitution approach to all of those

exposures. In these cases, banks may use the PD estimate associated

with the internal loan grade assigned to the guarantor for purposes of

assigning exposures to a given fixed supervisory PD band. Another

exception is made for eligible purchased wholesale exposures

[[Page 4227]]

(as defined in the final rule). For these exposures, banks should use

segment-level risk estimates for purposes of assigning exposures to a

given fixed supervisory PD band.\5\ This treatment is consistent with

paragraph (d)(4) of section 31 of the final rule.

---------------------------------------------------------------------------

\5\ Reporting of other risk parameters (LGD, EAD, M, and ECL)

for eligible purchased wholesale exposures should also be done on a

segment-level basis.

---------------------------------------------------------------------------

The agencies made the following additional modifications to

Schedules H, I, and J: (1) To conform reporting to the final rule, the

agencies added a data item 13 to columns C and E in Schedules H and I

to capture the EAD and risk-weighted asset amounts associated with

eligible margin loans subject to a 300 percent risk weight, (2) data

items for reporting the number of counterparties were eliminated from

all three schedules, and (3) certain captions and footnotes were

modified for clarity and to conform to the terminology used in the

final rule.

Retail Exposures

Data reported in Schedules K through O include information about

the risk-weighted assets, balance sheet exposures, the number of

accounts, and the main components or risk parameters of the risk-based

capital calculation for retail credit exposures. These schedules also

incorporate information pertaining to risk characteristics believed to

be commonly used drivers within banks' risk management and measurement

processes, to include information on loan-to-values, credit bureau

scores, and account seasoning. Each schedule represents a sub-portfolio

of the retail exposure category and each portfolio corresponds to a

data item on the public Schedule B. These retail sub-portfolios are as

follows: Residential Mortgage--Closed-end First Lien Exposures

(Schedule K); Residential Mortgage--Closed-end Junior Lien Exposures

(Schedule L); Residential Mortgage--Revolving Exposures (Schedule M);

Qualifying Revolving Exposures (Schedule N); and Other Retail Exposures

(Schedule O). As with the wholesale credit schedules, exposures

reported in these schedules are to be grouped into more detailed sub-

portfolio segments using the fixed supervisory PD bands.

Many commenters objected to the inclusion of information pertaining

to loan-to-values (LTV) and EAD of accounts with updated LTVs for

mortgage exposures. These commenters indicated in general that this

risk driver information was not necessary for determination of risk-

based capital requirements, is not always used in a bank's segmentation

processes, and is not always readily available and therefore

potentially burdensome to collect (particularly information pertaining

to updated LTVs). The agencies note that the instructions accompanying

the reporting proposal required reporting of LTV-related information

only to the extent the information is available. The agencies continue

to believe that LTV is likely to be an important risk driver for

mortgage exposures and will be used by many institutions in the

mortgage segmentation process. Several commenters also questioned the

collection of weighted average bureau scores, and the names and types

of credit scoring systems used, for retail exposures. These commenters

indicated in general that this risk driver information was not

necessary for determination of risk-based capital requirements, is not

always used in a bank's segmentation processes, and may not be

meaningful for banks that use internal scores or behavioral scores in

their risk measurement and segmentation processes. Some commenters also

indicated that some scoring systems (for example, non-U.S. scores)

would not align with each other, making the calculation of weighted

averages either incomplete or potentially misleading. The agencies note

that the instructions accompanying the reporting proposal required

reporting of credit bureau score information only to the extent the

information is available, and only for commonly-mapped scoring systems

used for the largest proportion of exposures in a sub-portfolio when

multiple scoring systems are used. The agencies continue to believe

that credit bureau scores are likely to be an important risk driver for

many types of retail exposures and will be used by many institutions in

their retail segmentation processes.

Some commenters also raised concerns about reporting the age of

mortgage exposures. These commenters indicated that this information is

not always used to segment mortgage loan exposures and that there could

be a number of possible ways to interpret the term ``average age'' used

to calculate the weighted average age of a mortgage exposure depending

on whether the loan was originated or purchased. These commenters

indicated that it would be significantly burdensome to determine months

since origination for purchased loans and sought confirmation that the

number of months on books could be used instead. The agencies believe

that loan seasoning is likely to be an important risk driver for many

types of retail exposures, especially for closed-end mortgage

exposures. Accordingly, for closed-end mortgages, the agencies are

retaining the definition of account age, which requires that banks

determine the age of an account (in months) with respect to the

account's origination date. For revolving exposures, the agencies agree

that account age (in months) should be determined with respect to the

time on the bank's books. For all other retail exposures, the agencies

will allow banks the flexibility to determine the age of an account

using a reference point deemed most logical by the reporting bank.

The agencies received the following technical comments relating to

data to be reported in Schedules K through O:

Two commenters indicated that it was not a common practice

to include both junior and senior lien positions in the calculation of

LTVs when only the senior lien position was held. These comments

recommended that only senior lien positions be included in the

calculation for first lien exposures. The agencies agree with this

comment and have revised the footnotes and instructions for first lien

mortgage exposures accordingly;

A commenter sought confirmation that LTV cell values do

not cumulate across the columns. The agencies confirm that the LTV cell

values do not cumulate across the columns and have reworded the

appropriate footnotes in the mortgage schedules; and

A commenter indicated that if LTV reporting is retained,

an additional column should be added to encompass exposures where the

LTV is unknown. Since the reporting of LTV information is required only

when the information is available, the agencies do not believe it is

necessary to collect information pertaining to exposures with unknown

LTVs.

After further consideration, the agencies have made an additional

modification to the retail credit risk schedules to eliminate all

columns requiring the reporting of weighted average LGD before

consideration of eligible guarantees and credit derivatives. The

agencies believe that the quantification of this data item could have

imposed an excessive burden on banks since it would have required

disentangling the effect of credit risk mitigation on LGDs assigned to

a retail segment. Accordingly, the LGD estimates reflected in all

retail credit exposure schedules should be inclusive of any credit risk

mitigation effects.

[[Page 4228]]

Securitization Exposures

Schedule P provides information by rating categories about

exposures subject to either the Ratings-Based Approach (RBA) or the

Internal Assessment Approach (IAA). Schedule Q provides additional

memoranda information about unrated securitization exposures, exposures

treated under the Supervisory Formula Approach (SFA), synthetic

securitizations, and risk-weighted assets relating to early

amortization features of securitizations as prescribed in the final

rule.

The agencies did not receive any substantive comments on the

securitization exposure schedules but did receive the following

technical comments:

One commenter requested clarification on how to report

long-term securitization exposures rated more than one category below

investment grade, and short-term securitization exposures rated below

the third highest grade. The agencies have clarified reporting

instructions to indicate that such exposures are not to be reported in

Schedule P. These low-rated exposures are to be included in the

appropriate data items of Schedule A (lines 9f and 17c);

One commenter requested clarification about the possible

inconsistency of reporting between data items 1 and 2 on the

securitization detail schedule (new Schedule Q) and data item 5 of

schedule for securitization exposures subject to either the RBA or IAA

(Schedule P). As described below, the agencies have made a number of

modifications to the securitization detail schedule to improve the

consistency and logical flow of the schedule as well as to conform

reported data items and captions with the final rule; and

Multiple comments were received about the burdens

associated with calculating the risk-weighted assets for securitization

exposures not capped under section 42(d) of the final rule (data item

6b of Schedule T in the reporting proposal). The agencies have removed

this data item from the new Schedule Q.

The following additional modifications were made to the

securitization detail schedule (new schedule Q) to more comprehensively

capture securitization deductions specified in the final rule and to

consolidate certain data items on the schedule: (1) Data item 1 was

added to require reporting of deductions under the RBA and IAA

approaches; (2) proposed data item 1, ``unrated exposures requiring

deduction because no IRB treatment for the underlying exposures,'' was

replaced by data item 2, requiring reporting of all other

securitization deductions; (3) proposed data item 2, deductions under

the SFA, was consolidated with proposed data item 3 requiring reporting

of exposures and risk-weighted assets for this approach (see data item

3); (4) reporting of exposures and risk-weighted assets of synthetic

exposures and hedged synthetic exposures on proposed data items 4 and 5

were consolidated into one line (see data item 4); and (5) the captions

for proposed data items 7 and 8, relating to investors' interest in

securitization, were modified to conform to the terminology used in the

final rule.

Equity Exposures

Data reported in Schedule R contains exposure amount and risk-

weighted asset information about a bank's equity exposures by type of

exposure and by approach to measuring required capital including equity

exposures subject to specific risk weights and equity exposures to

investment funds. Banks would also complete the appropriate section of

the schedule based on whether it uses a simple risk weight approach, a

full internal models approach, or a partially modeled approach to

measuring required capital for equity exposures.

The agencies received the following technical comments on the

equity risk schedule:

Two commenters indicated that the flow of the schedule's

sections was confusing and recommended that the schedule be redesigned.

These commenters also requested clarification of reporting for certain

data items such as equity investments in investment funds that have

material liabilities. In response, the agencies have modified the

equity schedule to more closely align with the structure and flow of

the equity risk capital calculation approaches contained in the final

rule. The agencies have also developed more specific reporting

instructions and modified captions of reported data items to conform

with the terminology used in the final rule. With respect to the

treatment of equity investments in investment funds with material

liabilities, the agencies refer to the discussion of such investments

in section V.F.4 in the preamble of the final rule.

The agencies made several additional modifications to the equity

schedule to simplify reporting and conform data items within the

schedule to the final rule. These changes include the following: (i)

The elimination of proposed data items 7 and 8, for ``excluded equity

exposures to investment funds'' and ``aggregate equity exposures in

hedge pairs with smaller adjusted carrying value;'' (ii) the

elimination of reporting for the 100 percent risk-weight category for

FHLB/Farmer Mac exposures proposed data item 4 (such exposures are risk

weighted at 20 percent under the final rule); (iii) the addition of

data item 9, ``600 percent risk weight equity exposures under the

Simple Risk Weighted Approach (SRWA)'' to conform with the final rule;

(iv) the addition of data item 14 for reporting exposures to investment

funds eligible for treatment under the Money Market Fund Approach

defined within the final rule; and (v) splitting proposed data items

13, 18, and 22 to better conform with the logical flow of the

calculation of risk-weighted assets for equity exposures under the

final rule using one of three different approaches: the SRWA, the full

Internal Models Approach (IMA), or the partial IMA.

Operational Risk

The new Schedule S provides data items pertaining to risk-based

capital held against operational risk as well as various details about

historical operational losses used to model operational risk capital.

The schedule also contains data items related to scenarios,

distribution assumptions, and loss caps used to model operational risk

capital.

The agencies received several comments objecting to quarterly

disclosures of certain data contained in the proposed operational risk

schedule, particularly those disclosures pertaining to the disclosure

of historical loss event frequency and severity information. These

commenters indicated that such disclosures were contrary to the

principles outlined in the Basel Committee's New Accord and represented

only a portion of information that is used to develop regulatory

capital for operational risk. After considering these comments, the

agencies have made several modifications to the reporting requirements

for operational risk data items that includes the elimination of

certain data items (i.e., the reporting of current period loss

distribution information) and the inclusion of conditional reporting

for a number of data items depending on whether a bank uses a given

technique (e.g., historical loss distributions or scenario analyses) or

parameterization assumption (e.g., loss threshold) to develop

regulatory capital requirements for operational risk. In cases where

these techniques or

[[Page 4229]]

assumptions are not used, banks would report either ``N/A'' or ``0''

(none) for these data items, as discussed in the instructions.

Several commenters also raised a question about which specific

subsidiaries the operational risk disclosures would apply to. The

agencies believe that all banking subsidiaries that qualify for and

adopt the advanced approaches for calculating regulatory capital should

be required to submit information about the regulatory capital held

against operational risk capital to include certain details about the

information used to model operational risk capital. In those situations

where a banking subsidiary does not use a specified technique or

assumption, it will be allowed to report either ``N/A'' or ``0''

depending on the context of the reported data item.

The agencies received the following technical comments on the

operational risk schedule:

Several commenters requested clarification whether column

B in the proposed operational risk reporting schedule refers to the

quarterly reporting period for the schedule or for a model that may be

annual. The agencies have decided to eliminate column B from the

schedule;

Several commenters requested clarification on how to

report starting and ending dates for event loss data when these dates

differ for frequency and for severity estimation purposes. The agencies

have revised the schedule to request starting and ending dates for both

historical frequency and severity distribution data, and only to the

extent a bank uses this information to model operational risk capital

(see data items 8a through 8d);

Several commenters requested clarification of how to

report loss thresholds in data item 9 of the schedule when multiple

thresholds are used within the modeling framework. The agencies have

clarified the instructions to require reporting of the largest

threshold used;

Several commenters requested clarification of how to

report the number and dollar amount of individual loss events in data

items 11 through 15 of the schedule when losses below internal

thresholds are aggregated without capturing the number of individual

events. Another commenter also requested that banks be allowed to

report losses on an event basis rather than a dollar volume basis and

that banks be allowed to report such information on a one quarter

lagged basis. The agencies have clarified the instructions to specify

that a loss event may encompass multiple loss transactions as long as

they are all related to the same event. However, losses that do not

relate to the same event should be considered separate loss events and

should be separately counted for purposes of reporting data items 11

through 15. The instructions have also been clarified to state that

reporting of the dollar volume of losses in data item 15 should be

calculated on an event basis. In addition, data item 14a for loss

events ``less than $10,000'' and data item 15a for the dollar amount of

losses ``Less than $10,000'' have been added to provide a comprehensive

distribution of loss events. The agencies have eliminated the

requirement to report loss event information pertaining to the

``current reporting period'' and therefore see no need to allow banks

to report remaining loss event information on a one quarter lagged

basis;

Two commenters requested confirmation that information

pertaining to the number of scenarios used to model operational risk

capital on data items 16 through 18 referred to the number of relevant

industry events. The agencies have clarified the reporting instructions

to state that only scenarios used in calculating the risk-based capital

requirements for operational risk should be included in these data

items. In addition, data item 18a, for scenario analysis in the range

of ``less than $1 million'' was added in order to provide a

comprehensive distribution of scenario data;

Several commenters requested clarification of information

pertaining to distributional assumptions in data items 20 and 21 as to

whether the change in assumptions refers to a change in a parameter of

a distribution or a change in the distribution class or type. The

agencies have clarified the instructions to specify that the change in

assumptions refers to a change in distribution type. Further, no

reporting is required when the bank does not use a frequency or

severity distribution to model risk-based capital for operational risk;

and

Several commenters requested confirmation that the

agencies would accept ``not applicable'' in response to the loss cap

information requested in data items 22 through 24 when a bank does not

use loss caps. The agencies have clarified the instructions to report

the number ``0'' on line 22 and ``N/A'' in lines 23 and 24 when no loss

caps are used.

V. Request for Comment

Public comment is requested on all aspects of this joint notice.

Comments are invited on:

(a) Whether the proposed new 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

proposed information collections, 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 joint notice will be shared

among the agencies. All comments will become a matter of public record.

Dated: January 10, 2008.

Stuart E. Feldstein,

Assistant Director, Legislative and Regulatory Activities Division,

Office of the Comptroller of the Currency.

Board of Governors of the Federal Reserve System, January 17,

2008.

Robert deV. Frierson,

Deputy Secretary of the Board.

Dated at Washington, DC, this 14th day of January, 2008.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

Dated: January 17, 2008.

Deborah Dakin,

Senior Deputy Chief Counsel, Regulations and Legislation Division, The

Office of Thrift Supervision.

[FR Doc. E8-1198 Filed 1-23-08; 8:45 am]

BILLING CODE 4810-33-P