[Federal Register: November 8, 2002 (Volume 67, Number 217)]
[Notices]
[Page 68229-68238]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08no02-155]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
Proposed Agency Information Collection Activities; Comment
Request
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve
[[Page 68230]]
System (Board); and Federal Deposit Insurance Corporation (FDIC).
ACTION: Joint notice and request for comment.
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SUMMARY: In accordance with the requirements of the Paperwork Reduction
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC
(the ``agencies'') may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently valid Office of Management and Budget (OMB)
control number. The Federal Financial Institutions Examination Council
(FFIEC), of which the agencies are members, has approved the agencies'
publication for public comment of proposed revisions to the
Consolidated Reports of Condition and Income (Call Report), which are
currently approved collections of information. At the end of the
comment period, the comments and recommendations received will be
analyzed to determine the extent to which the FFIEC should modify the
proposed revisions prior to giving its final approval. The agencies
will then submit the revisions to OMB for review and approval.
DATES: Comments must be submitted on or before January 7, 2003.
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: Comments should be sent to the Public Information Room, Office
of the Comptroller of the Currency, Mailstop 1-5, Attention: 1557-0081,
250 E Street, SW., Washington, DC 20219. Due to disruptions in the
OCC's mail service since September 11, 2001, commenters are encouraged
to submit comments by fax or e-mail. Comments may be sent by fax to
(202) 874-4448, or by e-mail to regs.comments@occ.treas.gov. You can
inspect and photocopy the comments at the OCC's Public Information
Room, 250 E Street, SW., Washington, DC 20219. You can make an
appointment to inspect the comments by calling (202) 874-5043.
Board: Written comments, which should refer to ``Consolidated
Reports of Condition and Income, 7100-0036,'' may be mailed to Ms.
Jennifer J. Johnson, Secretary, Board of Governors of the Federal
Reserve System, 20th and C Streets, NW., Washington, DC 20551. Due to
temporary disruptions in the Board's mail service, commenters are
encouraged to submit comments by electronic mail to
regs.comments@federalreserve.gov, or by fax to the Office of the
Secretary at 202-452-3819 or 202-452-3102. Comments addressed to Ms.
Johnson also may be delivered to the Board's mailroom between 8:45 a.m.
and 5:15 p.m. weekdays, and to the security control room outside of
those hours. Both the mailroom and the security control room are
accessible from the Eccles Building courtyard entrance on 20th Street
between Constitution Avenue and C Street, NW. Comments received may be
inspected in room M-P-500 between 9 a.m. and 5 p.m. on weekdays
pursuant to sections 261.12 and 261.14 of the Board's Rules Regarding
Availability of Information, 12 CFR 261.12 and 261.14.
FDIC: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments/Legal, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. All
comments should refer to ``Consolidated Reports of Condition and
Income, 3064-0052.'' Commenters are encouraged to submit comments by
fax or electronic mail [Fax number: (202) 898-3838; Internet address:
comments@fdic.gov]. Comments also 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. Comments may be
inspected and photocopied in the FDIC Public Information Center, Room
100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m.
on business days.
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: Joseph F. Lackey, Jr., Office of Information
and Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, Washington, DC 20503 or electronic mail to
jlackeyj@omb.eop.gov.
FOR FURTHER INFORMATION CONTACT: Draft copies of the proposed revisions
to the Call Report forms may be requested from any of the agency
clearance officers whose names appear below.
OCC: Jessie Dunaway, OCC Clearance Officer, or Camille Dixon, (202)
874-5090, Legislative and Regulatory Activities Division, Office of the
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
Board: Cynthia M. Ayouch, Board Clearance Officer, (202) 452-2204,
Division of Research and Statistics, Board of Governors of the Federal
Reserve System, 20th and C Streets, NW., Washington, DC 20551.
Telecommunications Device for the Deaf (TDD) users may call (202) 263-
4869.
FDIC: Tamara R. Manly, Management Analyst (Regulatory Analysis),
(202) 898-7453, Legal Division, Federal Deposit Insurance Corporation,
550 17th Street NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: Proposal to revise the following currently
approved collections of information:
The effect of the proposed revisions in reporting requirements will
vary from bank to bank depending on (1) the bank's involvement with the
types of activities or transactions to which proposed new items relate,
(2) whether the bank has or has had more than one foreign office, and
(3) the number and type of edit exceptions the agencies' validation
process identifies in the bank's Call Report. The agencies estimate
that, on average for all 8,700 banks, each bank would need
approximately an additional 0.5 to 1.5 hours to complete its Call
Report each quarter if the revisions were implemented as proposed.
However, the proposed revisions may result in a significantly larger
increase in burden, perhaps as much as 40 hours, for about 40 banks,
including the very largest banks in the U.S. The following burden
estimates include the proposed revisions.
Report Title: Consolidated Reports of Condition and Income (Call
Report)
Form Number: FFIEC 031 (for banks with domestic and foreign
offices) and FFIEC 041 (for banks with domestic offices only).
Frequency of Response: Quarterly.
Affected Public: Business or other for-profit.
For OCC:
OMB Number: 1557-0081.
Estimated Number of Respondents: 2,200 national banks.
Estimated Time per Response: 43.29 burden hours.
Estimated Total Annual Burden: 381,000 burden hours.
For Board:
OMB Number: 7100-0036.
Estimated Number of Respondents: 978 state member banks.
Estimated Time per Response: 49.50 burden hours.
Estimated Total Annual Burden: 193,644 burden hours.
For FDIC:
OMB Number: 3064-0052.
Estimated Number of Respondents: 5,480 insured state nonmember
banks.
Estimated Time per Response: 33.91 burden hours.
Estimated Total Annual Burden: 743,393 burden hours.
The estimated time per response for the Call Report is an average,
which varies by agency because of differences in the composition of the
banks under each agency's supervision (e.g., size
[[Page 68231]]
distribution of institutions, types of activities in which they are
engaged, and number of banks with foreign offices). For the Call
Report, the time per response for a bank is estimated to range from 15
to 600 hours, depending on individual circumstances.
General Description of Reports
These information collections are mandatory: 12 U.S.C. 161 (for
national banks), 12 U.S.C. 324 (for state member banks), 12 U.S.C. 1817
(for insured state nonmember commercial and savings banks, and for all
banks for deposit information). Except for selected items, this
information collection is not given confidential treatment. Small
businesses (i.e., small banks) are affected.
Abstract
Banks file Call Reports with the agencies each quarter for the
agencies' use in monitoring the condition, performance, and risk
profile of reporting banks and the industry as a whole. In addition,
Call Reports provide the most current statistical data available for
evaluating bank corporate applications such as mergers, for identifying
areas of focus for both on-site and off-site examinations, and for
monetary and other public policy purposes. Call Reports are also used
to calculate all banks' deposit insurance and Financing Corporation
assessments and national banks' semiannual assessment fees.
Current Action
I. Overview
The agencies' request for comment addresses a number of different
types of changes to the Call Report requirements. These changes relate
to the content of the Call Report itself, the submission deadline for
certain banks, and the agencies' process for validating and releasing
the data that banks report. First, the agencies are proposing several
revisions to the content of the Call Report that are focused on
improving the information they collect from banks that engage in
certain specific activities. This focus means that the proposed new or
revised Call Report items that pertain to each of these activities will
be applicable to small percentages of banks rather than to most or all
banks. The agencies also would clarify an instruction and the scope of
one group of items. This first group of proposed revisions, which would
take effect as of March 31, 2003, include:
[sbull] adding five items dealing with accrued fees and finance charges
on credit card accounts, allowances for uncollectible accrued fees and
finance charges, and charge-offs of such accrued amounts, which would
be reported by banks with a significant volume of credit card activity;
[sbull] breaking down the existing item in the securitization schedule
(Schedule RC-S) for seller-provided credit enhancements to the bank's
securitization structures (other than credit-enhancing interest-only
strips) into separate items for those enhancements that are in the form
of on-balance sheet assets and those enhancements that are in some
other form;
[sbull] splitting the current income statement (Schedule RI) item for
income from insurance activities into separate items for insurance
underwriting income and income from other insurance activities;
[sbull] adding a yes/no question asking whether any of the bank's
Internet Web sites has transactional capability, i.e., allows the
bank's customers to execute transactions on their accounts;
[sbull] eliminating the exemption from disclosing the fair values of
derivative contracts for banks with less than $100 million in assets in
Schedule RC-L - Derivative and Off-Balance Sheet Items, because
accounting standards require derivatives to reported on the balance
sheet as assets or liabilities at fair value;
[sbull] changing the income statement (Schedule RI) item in which banks
report any provisions for allocated transfer risk, which also affects
the reconciliation of the allowance for loan and lease losses in
Schedule RI-B, part II, and a related disclosure in the explanations
schedule (Schedule RI-E);
[sbull] creating a supplement to the Call Report, in which the
agencies, in response to a future event giving rise to an immediate and
critical need for specific information, would be authorized to collect
a limited amount of data from certain banks;
[sbull] clarifying the instructions to describe the limited
circumstances in which loans may be reported as held for trading
purposes; and
[sbull] explaining on both the report form and in the instructions
that, for the Memorandum items in the insurance assessments schedule
(Schedule RC-O) on the number and amount of deposit accounts by size of
account, the dollar amount for the size of an account (currently
$100,000) represents the deposit insurance limit in effect on the
report date.
Second, the agencies are proposing to shorten the Call Report
submission deadline for certain banks with foreign offices so that the
same submission deadline applies to all banks. In general, banks with
more than one foreign office currently are permitted to take an
additional 15 days beyond the standard 30 days applicable to all other
banks for filing their Call Reports. The agencies are proposing a
reduction in the filing period to 30 days effective June 30, 2003, for
banks with more than one foreign office. In a related change, the
agencies are proposing to authorize the FDIC, in connection with its
responsibility to set insurance premium assessment rates semiannually,
to obtain certain deposit data from those banks with foreign offices
whose March 2003 Call Reports have not been filed within the standard
30-day filing period. The FDIC would contact these banks in early May
2003 and direct them to disclose to the agency the amounts then
available from their Call Report preparation process for two Call
Report items: total domestic office deposits and estimated uninsured
deposits.
Third, beginning perhaps as early as the March 31, 2003, Call
Reports, the agencies would begin to make individual bank Call Reports
available to the public on the FDIC's Web site as soon as the data
validation process for a bank's report had been completed. At present,
all of the Call Reports for a specific report date are released to the
public simultaneously some 60-75 days after the quarter-end report
date. Under this proposal, after the edit exceptions, if any, in an
individual bank's Call Report have been resolved and the analysis of
the report has been completed, the report will be made publicly
available. This will make individual bank data available to the public
on a more timely basis than at present.
Finally, the agencies' currently plan to implement a new business
model for collecting and validating Call Reports in March 2004. In
connection with the introduction of this new business model, the
agencies are proposing that a bank's Call Report must pass all validity
edits and must include an explanatory comment addressing each quality
edit exception identified in the bank's report in order for the
agencies to accept the bank's Call Report submission. Otherwise, the
bank's report will not be accepted and the bank will need to make
appropriate corrections to its report data, add any required
explanatory comments, and resubmit its data file by the submission
deadline.
Type of Review: Revision of a currently approved collection.
The proposed revisions to the Call Report have been approved for
publication by the FFIEC. Unless otherwise indicated, the agencies
would implement these proposed Call Report changes as of the March 31,
2003, report date. Nonetheless, as is customary for Call Report
changes, banks are advised that, for the March 31, 2003, report date
only, reasonable estimates may be provided for any new or revised item
[[Page 68232]]
taking effect as of that date for which the requested information is
not readily available. The specific wording of the captions for the new
and revised Call Report items discussed in this proposal and the
numbering of these items in the report forms should be regarded as
preliminary.
The agencies note that on July 12, 2002, they requested comment on
the addition of a proposed new Call Report schedule that would collect
data on consumer loans in subprime lending programs beginning March 31,
2003 (67 FR 46250). The agencies are currently reviewing the comments
received on this separate proposal.
II. Discussion of Proposed Revisions
A. Charge-offs of Accrued Fees and Finance Charges on Credit Card
Accounts
Many institutions engaged in credit card lending have adopted the
practice of ``purifying'' charge-offs for financial reporting purposes.
``Purification'' refers to the practice of reversing uncollectible
accrued fees and finance charges against earnings rather than
accounting for them as charge-offs against the allowance for loan and
lease losses. This practice obscures charge-off ratios (i.e., charge-
offs divided by loan balances) because the charged-off amount does not
include the accrued fees and finance charges while the aggregate loan
balance does include them. Thus, the transparency of financial reports
is diminished.
Further, the effect of this practice on credit card lending
institutions' financial statements has become more material as the
level of accrued but uncollected finance charges and fees have become
more significant during the past several years. Most if not all of the
accrued fees and finance charges reversed under the purification
practice are included in credit card loan balances, or in other words,
have been capitalized into the credit card loan balances.
The proposed additional Call Report items will collect information
on reversals of credit card fees and finance charges that are not
reported as charge-offs against the loan loss allowance. The proposed
additions will also collect information on the outstanding amount of
fees and finance charges included in credit card receivables and the
related allowance, whether it is a component of the allowance for loan
and lease losses or a separate contra-asset account. These new items
will cover both bank-owned portfolios and securitized portfolios of
credit cards. The five proposed items would be included as memorandum
items in Schedule RI-B, parts I and II, Schedule RC-C, part I, and
Schedule RC-S. Additionally, these proposed changes to the Call Report
include clarifications to the instructions for four items: Schedule RC-
S, items 1, 5.a, and 8, column C, and Schedule RI, item 1.a.(3)(a) on
the FFIEC 041 (item 1.a.(1)(d)(1) on the FFIEC 031). The proposed items
with their instructions and the instructional clarifications are
presented at the end of this section.
The proposed changes will improve financial reporting transparency
for losses on credit card accounts and permit Call Report users to
calculate loss rates for credit card loan receivables that are
comparable across credit card lending institutions. Users of Call
Report data will have more complete loss information relating to credit
card fees and finance charges that are written off as uncollectible.
Furthermore, the changes will provide better information regarding the
composition of and level of credit risk in credit card loan receivables
that the institution manages both for its own account and in
securitizations. The items regarding outstanding credit card fees and
finance charges will provide useful information to facilitate the
agencies' supervision of credit card lending activities.
The proposed new items would be completed only by those banks that:
(1) either individually or on a combined basis with their affiliated
depository institutions, report outstanding credit card receivables
that exceed, in the aggregate, $500 million as of the report date.
Outstanding credit card receivables will be measured as the sum of
Schedule RC-C, part I, item 6.a (column B on the FFIEC 041, column A on
the FFIEC 031); Schedule RC-S, item 1, column C; and Schedule RC-S,
item 6.a, column C. (Include comparable data on managed credit card
receivables for any affiliated savings association.) or
(2) are credit card specialty banks as defined for purposes of the
Uniform Bank Performance Report (UBPR). According to the UBPR Users
Guide, credit card specialty banks are currently defined as those that
exceed 50% for the following two criteria:
(a) Credit Cards plus Securitized and Sold Credit Cards divided by
Total Loans plus Securitized and Sold Credit Cards.
(b) Total Loans plus Securitized and Sold Credit Cards divided by
Total Assets plus Securitized and Sold Credit Cards.
Based on these reporting criteria, the agencies estimate that fewer
than 100 banks will be subject to this proposed new reporting
requirement.
The proposed new items, with their instructions, are as follows:
(1) Schedule RI-B, part I, Memorandum item 4, ``Uncollectible credit
card fees and finance charges reversed against income (i.e., not
included in charge-offs against the allowance for loan and lease
losses).'' Report the amount of credit card fees and finance charges
that the bank reversed against either interest and fee income or a
separate contra-asset account during the calendar year-to-date. Exclude
from this item credit card fees and finance charges reported as charge-
offs against the allowance for loan and lease losses in Schedule RI-B,
part I, item 5.a, column A.
(2) Schedule RI-B, part II, Memorandum item 1, ``Separate valuation
allowance for uncollectible credit card fees and finance charges.''
Report the amount of any valuation allowance or contra-asset account
that the bank maintains separate from the allowance for loan and lease
losses to account for uncollectible credit card fees and finance
charges. Because this amount is separate from the amount included in
Schedule RC, item 4.c, and Schedule RI-B, part II, item 7, this
Memorandum item is only applicable for those banks that maintain an
allowance or contra-asset account separate from the allowance for loan
and lease losses.
(3) Schedule RI-B, part II, Memorandum item 2, ``Amount of allowance
for loan and lease losses attributable to credit card fees and finance
charges.'' Report in this item the amount of the allowance for loan and
lease losses that is attributable to outstanding credit card fees and
finance charges. This amount should have been included within the
amount reported in Schedule RC, item 4.c, and Schedule RI-B, part II,
item 7.
(4) Schedule RC-C, part I, Memorandum item 6, ``Outstanding credit card
fees and finance charges.'' Report the amount of fees and finance
charges included in the amount of credit card receivables reported in
Schedule RC-C, part I, item 6.a (column A on the FFIEC 031; column B on
the FFIEC 041).
(5) Schedule RC-S, Memorandum item 4, ``Outstanding credit card fees
and finance charges.'' Report the amount of fees and finance charges
included in the credit card receivables that the bank has reported as
securitized and sold in Schedule RC-S, item 1, column C.
As proposed, these five new items would be added to four separate
schedules. However, as indicated above, the agencies will collect this
information from a limited number of banks, i.e., banks with a
significant volume of credit card lending. The agencies therefore
request comment on whether it would be preferable to group these items
together in a separate Call Report schedule that would be
[[Page 68233]]
completed only by these credit card banks rather than having the five
items appear at scattered locations in the Call Report.
The proposed clarifications to existing instructions are as
follows:
(1) Schedule RI, item 1.a.(3)(a) on the FFIEC 041, item 1.a.(1)(d)(1)
on the FFIEC 031, ``Interest and fee income on credit cards.'' The
following sentence would be added to the instructions for this item:
Include in this item, as a reduction of income, the amount of
uncollectible credit card fees and finance charges the bank has
reversed against interest and fee income and the amount charged to
earnings for additions to any contra-asset account for uncollectible
credit card fees and finance charges that the bank maintains and
reports separately from its allowance for loan and lease losses.
(2) Schedule RC-S, item 1, ``Outstanding principal balance of assets
sold and securitized by the reporting bank with servicing retained or
with recourse or other seller-provided credit enhancements.'' The
following sentence would be added to the instructions for this item:
For credit card receivables, include in column C any fees and finance
charges capitalized into the credit card receivable balances that the
reporting bank has securitized and sold.
(3) Schedule RC-S, item 5.a, ``Charge-offs'' [on assets sold and
securitized with servicing retained or with recourse or other seller-
provided credit enhancements (calendar year-to-date)]. The following
sentence would be added to the instructions for this item: Include in
column C charge-offs or reversals of uncollectible credit card fees and
finance charges that had been capitalized into the credit card
receivable balances that have been securitized and sold.
(4) Schedule RC-S, item 8.a, ``Charge-offs'' [on loan amounts included
in interests reported as securities in item 6.a (calendar year-to-
date)]. The following sentence would be added to the instructions for
this item: Include in column C the amount of credit card fees and
finance charges written off as uncollectible that were attributable to
the credit card receivables included in ownership interests reported as
securities in item 6.a, column C.
B. Breakdown of Seller-provided Credit Enhancements to the Bank's
Securitization Structures
Banks currently report the maximum amount of credit exposure from
seller-provided credit enhancements to securitization structures (other
than credit-enhancing interest-only strips, which are reported
separately) in Schedule RC-S, item 2.b. These credit enhancements
include both on-balance sheet assets (such as subordinated securities,
spread accounts, and cash collateral accounts) and enhancements that
are not assets (such as recourse liabilities and standby letters of
credit). When credit enhancements are in the form of assets, credit
losses on the securitized loans result in reduced cash inflows to the
asset holder. In contrast, when seller-provided credit enhancements
take some other form, cash outflows from the seller are required to
cover credit losses on the securitized loans. In addition, under the
agencies' risk-based capital standards that were revised as of January
1, 2002, seller-provided credit enhancements that are on-balance sheet
assets are ``residual interests'' subject to a dollar-for-dollar
capital charge unless they qualify for the ratings-based approach. The
capital charge for enhancements that are not assets generally is capped
at 8 percent of the assets enhanced.
To distinguish between the amount of a bank's seller-provided
credit enhancements that are on-balance sheet assets (other than
credit-enhancing interest-only strips) and those that are not, item 2.b
would be split into two items. This proposed revision will enable the
agencies to better understand the types of credit support that banks
are providing to their securitizations, including which types are
typically used for different types of securitized loans. In revised
item 2.b, banks would disclose the carrying value of ``Subordinated
securities and other residual interests'' carried as on-balance sheet
assets that have been retained in connection with the securitization
structures reported in Schedule RC-S, item 1. In new item 2.c,
``Standby letters of credit and other enhancements,'' banks would
disclose the unused portion of standby letters of credit and the
maximum contractual amount of recourse or other credit exposure not in
the form of an on-balance sheet asset that have been provided or
retained in connection with the securitization structures reported in
Schedule RC-S, item 1.
C. Income from Insurance Activities
In Schedule RI, item 5.h, ``Insurance commissions and fees,'' banks
report their income from insurance and reinsurance underwriting, sales
of insurance and annuities, insurance agency and brokerage operations,
and management fees for insurance products. The risks arising from
insurance and reinsurance underwriting are significantly different from
those arising from other insurance activities. Given this distinction
in risk, the agencies are proposing to split the current single income
statement item for insurance-related income into two items so that
underwriting income can be separately identified. This will enable the
agencies to more clearly identify institutions engaged in underwriting
and to better monitor the results of these underwriting activities.
In new item 5.h.(1), ``Insurance and reinsurance underwriting
income,'' banks would report all income from insurance and reinsurance
underwriting, including the amount of premiums earned by property-
casualty insurers and the amount of premiums written by life and health
insurers. This item would also include the bank's proportionate share
of the income or loss before extraordinary items and other adjustments
from its investments in equity method investees that are principally
engaged in insurance and reinsurance underwriting.
In new item 5.h.(2), ``Income from other insurance and reinsurance
activities,'' banks would report income from insurance agency and
brokerage operations (including sales of annuities and supplemental
contracts); service charges, commissions, and fees from the sale of
insurance (including credit life insurance), reinsurance, and
annuities; and management fees from separate accounts, deferred
annuities, and universal life products. This item would also include
the bank's proportionate share of the income or loss before
extraordinary items and other adjustments from its investments in
equity method investees that are principally engaged insurance
activities other than insurance underwriting.
The agencies request comment on whether the instructional language
in the two preceding paragraphs clearly describes insurance activities,
including underwriting, and the types of income to be reported in each
item.
D. Transactional Capability of Bank Web Sites
An increasing number of banks' Internet Web sites allow customers
to execute transactions on their accounts at the bank. These
transactional Web sites present greater security risks to a bank than
sites that provide only information to customers and the public. For
examination planning and risk scoping purposes and to monitor industry
trends in this area, the agencies are proposing to add a yes/no
question to the Call Report (as new item 8 of Schedule RC-M) asking
``Do any of the bank's Internet Web sites have transactional
capability, i.e., allow the bank's customers to execute transactions on
their accounts through the Web site.''
E. Disclosure of the Fair Value of Derivative Contracts
[[Page 68234]]
Schedule RC-L, item 15, collects data on the fair values of
derivatives, with gross positive and negative fair values reported
separately by type of exposure for contracts held for trading (items
15.a.(1) and (2)) and for those held for purposes other than trading
(items 15.b.(1) and (2)). At present, banks with domestic offices only
and less than $100 million in assets are exempt from this disclosure
requirement. This exemption originated when derivative contracts were
considered off-balance sheet items and predates FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (FAS 133),
which took effect in 2001. FAS 133 requires all derivatives to be
measured at fair value and reported on the balance sheet as assets or
liabilities. Because banks with less than $100 million in assets that
have derivatives now have to regularly determine their fair value for
balance sheet purposes, these banks have the information necessary to
disclose the fair value of their derivatives in Schedule RC-L.
Accordingly, the agencies are proposing to eliminate this disclosure
exemption. The fair value data on derivatives will complement the data
that banks with less than $100 million in assets currently report on
the notional amount of their derivative contracts. The number of banks
in this size range that have derivative contracts and will therefore be
affected by this proposed change is less than 200.
F. Provisions for Allocated Transfer Risk
Prior to 2001, the Call Report income statement (Schedule RI)
included a specific line item for ``Provision for allocated transfer
risk,'' but amounts were reported in this item only infrequently and
only by a small number of banks. This separate item was removed from
the face of the income statement in 2001 and banks were instructed to
include these provisions in ``Other noninterest expense'' on Schedule
RI (item 7.d). However, in reviewing the continuing merits of this
instructional change, the agencies found that institutions exposed to
transfer risk generally view these provisions more like provisions for
loan losses than a noninterest expense. As a result, the agencies
concluded that it would be preferable for banks to include the
``Provision for allocated transfer risk'' with the ``Provision for loan
and lease losses'' in item 4 on the Call Report income statement and
are proposing to make this change.
In addition, in order for the end-of-period allowance in the
reconciliation of the ``Allowance for loan and lease losses'' in
Schedule RI-B, part II, to equal the loan loss allowance on the balance
sheet (Schedule RC, item 4.c), which excludes the ``Allocated transfer
risk reserve,'' the instructions for Schedule RI-B, part II, will also
be revised. More specifically, the instructions for Schedule RI-B, part
II, item 6, ``Adjustments,'' will direct banks to report as a negative
number in item 6 the amount of any ``Provision for allocated transfer
risk'' included in the amount of ``Provision for loan and lease
losses'' reported in item 4 of the income statement (Schedule RI).
Additionally, as with all items reported in Schedule RI-B, part II,
item 6, ``Adjustments,'' the amount of any ``Provision for allocated
transfer risk'' would need to be itemized and described in item 6 of
the explanations schedule (Schedule RI-E).
G. Call Report Supplement for Future Data Needs
The agencies are proposing to obtain authority to collect a
supplement to the Call Report so that, should there be an immediate
need for the agencies to collect certain critical information from a
segment of the banking industry, the necessary items could be collected
on this supplement to the Call Report at the earliest practicable date.
Such a need could arise, for example, because of a statutory change or
an unexpected market event or change in credit conditions that has a
material effect on certain institutions. While the Paperwork Reduction
Act has emergency procedures for obtaining authority to collect
information on a one-time basis, the agencies believe it would be
preferable to take a proactive approach and establish in advance of a
possible critical future data need their authority to collect such
data. The agencies further note that the Board currently has comparable
authority to collect a supplement to the FR Y-9C bank holding company
report.
The agencies would expect to use their authority to collect a Call
Report supplement infrequently. Furthermore, to ensure that the
exercise of this authority is subject to proper oversight and control,
the agencies would require the members of the Federal Financial
Institutions Examination Council to approve the specific use of the
supplement. Thus, the Examination Council's Reports Task Force would
not have the delegated authority to institute a data collection using
the Call Report supplement.
For purposes of obtaining the authority for this supplement for
future data needs, the agencies estimate that the burden of any data
collection using this supplement would be imposed on no more than 10
percent of the banks under each agencies' supervision. In addition, the
estimated reporting burden imposed on these banks in connection with
reporting the requested data on the supplement would not exceed one
hour per quarter. As a consequence, the burden of any specific
supplemental items that the Examination Council would approve for
collection under this authority in the future could not exceed the
approved burden estimates. The burden estimates disclosed above for the
three agencies include the estimated burden of this proposed
supplement.
H. Loans Held for Trading Purposes
The General Instructions for Schedule RC-C, Part I - Loans and
Leases, advise banks to exclude from Schedule RC-C ``all loans and
leases held for trading purposes'' and to report them instead as
``Trading assets'' on the Call Report balance sheet (Schedule RC, item
5) and in Schedule RC-D - Trading Assets and Liabilities, if this
latter schedule is applicable. However, the instructions for the
balance sheet item for ``Trading assets'' and for Schedule RC-D do not
explicitly refer to loans (and leases) as trading assets, nor does the
Glossary entry for ``Trading Account.'' Accordingly, questions have
been raised concerning the circumstances in which it may be appropriate
to categorize certain loans (and leases) as trading assets. Trading
assets are carried on the balance sheet at fair value, with changes in
fair value (unrealized holding gains and losses) recognized in
earnings.
The agencies have reviewed the accounting literature for guidance
on the financial statement presentation and disclosure of loans
designated as held for trading. This review included consideration of
Financial Accounting Standards Board (FASB) No. 65, Accounting for
Certain Mortgage Banking Activities (FAS 65), as amended; FASB
Statement No. 91, Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs
of Leases (FAS 91), as amended; FASB Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities (FAS 115); the FASB
staff's Implementation Guide for FAS 115; and chapters 5, 6, and 8 of
the current (May 2000) edition of Audit and Accounting Guide - Banks
and Savings Institutions (Audit Guide), published by the American
Institute of Certified Public Accountants.
In particular, paragraph 6.74 of the Audit Guide's chapter on loans
explains that ``management's disclosure in the summary of significant
accounting policies should include the basis of accounting for loans
and lease financings, both held in a portfolio and held for sale.'' In
the two introductory paragraphs of the loan chapter's section
[[Page 68235]]
entitled ``Accounting and Financial Reporting'' (paragraphs 6.48 and
6.49), the Audit Guide describes the basis of reporting for
``portfolio'' loans and ``held-for-sale'' loans, neither of which is
the market (fair) value reporting basis applicable to trading assets.
Paragraph 6.01 of the Audit Guide notes that banks ``sell loans or
portions of loans, and securitize loans'' and states that these two
activities are discussed in chapter 8, but does not mention loans held
for trading purposes. A review of chapter 8, ``Mortgage Banking
Activities and Loan Sales,'' also reveals no references to loans held
for trading purposes or carried at market (fair) value.
Question 35 in the FASB staff's Implementation Guide for FAS 115
asks whether an institution that acquires a security without the intent
to sell it in the near term may classify the security in the trading
category. The staff answered this question is in the affirmative,
stating that the ``[c]lassification of a security as trading is not
precluded simply because the enterprise does not intend to sell it in
the near term.'' However, Appendix C (paragraph 137) of FAS 115 defines
both ``security'' and ``debt security'' for purposes of this accounting
standard. The definition of the term ``debt security'' states that
``loans receivable arising from consumer, commercial, and real estate
lending activities of financial institutions are examples of
receivables that do not meet the definition of security; thus, those
receivables are not debt securities (unless they have been securitized,
in which case they would meet the definition).'' Therefore, loans do
not fall within the scope of FAS 115.
Given the relatively extensive amount of guidance in the accounting
literature on accounting for loans as ``portfolio'' loans and ``held-
for-sale'' loans, but the sparse guidance on loans ``carried at market
value'' or designated as trading assets, the agencies believe that,
under generally accepted accounting principles, it is appropriate in
only limited circumstances for banks to designate loans as held for
trading and account for them at fair value, with changes in fair value
recognized in earnings. In this regard, the agencies do not believe
that the trading classification option accorded securities at
acquisition by the FASB's response to Question 35 in the FAS 115
Implementation Guide should be extended to loans.
Accordingly, the agencies propose to provide guidance for
regulatory reporting purposes on the use of the trading account
designation for loans by revising the Glossary entry for ``Trading
Account'' in the Call Report instructions. Conforming changes would be
made elsewhere in the instructions where appropriate. A new second
paragraph of the ``Trading Account'' Glossary entry would read as
follows:
There is a rebuttable presumption that loans and leases (hereafter,
loans) should not be reported as trading assets. In order to overcome
this presumption for particular loans, a bank must demonstrate, from
the pattern and practice of its activity, that it is acquiring these
loans principally for the purpose of selling them in the near term with
the objective of generating profits on short-term differences in price.
Thus, such loans are held for only a short period of time (generally
not months or years). This presumption is not overcome if a bank
acquires loans (through origination or purchase) with the intent or
expectation that they may or will be sold at some date in the future.
In addition, loans acquired and held for securitization purposes should
not be reported as trading assets, but should be reported as loans held
for sale.
I. Number and Amount of Deposit Accounts
Schedule RC-O, Memorandum item 1, collects information on the
number and amount of deposit accounts of (a) $100,000 or less and (b)
more than $100,000. This information provides the basis for calculating
``simple estimates'' of the amount of insured and uninsured deposits.
The captions for these memorandum items explicitly refer to $100,000,
which is the current deposit insurance limit. Given the purpose of
these memorandum items, the dollar amount cited in the caption would
need to be changed if the deposit insurance limit were to change, which
Congress is considering. To ensure that the dollar amount cited in the
caption changes automatically as a function of the deposit insurance
limit in effect on the report date, the caption for Memorandum item 1
would be footnoted to state that the specific dollar amounts used as
the basis for reporting the number and amount of deposit accounts in
Memorandum items 1.a and 1.b reflect the deposit insurance limits in
effect on the report date. The instructions for this Memorandum item
would be similarly clarified.
J. Reduction in the Filing Period for Banks with More than One Foreign
Office
Banks are required to submit their Call Reports electronically so
that the reported data are received by the banking agencies' electronic
collection agent no later than 30 days after the quarter-end report
date, e.g., by July 30 for the June 30 report. This 30-day filing
period applies to nearly all banks. However, fewer than one half of one
percent of all banks are permitted an additional 15 days to file their
Call Report data, e.g., by August 14 for the June 30 report. The
approxmiately 40 banks that are eligible for this lengthier filing
period are institutions that have more than one foreign office, other
than a ``shell'' branch or an International Banking Facility. Of these
banks, nearly half have only 2 foreign offices and just 6 have more
than 20 foreign offices. The 9 largest banks with more than one foreign
office each have more than $100 billion in total assets, with the
assets of the remaining banks ranging down to less than $5 billion.
The number of banks with between $5 and $100 billion in total
assets that do not have more than one foreign office exceeds the number
in this size range that have more than one foreign office. The banks in
this former group are required to submit their Call Reports within 30
days after quarter-end, while the banks in the latter group have the
additional 15-day filing period available to them.
The longer filing period for banks with more than one foreign
office delays the availability to the agencies, as well as to banks and
the general public, of timely data on the condition and performance of
the banking industry and the direction in which various indicators,
such as deposit flows and earnings, are moving. Critical to the
agencies' analyses of the industry are the data from the largest banks,
nearly all of which have 45 days in which to file their Call Reports
because they have more than one foreign office. With more timely
receipt of Call Report data from all institutions, the agencies can
identify the risks in the banking industry sooner and provide the
results of their analyses back to bankers and the marketplace earlier
when the data may be more useful for decision-making purposes. The
importance of making information available to the marketplace within
shorter timeframes can be seen in the Securities and Exchange
Commission's decision on August 27, 2002, to accelerate the filing
deadlines for the quarterly and annual reports that are required from
larger public companies under the federal securities laws.
Accordingly, the agencies are proposing to eliminate the additional
15-day period that banks with more than one foreign office have for
filing their Call Reports, effective with the reports for June 30,
2003. Thus, the submission deadline for the second quarter 2003 Call
Reports for all banks would be July 30, 2003.
[[Page 68236]]
The agencies acknowledge that banks with foreign offices are asked
to report a larger amount of data in their Call Reports than banks
without foreign offices are required to provide in their reports. The
agencies also recognize, from comments received on previous proposals
to reduce the filing period for banks with more than one foreign office
and from more recent conversations with bankers, that shortening this
period will impose additional costs on the affected institutions. These
banks will need to implement changes in their systems and quality
review processes to ensure that their publicly-available Call Report
data continue to be of high quality despite the reduced amount of time
for completing these reports. Therefore, the agencies believe that
scheduling the effective date for the reduction in the filing period to
be June 30, 2003, rather than March 31, 2003, the quarter when changes
in Call Report requirements are customarily implemented, will provide a
more reasonable amount of time for affected banks to update their
systems and processes in a manner that considers both the burden of
this change and the benefit of expedited collection of the data.
K. Early Collection of Deposit Items from Certain Banks with Foreign
Offices
The FDIC is required to maintain the deposit insurance funds that
it administers at a minimum level known as the Designated Reserve
Ratio, which is set at 1.25 percent of estimated insured deposits.\1\
The insurance fund ratios are calculated by dividing the insurance fund
level by the estimated amount of insured deposits. The FDIC Board of
Directors is required semiannually to set assessment rates for the
premiums to be paid by insured depository institutions to ensure that
the insurance fund ratios are maintained at the Designated Reserve
Ratio. To do this effectively and without burdening institutions with
unnecessary insurance premiums, the FDIC needs a timely and reliably
estimated measure of insurance fund ratios, particularly when those
levels are likely to be near or below the statutory target of 1.25
percent.
---------------------------------------------------------------------------
\1\ See Section 7(b)(2)(A)(iv)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1817(b)(2)(A)(iv)(1)).
---------------------------------------------------------------------------
Among the information that banks report in the Call Report is the
amount of total deposits in domestic offices (Schedule RC, item 13.a)
and the estimated amount of uninsured deposits (Schedule RC-O,
Memorandum item 2). These amounts are used to calculate the insurance
fund ratio. For most banks, Call Reports must be received not later
than 30 days after the end of the quarter. However, for banks with more
than one foreign office, which includes most of the largest banks in
the United States, the Call Report must be received not later than 45
days after quarter-end until the proposed elimination of this extended
filing period takes effect in June 2003 as discussed above. About 40
banks are eligible for this 45-day submission period.
Because of the timing of the semiannual assessment rate-setting
schedule and the proposed June 2003 effective date for the elimination
of the extended filing period, the FDIC may need insured deposit data
from the banks that have 45 days in which to file their March 2003 Call
Report earlier than the May 15, 2003, submission deadline for these
banks. To meet statutory and regulatory timeframes, which currently
require the FDIC Board to announce the semiannual assessment rate
schedules on approximately May 15 and November 15 each year, the Board
must meet to decide on the rate schedule for the next semiannual period
in early May and November. If any of the banks with more than one
foreign office files its March 2003 Call Report near the 45-day
submission deadline of May 15, 2003, then the most reliable estimate of
the amount of insured deposits available to the FDIC Board when it sets
assessment rates for the next semiannual period early in those months
will include Call Report data that is approximately 4 1/2 months old,
i.e., data as of the preceding December 31.
Using 4 1/2-month old data is problematic for the FDIC when there
is a reasonable likelihood that an insurance fund ratio, such as the
Bank Insurance Fund ratio, could fall below its 1.25 percent Designated
Reserve Ratio, which is a distinct possibility any time that a fund
ratio is near that target ratio. If the data that the FDIC Board uses
to determine an insurance fund ratio suggests that the ratio has fallen
below the Designated Reserve Ratio, the Board may determine that it is
necessary to charge institutions higher insurance premiums to increase
assessment revenue and bring the fund ratio ratio back up to its
statutory requirement.
Using incomplete Call Report data also could lead the FDIC Board to
make improper pricing decisions about insurance premiums. The data on
domestic office deposits and estimated uninsured deposits received from
institutions that file their Call Reports within 30 days of the March
31, 2003, report date may not be representative of the overall
industry-wide trend for that date. Accordingly, the absence of the
March 31, 2003, data from institutions that file their reports within
45 days after this dates could contribute to a decision by the FDIC
Board that results in an overpricing or underpricing of assessment
rates.
Thus, the FDIC proposes to obtain information on the level of
domestic office deposits and estimated uninsured deposits from certain
institutions on or about May 1, 2003, which is approximately two weeks
before the date by which these institutions are required to submit this
information in their Call Reports. This information-gathering effort
would be accomplished via telephone calls from the FDIC to appropriate
staff at these institutions, who would then supply the requested
information over the telephone, by e-mail, or by fax. At that stage in
their Call Report preparation process, the FDIC expects that these
institutions will already have at least preliminary numbers for these
two deposit items. Based on historical experience, fewer than 20
institutions with multiple foreign offices would be directed to provide
the FDIC with the amounts then available for these two items from their
Call Report preparation process. The preliminary information reported
by these institutions will not be provided to the public. Nevertheless,
with this information, the FDIC staff will be able to more confidently
advise the FDIC Board of the insurance fund ratios in early May 2003
and thereby avoid mispricing decisions.
The FDIC has separately requested and received approval from OMB
pursuant to OMB's emergency processing procedures to collect
information in early November 2002 on domestic office deposits and
estimated uninsured deposits as of September 30, 2002, from not more
than 20 large banks with multiple foreign offices. (OMB Control No.
3064-0144, which expires December 31, 2002.) (See 67 Fed. Reg. 60684,
September 26, 2002.) Under these emergency processing procedures,
however, OMB's approval of the FDIC's proposal enables the FDIC to
contact these institutions on a one-time basis in early November 2002.
Accordingly, the FDIC is now seeking the authority to collect these two
items on a preliminary basis in May 2003 from not more than 20 banks
with multiple foreign offices. The FDIC would exercise this authority
only if the insurance fund ratio as of May 31, 2003, is expected to be
at or near the Designated Reserve Ratio level of 1.25 percent.
L. Earlier Release of Individual Bank Call Reports
At present, the agencies wait until they have completed the data
validation
[[Page 68237]]
process for all 8,500 banks that file Call Reports before the Call
Reports for a particular quarter-end report date are made available to
the public. This simultaneous release of all bank Call Reports occurs
some 60-75 days after the report date. However, the data validation
process for most bank Call Reports is generally completed at a much
earlier date. By delaying the release of these reports, the information
about a bank's condition and performance contained in its most recent
quarter-end report is less useful to the public than if the report data
had been made available at an earlier date.
Because the usefulness of a bank's report data goes hand-in-hand
with the timeliness of the data, the agencies are proposing to change
their release date for individual bank Call Reports. Under this
proposal, beginning perhaps as early as the Call Reports for March 31,
2003, the agencies would begin to make each bank's Call Report
available to the public on the FDIC's Internet Web site (www.FDIC.gov)
as soon as they complete the data validation process for that bank's
report. This would mean that, after any edit exceptions identified in a
bank's Call Report have been resolved and the analysis of the report
has been completed, the public would be able to access the report
(except for any confidential information). As a result, individual bank
data would be available to the public on a more timely basis than at
present.
M. Criteria for Acceptance of Call Reports
On August 1, 2002, the FFIEC, on behalf of the agencies, issued a
Request for Proposal for the design and implementation of a new
business model for processing Call Reports with a target effective date
of March 2004. A principal feature of this new model would be a central
data repository to collect, validate, manage and distribute Call Report
information. As part of the introduction of this new business model,
the agencies would change the manner in which Call Reports would be
edited.
Currently, after the agencies receive a bank's electronically
submitted Call Report, the report is subjected to numerous edit checks
to assess the accuracy and reasonableness of the data the bank has
submitted. Validity edits verify the accuracy of reported data, e.g.,
whether the individual items in a report schedule add up to the
reported total and whether an item reported in one schedule agrees with
the amount reported for the same item in another schedule. Validity
edits include both mathematical and logical tests. Quality edits test
the reasonableness of data and include tests against historical
performance and other relational tests, e.g., whether the amount
reported for a year-to-date item is greater than or equal to the amount
reported for the same item in the previous quarter and whether the fair
value reported for a category of securities falls within a specified
range of the amortized cost reported for these securities.
If this validation process identifies any edit exceptions in a
bank's report, an agency Call Report analyst normally contacts the bank
and explains the edit exceptions detected in the bank's report. The
bank then reviews the reported data associated with these edit
exceptions and provides the Call Report analyst with any necessary
corrections and/or describes the underlying facts and circumstances
that explain why the data are correct as reported. The agencies'
follow-up with a bank on edit exceptions typically occurs by telephone
and takes place anywhere from one day to three or four weeks after a
bank has submitted its report.
Under the new business model, the validation process will take
place in conjunction with a bank's submission of its Call Report data
to the agencies. The central data repository will contain all of the
edit criteria and formulas, where they would be publicly available.
This will enable the edits to be incorporated into the Call Report
software a bank uses to prepare and submit its report to the agencies,
which means that edit exceptions will be identified while a bank is
completing its report. The bank will then be able to correct its report
data to eliminate any validity edit exceptions. The bank will also be
provided a method for supplying explanatory comments concerning any
quality edit exceptions.
Once the central data repository is implemented, which is targeted
for March 2004, the agencies are proposing that they will not accept a
bank's Call Report submission if it contains any validity edit
exceptions and lacks explanatory comments for any quality edit
exceptions. Because a bank will be aware of any edit exceptions while
its staff is completing its Call Report, the bank's follow-up on these
exceptions will be immediate rather than after-the-fact as it is under
the agencies' current approach to data validation. Thus, although the
agencies are proposing to change the manner in which banks provide
information to respond to edit exceptions identified in their Call
Reports, including requiring the submission of explanatory comments
concerning quality edit exceptions, this change should produce a net
decrease in reporting burden on banks by reducing subsequent questions
from the agencies. Furthermore, it should result in quicker validation,
acceptance, disclosure and use of individual bank Call Report data.
In anticipation of this change in the data validation process, the
agencies note that they have established a single set of validation
criteria and have published the criteria for the March, June and
September 2002 Call Report data on the FFIEC web site for banks'
reference and use. The agencies also have made this material available
to the Call Report software vendors. Beginning in September 2002, some
Call Report software products will include a feature that enables a
bank, at its option, to provide explanatory comments for edit
exceptions to the banking agencies.
III. Request for Comment
Public comment is requested on all aspects of this proposal. In
addition, comments are invited on:
(a) Whether the proposed revisions to the Call Report collections of
information are necessary for the proper performance of the agencies'
functions, including whether the information has practical utility;
(b) The accuracy of the agencies' estimates of the burden of the
information collections as they are proposed to be revised, including
the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Comments submitted in response to this Notice will be shared among
the agencies and will be summarized or included in the agencies'
requests for OMB approval. All comments will become a matter of public
record. Written comments should address the accuracy of the burden
estimates and ways to minimize burden as well as other relevant aspects
of the information collection request.
Dated: October 23, 2002.
Mark J. Tenhundfeld,
Assistant Director, Legislative and Regulatory Activities
Division,Office of the Comptroller of the Currency.
Board of Governors of the Federal Reserve System, November 4,
2002.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, D.C., this the 23rd day of October, 2002.
[[Page 68238]]
FEDERAL DEPOSIT INSURANCE CORPORATION
Robert E. Feldman,
Executive Secretary
[FR Doc. 02-28435 Filed 11-7-02; 8:45 am]
BILLING CODE: OCC: 4810-33-S 1/3; Board: 6210-01-S; 1/3; FDIC: 6714-01-
S; 1/3
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