[Federal Register: February 21, 1997 (Volume 62, Number 35)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
Federal Reserve System
Federal Deposit Insurance Corporation
Agency Information Collection Activities: Submission for OMB
Review; Comment Request
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Notice of information collection to be submitted to OMB for
review and approval under the Paperwork Reduction Act of 1995.
SUMMARY: On September 16, 1996, the OCC, the Board, and the FDIC (the
agencies) requested public comment for 60 days on proposed revisions to
the Consolidated Reports of Condition and Income (Call Report), which
are currently approved collections of information. After considering
the comments the agencies received, the Federal Financial Institutions
Examination Council (FFIEC), of which the agencies are members, adopted
several modifications to the revised reporting requirements initially
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. chapter 35), the agencies may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection that has been extended, revised, or implemented
on or after October 1, 1995, unless it displays a currently valid
Office of Management and Budget (OMB) control number. Comments are
invited on: a. whether the proposed revisions to the following
collections of information are necessary for the proper performance of
the agencies' functions, including whether the information has
practical utility; b. the accuracy of the agencies' estimates of the
burden of the information collections as they are proposed to be
revised, including the validity of the methodology and assumptions
used; c. ways to enhance the quality, utility, and clarity of the
information to be collected; d. ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology; and e. estimates of capital or startup costs and costs of
operational, maintenance, and purchase of services to provide
DATES: Comments must be submitted on or before March 24, 1997.
ADDRESSES: Interested parties are invited to submit written comments to
any or all of the agencies. All comments, which should refer to the OMB
control number(s), will be shared among the agencies.
OCC: Written comments should be submitted to the Communications
Division, Office of the Comptroller of the Currency, 250 E Street,
S.W., Washington, D.C. 20219; Attention: Paperwork Docket No. 1557-0081
[FAX number (202) 874-5274; Internet address:
Regs.firstname.lastname@example.org]. Comments will be available for inspection
and photocopying at that address.
Board: Written comments should be addressed to Mr. William W.
Wiles, Secretary, Board of Governors of the Federal Reserve System,
20th and C Streets, N.W., Washington, D.C. 20551, or delivered to the
Board's mail room between 8:45 a.m. and 5:15 p.m., and to the security
control room outside of those hours. Both the mail room and the
security control room are accessible from the courtyard entrance on
20th Street between Constitution Avenue and C Street, N.W. Comments
received may be inspected in room M-P-500 between 9:00 a.m. and 5:00
p.m., except as provided in Sec. 261.8 of the Board's Rules Regarding
Availability of Information, 12 CFR 261.8(a).
FDIC: Written comments should be addressed to the Office of the
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429. Comments may be hand-delivered to
Room F-402, 1776 F Street, N.W., Washington, D.C. 20429, on business
days between 8:30 a.m. and 5:00 p.m. Comments may be sent through
facsimile to: (202) 898-3838 or by the Internet to: email@example.com.
Comments will be available for inspection at the FDIC Public
Information Center, Room 100, 801 17th Street, N.W., Washington, D.C.,
between 9:00 a.m. and 4:30 p.m. on business days.
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: Alexander Hunt, Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 3208, Washington, D.C. 20503.
FOR FURTHER INFORMATION CONTACT: A copy of the revised collection of
information may be requested from any of the agency clearance officers
whose names appear below.
OCC: Jessie Gates, OCC Clearance Officer, (202) 874-5090, Office of
Comptroller of the Currency, 250 E Street, S.W., Washington, D.C.
Board: Mary M. McLaughlin, Board Clearance Officer, (202) 452-3829,
Division of Research and Statistics, Board of Governors of the Federal
Reserve System, 20th and C Streets, N.W., Washington, D.C. 20551.
Telecommunications Device for the Deaf (TDD) users only, Dorothea
Thompson, (202) 452-3544, Board of Governors of the Federal Reserve
System, 20th and C Streets, N.W., Washington, D.C. 20551.
FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907,
Office of the Executive Secretary, Federal Deposit Insurance
Corporation, 550 17th Street N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION: Request for OMB approval to extend, with
revision, the following currently approved collections of information:
Report Title: Consolidated Reports of Condition and Income
Form Number: FFIEC 031, 032, 033, 034. 1
\1\ The FFIEC 031 report form is filed by banks with domestic
and foreign offices. The FFIEC 032 report form is filed by banks
with domestic offices only and total assets of $300 million or more.
The FFIEC 033 report form is filed by banks with domestic offices
only and total assets of $100 million or more but less than $300
million. The FFIEC 034 report form is filed by banks with domestic
offices only and total assets of less than $100 million.
Frequency of Response: Quarterly.
OMB Number: 1557-0081.
Affected Public: National Banks.
Estimated Number of Respondents: 2,800 national banks.
Estimated Time per Response: 39.92 burden hours.
Estimated Total Annual Burden: 447,132 burden hours.
OMB Number: 7100-0036.
Affected Public: State Member Banks.
Estimated Number of Respondents: 1,002 state member banks.
Estimated Time per Response: 45.80 burden hours.
Estimated Total Annual Burden: 183,566 burden hours.
OMB Number: 3064-0052.
Affected Public: Insured State Nonmember Commercial and Savings
Estimated Number of Respondents: 6,374 insured state nonmember
Estimated Time per Response: 29.67 burden hours.
Estimated Total Annual Burden: 756,511 burden hours.
The estimated time per response is an average which varies by
agency because of differences in the composition of the banks under
each agency's supervision (e.g., size distribution of banks, types of
activities in which they are engaged, and number of banks with foreign
offices). The time per response for a bank is estimated to range from
15 to 400 hours, depending on individual circumstances.
General Description of Report: This information collection is
mandatory: 12 U.S.C. 161 (for national banks), 12 U.S.C. 324 (for state
member banks), and 12 U.S.C. 1817 (for insured state nonmember
commercial and savings banks). Except for select sensitive items, this
information collection is not given confidential treatment. Small
businesses (i.e., small banks) are affected.
Abstract: Call Reports are filed quarterly with the agencies for
their use in monitoring the condition and performance of reporting
banks and the industry as a whole. The call reports also are used to
calculate banks' deposit insurance assessments and for monetary policy
and other public policy purposes.
Current Actions: Revisions initially proposed for the Call Report
consisted of: the deletion or combining of a number of existing items;
the revision of the Call Report instructions to eliminate instructions
that differ from generally accepted accounting principles (GAAP) and
the addition of a small number of new items to meet supervisory or
insurance assessment calculation data needs resulting from this move to
GAAP; the addition of new items and modification of existing items to
enhance the agencies' ability to monitor interest rate risk, identify
bank usage of credit derivatives, and support the FDIC's calculation of
deposit insurance assessments for Oakar institutions; and changes to
several other instructions. After considering the comments, the FFIEC
approved several modifications to the initial set of proposed
revisions. The comments on the initial proposal and the changes made in
response to the comments are discussed below.
Type of Review: Revision.
On September 16, 1996, the agencies jointly published a notice
soliciting comments for 60 days on proposed revisions to their
currently approved Call Report information collections (61 FR 48687).
The notice described the specific changes that the agencies, with the
approval of the FFIEC, were proposing to implement as of March 31,
In response to this notice, the agencies collectively received 38
comment letters: 16 from community banks, 12 from large banks, 5 from
bankers' associations, 2 from accounting organizations, 1 from another
specialized trade association, 1 from a state banking authority, and 1
from a law firm. In general, most large banks and bankers' associations
commented on several, but not necessarily all, of the areas in which
the agencies proposed to change the Call Report requirements. Each of
the remaining commenters typically addressed only one or two aspects of
the proposal. The agencies and the FFIEC have considered all of the
comments received on the proposal.
With respect to the proposed deletions and reductions in detail,
commenters agreed with these changes, but several of them stated that
the agencies had not gone far enough in their efforts to eliminate
items and reduce reporting burden. Furthermore, as discussed further
below, virtually all of the commenters expressing opinions on the Call
Report revisions designed to enhance the agencies' ability to monitor
interest rate risk opposed these proposed changes. They found them to
be unnecessary and contrary to the statutory mandate to the agencies
set forth in section 307 of the Riegle Community Development and
Regulatory Improvement Act of 1994. In this regard, the agencies and
the Office of Thrift Supervision, through the FFIEC's Task Force on
Reports, are working to develop a common core report and supplemental
schedules that will satisfy the requirements of section 307. The
proposed Call Report changes for 1997 were not intended to fulfill
those requirements in their entirety, but the deletions and reductions
in detail as well as the adoption of GAAP represent important initial
steps in that direction.
More specific information on the comments received is presented
Comments on Proposed Deletions and Reductions in Detail--The
agencies had proposed to eliminate the separate Schedule RC-L items for
``Gross commitments to purchase'' and ``Gross commitments to sell''
when-issued securities (items 10.a and 10.b) and, instead, to have
these commitments reported as forward contracts in the off-balance
sheet derivative contract portion of that schedule. This change was
proposed because of the relatively small number of banks reporting
when-issued securities commitments and because these commitments are
treated as derivative contracts under the agencies' risk-based capital
standards. However, one commenter observed that the Financial
Accounting Standards Board (FASB) defined the term ``derivative
financial instrument'' in its June 1996 exposure draft of the proposed
accounting standard ``Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities'' as a financial instrument
that generally does not require the holder or writer of the instrument
to own or deliver the underlying. This commenter felt it would be
confusing to report when-issued securities as derivatives in Schedule
RC-L if they are not reported as such for other financial reporting
purposes. The FFIEC agreed and decided that institutions that do not
include when-issued securities commitments as part of their disclosures
about derivatives for other financial reporting purposes would be
permitted to report commitments to sell when-issued securities as
``other off-balance sheet assets'' and commitments to purchase when-
issued securities as ``other off-balance sheet liabilities'' in
Schedule RC-L. There would be no change in the risk-based capital
treatment of these contracts regardless of the Schedule RC-L item in
which they are reported.
The agencies had proposed to combine items 1.d, ``Securities
underwriting,'' and 1.e. ``Other unused commitments,'' on Schedule RC-
L--Off-Balance Sheet Items, because only a small number of banks report
that they have securities underwriting commitments. However, because of
regulatory and possible statutory changes, the extent of bank
involvement in securities underwriting may increase in the near future.
Therefore, upon further consideration by the agencies, item 1.d is
Comments on the Elimination of Call Report Instructions That Differ
From GAAP, Related New Items, and Other Affected Call Report Items and
Instructions--Commenters addressing the adoption of GAAP as the
reporting basis for the balance sheet, income statement, and related
schedules in the Call Report expressed broad support for this concept.
However, many of these commenters had opinions on certain issues
relating to the implementation of GAAP-based reporting in the Call
First, the proposal stated that the Call Report ``instructions will
continue to contain and the FFIEC and the agencies will continue when
necessary to issue specific reporting guidance that falls within the
range of acceptable practice under GAAP.'' 2 The proposal further
noted that ``[e]ach agency also will retain existing authority to
require an institution to report a transaction in the Call Report in
accordance with that agency's interpretation of GAAP.'' Commenters
considered these practices contrary to the proposal's objective of
moving to GAAP and expressed concern that the exercise of this
authority would cause the Call Report to fall back into a reporting
mode similar to the current situation in which the instructions contain
departures from GAAP. Moreover, permitting individual agencies the
discretion to interpret GAAP for Call Report purposes may affect
consistency and comparability among the reported information. Several
commenters recommended that any plans to require a specific reporting
practice within the range of acceptable GAAP or to interpret GAAP in a
way that departs from industry practice should first be issued as a
proposal for public comment by all of the agencies.
\2\ Call Report instructions providing such specific reporting
guidance include the nonaccrual rules, the treatment of impaired
collateral dependent loans, the Glossary entry for the ``Allowance
for Loan and Lease Losses'' which references the 1993 Interagency
Policy Statement on this subject, the separate entity method of
accounting for income taxes of bank subsidiaries of holding
companies, push down accounting, and property dividends.
The agencies and the FFIEC have in the past limited the number of
circumstances in which they have adopted specific Call Report guidance
that falls within GAAP to those few situations where safety and
soundness objectives argue for a single reporting rule for all
institutions or where the GAAP alternatives for reporting a transaction
produce accounting results with a significant lack of comparability.
When the agencies have previously considered implementing specific GAAP
guidance, the FFIEC's Task Force on Reports has normally consulted with
the staffs of the FASB and the Securities Exchange Commission (SEC). If
reporting guidance of a supervisory nature is being pursued, the
agencies and the FFIEC also decide whether public comment should be
solicited. These practices are expected to continue and the adoption of
specific Call Report instructions that fall within the range of GAAP
should remain infrequent in the future.
In addition, the Call Report instructions have for many years
stated that when a bank and its primary federal regulator have
differing interpretations of how GAAP should be applied to a specific
transaction, the agency may require the bank to report the transaction
in the Call Report in accordance with the agency's interpretation and,
if appropriate, to amend previously submitted reports. The agencies do
not believe they have excessively or improperly invoked this authority
in the past and would not expect this to change. In practice, when
issues of GAAP interpretation are raised with an agency's Washington
Office, the staff normally consults with the other agencies and with
the FASB and SEC staffs and considers the views of the bank and its
accountant before reaching a decision. This authority is essentially
the same as the authority the SEC exercises over the public financial
statements filed with it. The SEC can and does challenge registrants
over their application of GAAP to specific events or transactions
reflected in their financial statements. The SEC also can require
restatement when it concludes that a registrant has not properly
applied GAAP given the facts and circumstances surrounding an event or
transaction. Therefore, the agencies believe it is appropriate to
retain this authority.
Second, the proposal reminded banks that their regulatory capital
ratios will continue to be calculated in accordance with the agencies'
capital standards rather than in accordance with GAAP. At least five
commenters responded to this statement. As long as the capital
standards differ from GAAP, some felt that true relief from the burden
of regulatory reporting requirements will not be achieved. Three
suggested that the agencies should adopt GAAP for purposes of measuring
regulatory capital. On the other hand, one commenter strongly supported
the agencies' ability to decide whether to adopt new accounting
standards for regulatory capital purposes. Revisions to the agencies'
capital standards fall outside the scope of the Call Report proposal
for 1997 and would need to be addressed by each agency, in consultation
with the other agencies, as part of a rulemaking. Appropriate agency
staff have been advised of this request.
Along a similar vein, two commenters observed that there are other
laws and regulations that are based on income or capital levels that
are reported in Call Reports such as legal lending limits, dividend
limitations, loans to insiders, and permissible investment activities.
One of these two commenters, which had recommended that the agencies
adopt GAAP for regulatory capital purposes, also urged the agencies to
adopt GAAP for purposes of these other laws and regulations as well as
for all supervisory purposes. The other commenter requested that the
agencies provide guidance to institutions and examiners on how these
other laws and regulations would be applied under the GAAP basis of
reporting in the Call Report. Appropriate agency staff have been
advised of this request.
Third, several commenters questioned how the agencies would define
``materiality'' when they interpret GAAP for Call Report purposes. It
was stated that the agencies cannot truly ``adopt'' GAAP without
consideration of materiality in the application of accounting
standards. Materiality is a qualitative characteristic of accounting
information which is defined in FASB's Statement of Financial
Accounting Concepts No. 2. At the end of each Statement of Financial
Accounting Standards, the FASB states that the Statement's provisions
``need not be applied to immaterial items.'' Commenters indicated that
the agencies' failure to recognize the concept of materiality for
regulatory reporting purposes would add to the cost and regulatory
burden of the Call Report. One commenter complained that regulators
consider all items material, regardless of size.
The General Instructions section of the Call Report instructions
discusses the applicability of GAAP to regulatory reporting
requirements. While not specifically referring to materiality, banks
generally are directed to follow GAAP when reporting events and
transactions in the Call Report except where the instructions do not
follow GAAP. When discussing the need for banks to amend previous
reports, the General Instructions to the Call Report state that the
agencies may require amendments if reports contain significant errors.
The Glossary entry for ``Accounting Changes'' in the Call Report
instructions states that a bank may be directed to file amended reports
for periods that were significantly affected by a material error.
Consistent with this language, the members of the FFIEC's Task Force on
Reports and their agencies' accounting policy staffs, as a matter of
practice, routinely consider materiality when responding to inquiries
about how banks should account for specific events and transactions for
Call Report purposes. Therefore, when dealing with the recognition and
measurement of events and transactions in the Call Report, the General
Instructions' reference to ``significant'' errors should be interpreted
to mean errors that are ``material'' for the reporting bank.
In addition to situations involving recognition and measurement,
the issue of materiality also arises in connection with how items must
be classified or categorized in the Call Report, i.e., on what line of
the Call Report must an item be reported. The Call Reports are
standardized forms with preprinted captions for specific types of
information. The agencies use the data reported on specific lines of
the Call Report for purposes such as the FDIC's measurement of banks'
assessable deposits in order to calculate deposit insurance premiums.
The Board's research divisions use Call Report data for a variety of
purposes, including for constructing and benchmarking various measures
of the domestic (U.S.) banking system and for construction of the Flow-
of-Funds accounts, all of which are provided to the Board of Governors
and the Federal Open Market Committee, and for providing the Board of
Governors with policy analyses of fundamental banking issues. Because
of uses such as these for Call Report data, the need for banks to
report items on the proper line of the standardized form may not be
fully compatible with the concept of materiality. The agencies will
need to give further study to the issue of materiality in relation to
the classification of items in the Call Report.
Fourth, a number of commenters requested that they be given the
opportunity to review and comment on the Call Report instructions as
they would be revised to bring them into conformity with GAAP before
they are finalized prior to the March 31, 1997, report date. One other
commenter specifically suggested that the agencies provide a comment
period after March 31 in order to permit banks to comment on any Call
Report instructions they feel do not conform to GAAP. These commenters
indicated that this process would help to ensure that the instructions
do not inadvertently contain wording that is inconsistent with GAAP or
otherwise presents problems to banks. Accordingly, the FFIEC's Task
Force on Reports will provide draft instructions to each commenter who
requested this opportunity and to the members of the Inter-Association
Committee on Bank Accounting as they become available. In addition,
once the new or revised instructions for 1997 are issued, the Task
Force on Reports will set a specific time period, which will likely
begin in the second quarter of 1997, during which banks can submit
further comments about instructions that appear inconsistent with GAAP.
Fifth, the agencies proposed to add certain new items and to modify
a number of existing Call Report items because of the effect that the
adoption of GAAP will have on the manner in which several types of
transactions or activities are reported in 1997. In the proposal, the
caption to Schedule RC-F--Other Assets, item 3, ``Excess [first lien 1-
to-4 family] residential mortgage servicing fees receivable,'' was to
be revised to refer to interest-only strips receivable in response to
the provisions of (FASB) Statement No. 125, ``Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities''
(FAS 125), which take effect in 1997. The agencies also proposed to add
a new item to this schedule for interest-only strips receivable on
other financial assets. One commenter recommended adding two more new
items for interest-only strips receivable: one for mortgage-related
assets other than first lien 1-to-4 family residential mortgages and
another for credit card-related assets. After considering this
commenter's suggestion, the FFIEC decided that only two items on
interest-only strips receivable should be collected, but that the
coverage of the proposed item for interest-only strips receivable on
first lien 1-to-4 family residential mortgage loans be expanded to
include all mortgage loans. The second proposed item would continue to
refer to all other financial assets, but would no longer include any
amounts related to mortgage loans.
Sixth, the proposal further noted that while the treatment of
assets sold with recourse would be brought into conformity with GAAP
for purposes of the Call Report balance sheet and income statement, the
agencies' risk-based capital standards refer to the existing Call
Report instructions as the source for the definition of asset sales
with recourse. Thus, the Call Report Glossary entry for ``Sales of
Assets'' would be recaptioned ``Sales of Assets for Risk-Based Capital
Purposes.'' The Glossary entry's existing general rule would remain
applicable for identifying those asset sales that would be treated as
recourse transactions for risk-based capital purposes and be reportable
as such in Call Report Schedule RC-R--Regulatory Capital.
The proposal also explained that, in connection with the
implementation of FAS 125 in 1997, banks may be able to reflect as an
asset certain previously nonrecognized (for Call Report purposes)
contractual cash flows (e.g., excess servicing fees that are placed in
so-called ``spread accounts'') that act as credit enhancements for
assets (typically credit card receivables) that have been transferred
and securitized. However, asset transfers that qualify for sale
treatment under GAAP, but which use such cash flows as credit
enhancements and carry them as on-balance sheet assets at a discounted
amount, would be treated as sales with recourse under the ``Sales of
Assets for Risk-Based Capital Purposes'' general rule because the bank
has retained risk of loss with respect to these asset amounts. This
means that a bank would have to hold risk-based capital against the
full amount of assets transferred with recourse, but such transfers may
qualify for low-level recourse capital treatment which would limit the
required amount of capital to the carrying amount of these contractual
cash flows net of any noncapital GAAP recourse liability account
associated with the asset transfer.
The proposed post-1996 reporting treatment for asset transfers in
which certain contractual cash flows act as credit enhancements was
intended to produce the same regulatory capital outcome as the current
(non-GAAP) nonrecognition of these cash flows. Several commenters
concurred with the agencies' desire for the move to GAAP in this area
to produce no significant change in the risk-based capital ratios
calculated for a bank using the data reported in the Call Report's
risk-based capital schedule. However, they observed that this would not
be the case because a bank's reported assets would increase based on
the carrying amount of these ``spread accounts,'' but the amount by
which its reported undivided profits and Tier 1 capital would increase
would be reduced by the related tax effect. The agencies and the FFIEC
did not intend for the adoption of GAAP to significantly penalize
institutions from a risk-based capital perspective. Accordingly, until
any new regulatory capital rules for recourse arrangements and direct
credit substitutes take effect, the Call Report instructions relating
to the completion of the regulatory capital schedule will permit banks
to apply the low-level recourse capital rule on a net of tax basis to
``spread accounts'' that act as credit enhancements for asset
Finally, several commenters addressed specific Call Report
instructions or reporting practices which the proposal had not
indicated would be revised to conform with GAAP. Some of these
commenters offered specific suggestions about changing how the current
instructions tell banks to report various types of income statement and
balance sheet items so that banks are permitted to report this
information in accordance with either the current instructions or
prevalent banking industry practice. These commenters stated that these
instructional changes would help to reduce reporting burden.
Accordingly, as mentioned in the Introduction, a number of instructions
will be revised to accommodate bankers' suggestions. Some commenters
also pointed out certain Call Report instructions with ambiguous
wording that could be interpreted as inconsistent with GAAP. The
agencies plan to clarify these instructions to avoid possible
misinterpretation in a GAAP reporting environment.
At least three commenters addressed the regulatory reporting
practice that calls for transfers of assets (other than cash) between a
bank and an affiliate or other related party to be reported at fair
value rather than book value. While the agencies acknowledge that GAAP
permits such transfers to be recorded at book value, the agencies
believe that the use of fair value falls within the range of acceptable
practice under GAAP when an entity that is consolidated in the GAAP
financial statements of its parent prepares separate financial
statements like the Call Report. In addition, the provision of section
23A of the Federal Reserve Act requiring both covered and exempt
transactions between a bank and an affiliate to ``be on terms and
conditions that are consistent with safe and sound banking practices''
has been interpreted to mean that transfers must be reported at fair
One commenter disagreed with the agencies' proposed approach for
reporting the effect of the retroactive application of GAAP to
transactions previously reported in accordance with Call Report
instructions that differ from GAAP. The agencies proposed that banks
should report the effect of this ``catch-up'' adjustment on a bank's
undivided profits as of January 1, 1997, as a direct adjustment to
equity capital. This commenter believes that the adoption of GAAP for
Call Report purposes represents a change in accounting principle, the
effect of which should be reflected in the income statement rather than
as an equity capital adjustment. The agencies considered this comment
and concluded that they should retain the proposed method of reporting
the effect of the retroactive application of GAAP for Call Report
purposes. Because the agencies are permitting banks to decide for
themselves whether to retroactively apply GAAP to previous transactions
or to continue to report them in accordance with the existing
instructions that differ from GAAP, the agencies believe it is more
appropriate for the retroactive effect to be reported outside of the
Call Report income statement.
Comments on the Subchapter S Election for Federal Income Tax
Purposes--The unanticipated change to Subchapter S of the Internal
Revenue Code enabling banks, savings associations, and their parent
holding companies to elect Subchapter S corporation status for federal
income tax purposes in 1997 occurred when the FFIEC was being asked to
approve by notation vote the publication of the proposed Call Report
changes for 1997 for a 60-day comment period as required by the
Paperwork Reduction Act of 1995. One commenter recommended that the
agencies add a Call Report item for a bank's tax status, indicating
that this would provide federal and state regulatory agencies (and
other users of the Call Report) with one central data source for
identifying those institutions that have elected Subchapter S status.
The agencies and the FFIEC agreed with this recommendation and added a
simple ``yes/no'' question to the Call Report asking whether the
reporting bank has a Subchapter S election in effect for the current
tax year. Such an item should produce a nominal amount of reporting
Comments on the Reporting of Adjusted Attributable Deposit Amounts
by Oakar Institutions--The FDIC's final rule amending certain
provisions of its assessment regulations that pertain to Oakar
institutions, which was published on December 10, 1996, calls for the
FDIC to take over from Oakar institutions the responsibility for
calculating the Adjusted Attributable Deposit Amount (AADA) resulting
from previous assumptions of secondary-fund deposits. To support this
calculation, the agencies proposed to revise the Call Report for 1997
to replace the existing item for AADAs in Schedule RC-O--Other Data for
Deposit Insurance Assessments with two items that Oakar institutions
currently report on a separate FDIC report form that would be
eliminated and with one new item. The proposal indicated that Oakar
institutions should experience a net reduction in reporting burden from
these proposed reporting changes. However, several commenters that
addressed this reporting change disagreed with this statement because
Oakar institutions have not previously reported the third item that
would be added to Schedule RC-O and because these institutions will now
need to verify the accuracy of the FDIC's calculation of their AADAs
each quarter. Therefore, the burden estimate for the Call Report was
Comments on Credit Derivatives--The proposal discussed the effect
of credit derivatives on the amounts reported in Call Report Schedule
RC-R--Regulatory Capital and several comment letters addressed this
matter. The agencies and the FFIEC agreed with these commenters that
the instructions for Schedule RC-R should for the time being refer
institutions to the guidance on credit derivatives issued by their
primary federal supervisory agency rather than providing detailed
instructional language in this evolving area.
Comments on Other Instructional Changes--The agencies proposed to
revise the Call Report instructions in six other areas, two of which
were addressed by commenters.
The first area involves the reporting of full-time equivalent
employees and their compensation expense. Two commenters expressed
concern that the proposal would cause banks to break out the
compensation component of intercompany cost allocations and the related
pro rata full-time equivalent employees. However, this was not the
intent of the proposed change. Instructions will so indicate.
The second area involves the proposed elimination of conflicting
instructions concerning the reporting of loans and leases held for
sale. One commenter did not disagree with this proposed clarification,
but suggested that the agencies also clarify that loans and leases held
for short-term trading purposes and marked-to-market through the income
statement may continue to be reported as trading assets. The agencies
had not intended to change this existing reporting practice which is
consistent with GAAP and will make this additional suggested
Comments on Enhanced Interest Rate Risk Information--The industry
comments on the proposed additions to the Call Report for interest rate
risk monitoring purposes were generally unfavorable. Nearly three-
fourths of the commenters, including almost all of the community banks,
addressed the revisions related to interest rate risk. Most considered
these revisions unnecessary, many stated that the expanded data will
increase the cost and burden of the Call Report. Others suggested that
the marginal benefit of these data to the agencies (in terms of earlier
identification of some banks with interest rate risk problems than at
present) would exceed the cost to implement the proposed changes. Some
commenters reported that they or their data processing servicers would
not have sufficient time to make the necessary systems changes by the
proposed March 1997 implementation date and urged the agencies to move
this date until June or September 1997 if they decide to proceed with
their proposal. Some commenters also noted that the agencies just made
some changes to the Call Report's maturity and repricing data in March
1996, are proposing further revisions for 1997, and may make additional
changes as they design the common core report for banks, savings
associations, and bank holding companies which at present is targeted
for implementation not earlier than in 1998. In contrast, one
commenting bankers' association agreed that, in general, ``the proposed
changes are appropriate to analyze interest rate risk,'' but went on to
state that it had some objections, including the cost.
After considering the comments, the agencies still believe that a
revision of the Call Report that is substantially the same as proposed
is necessary in order to obtain information that is better suited for
off-site identification of institutions that have either minimal or
potentially high interest rate risk. Revisions allowing a better
identification of basic repricing/maturity mismatches and the presence
of potential option risk are particularly important. A few commenters
recognized that the proposed revisions accomplish this objective but
commented negatively on the increased burden and the costs incurred in
making programming changes to current systems.
Some commenters questioned the agencies' commitment to developing a
risk assessment approach to determining the capital adequacy of an
institution for interest rate risk. These commenters questioned the
need for any revision to the Call Report given the increased focus on
on-site examination of qualitative and quantitative risk management
factors. Moreover, they viewed these modifications as auguring a shift
in the policy stance taken by the agencies in the June 26, 1996, Joint
Agency Policy Statement on Interest Rate Risk (1996 Policy Statement).
Indeed, some industry commenters questioned whether these revisions
represented a way to eventually implement a standardized model approach
to assessing capital adequacy for interest rate risk.
The agencies remain committed to a risk assessment approach to
determining capital adequacy for interest rate risk. However, the 1996
Policy Statement explicitly noted the Agencies' intent to ``use various
quantitative screens and filters to identify banks that may have high
exposures or complex risk profiles, to allocate examiner resources, and
to set examination priorities. These tools rely on Call Report data and
various economic indicators and data.'' The agencies do not intend,
with or without these Call Report changes, to construct a standardized
supervisory measure of interest rate risk. The recent adoption of the
market risk capital charge clearly signals and establishes precedent
that the agencies will rely increasingly on the internal risk measures
of institutions. The agencies intend to use the data from the Call
Report as it would be revised to develop screens that will permit the
allocation of examiner resources toward the potentially riskier
institutions and away from potentially less risky institutions.
Without the increased identification power provided by the
additional data, the agencies may tend to conduct more in-depth on-site
examinations than might otherwise be conducted. With the revisions to
the Call Report, the agencies will be better equipped to identify both
high and low interest rate risk institutions, off-site, and will be
able to better focus examiner resources to address interest rate risk
in a more efficient and burden sensitive manner.
The agencies recognize that the cost associated with changing the
Call Report is not inconsequential. However, the proposed modifications
will cause institutions to incur a significant one-time reprogramming
cost with a smaller increase in periodic reporting cost. Moreover,
these revisions are a small fraction of the proposed data collection
requirements contained in the Supervisory Policy Statement Concerning a
Supervisory Framework for Measuring and Assessing Banks' Interest Rate
Risk Exposure which the agencies proposed in August 1995. The agencies
have chosen only those modifications that afford the greatest potential
benefit to off-site risk identification and resource allocation. The
increased transparency provided by the changes will enhance the
agencies' ability to distinguish institutions with potentially higher
interest rate sensitivity. Additionally, it extends the agencies'
ability to monitor structural changes in portfolio composition over
time, enhancing the agencies' ability to redirect resources in a timely
fashion as potential risks at individual institutions change.
In response to the burden concerns raised by commenters, the
agencies and the FFIEC reviewed the specific interest rate risk-related
changes that had been proposed and have made some modifications to the
original proposal. First, the FFIEC deferred the effective date for the
interest rate risk revisions to the Call Report from March until June
1997. This will increase the lead time that banks and their servicers
will have to make necessary systems changes. Commercial banks will
report the existing Call Report items that provide maturity and
repricing data in March 1997. FDIC-supervised savings banks will
continue to complete their supplemental interest rate risk schedule
(Schedule RC-J) in March 1997, except for the weighted average cost and
yield factors and the principal payments
received memorandum items which will be eliminated.
Second, the FFIEC dropped three of the new items that had been
proposed because of their relatively lower importance for interest rate
risk screening purposes. These three items are ``Long positions in
interest rate futures and forwards,'' ``Short positions in interest
rate options,'' and ``Outstanding principal balance of 1-to-4 family
residential mortgage loans held in portfolio that are serviced by
others.'' The first two items would have been added to the off-balance
sheet schedule (Schedule RC-L) and the third would have appeared on the
memoranda schedule (Schedule RC-M).
Third, another proposed memoranda schedule item on servicing,
``Outstanding principal balance of loans other than 1-to-4 family
residential mortgage loans that are serviced for others,'' will not be
completed by all banks. Instead, this item will be applicable only to
those banks filing the FFIEC 031, 032, and 033 report forms that
service more than $10 million of such loans and whose servicing volume
exceeds 10 percent of the reporting bank's assets. This item will not
be applicable to banks with less than $100 million in assets that file
the FFIEC 034 report form.
Fourth, the coverage of one of the proposed off-balance sheet items
on interest rate swaps held for purposes other than trading has been
revised to provide the agencies with a better indication of the volume
of such swaps used for hedging purposes. The proposed item for
``Interest rate swaps where the bank has undertaken a floating rate
obligation'' has been changed to cover those swaps ``where the bank has
agreed to pay a fixed rate.''
Dated: February 14, 1997.
Director, Legislative and Regulatory Activities Division, Office of the
Comptroller of the Currency.
Board of Governors of the Federal Reserve System, February 7,
William W. Wiles,
Secretary of the Board.
[THIS SIGNATURE PAGE PERTAINS TO THE JOINT NOTICE AND REQUEST FOR
COMMENT, ``SUBMISSION FOR OMB REVIEW; COMMENT REQUEST'']
Dated at Washington, D.C., this 7th day of February, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-4363 Filed 2-20-97; 8:45 am]
BILLING CODE OCC: 4810-33-P \1/3\, Board: 6210-01-P \1/3\, FDIC: 6714-