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FDIC Federal Register Citations

[Federal Register: February 21, 1997 (Volume 62, Number 35)]
[Page 8078-8084]
From the Federal Register Online via GPO Access []
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:]. Comments will be available for inspection 
and photocopying at that address.
    Board: Written comments should be addressed to Mr. William W. 
Wiles, Secretary, Board of Governors of the Federal Reserve System, 
20th and C Streets, N.W., Washington, D.C. 20551, or delivered to the 
Board's mail room between 8:45 a.m. and 5:15 p.m., and to the security 
control room outside of those hours. Both the mail room and the 
security control room are accessible from the courtyard entrance on 
20th Street between Constitution Avenue and C Street, N.W. Comments 
received may be inspected in room M-P-500 between 9:00 a.m. and 5:00 
p.m., except as provided in Sec. 261.8 of the Board's Rules Regarding 
Availability of Information, 12 CFR 261.8(a).
    FDIC: Written comments should be addressed to the Office of the 
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th 
Street, N.W., Washington, D.C. 20429. Comments may be hand-delivered to 
Room F-402, 1776 F Street, N.W., Washington, D.C. 20429, on business 
days between 8:30 a.m. and 5:00 p.m. Comments may be sent through 
facsimile to: (202) 898-3838 or by the Internet to: 
Comments 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 
[[Page 8079]]
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.
    For OCC:
    OMB Number: 1557-0081.
    Affected Public: National Banks.
    Estimated Number of Respondents: 2,800 national banks.
    Estimated Time per Response: 39.92 burden hours.
    Estimated Total Annual Burden: 447,132 burden hours.
    For Board:
    OMB Number: 7100-0036.
    Affected Public: State Member Banks.
    Estimated Number of Respondents: 1,002 state member banks.
    Estimated Time per Response: 45.80 burden hours.
    Estimated Total Annual Burden: 183,566 burden hours.
    For FDIC:
    OMB Number: 3064-0052.
    Affected Public: Insured State Nonmember Commercial and Savings 
    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
[[Page 8080]]
that generally does not require the holder or writer of the instrument 
to own or deliver the underlying. This commenter felt it would be 
confusing to report when-issued securities as derivatives in Schedule 
RC-L if they are not reported as such for other financial reporting 
purposes. The FFIEC agreed and decided that institutions that do not 
include when-issued securities commitments as part of their disclosures 
about derivatives for other financial reporting purposes would be 
permitted to report commitments to sell when-issued securities as 
``other off-balance sheet assets'' and commitments to purchase when-
issued securities as ``other off-balance sheet liabilities'' in 
Schedule RC-L. There would be no change in the risk-based capital 
treatment of these contracts regardless of the Schedule RC-L item in 
which they are reported.
    The agencies had proposed to combine items 1.d, ``Securities 
underwriting,'' and 1.e. ``Other unused commitments,'' on Schedule RC-
L--Off-Balance Sheet Items, because only a small number of banks report 
that they have securities underwriting commitments. However, because of 
regulatory and possible statutory changes, the extent of bank 
involvement in securities underwriting may increase in the near future. 
Therefore, upon further consideration by the agencies, item 1.d is 
being retained.
    Comments on the Elimination of Call Report Instructions That Differ 
From GAAP, Related New Items, and Other Affected Call Report Items and 
Instructions--Commenters addressing the adoption of GAAP as the 
reporting basis for the balance sheet, income statement, and related 
schedules in the Call Report expressed broad support for this concept. 
However, many of these commenters had opinions on certain issues 
relating to the implementation of GAAP-based reporting in the Call 
    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 
adopting the
[[Page 8081]]
consideration of materiality in the application of accounting 
standards. Materiality is a qualitative characteristic of accounting 
information which is defined in FASB's Statement of Financial 
Accounting Concepts No. 2. At the end of each Statement of Financial 
Accounting Standards, the FASB states that the Statement's provisions 
``need not be applied to immaterial items.'' Commenters indicated that 
the agencies' failure to recognize the concept of materiality for 
regulatory reporting purposes would add to the cost and regulatory 
burden of the Call Report. One commenter complained that regulators 
consider all items material, regardless of size.
    The General Instructions section of the Call Report instructions 
discusses the applicability of GAAP to regulatory reporting 
requirements. While not specifically referring to materiality, banks 
generally are directed to follow GAAP when reporting events and 
transactions in the Call Report except where the instructions do not 
follow GAAP. When discussing the need for banks to amend previous 
reports, the General Instructions to the Call Report state that the 
agencies may require amendments if reports contain significant errors. 
The Glossary entry for ``Accounting Changes'' in the Call Report 
instructions states that a bank may be directed to file amended reports 
for periods that were significantly affected by a material error. 
Consistent with this language, the members of the FFIEC's Task Force on 
Reports and their agencies' accounting policy staffs, as a matter of 
practice, routinely consider materiality when responding to inquiries 
about how banks should account for specific events and transactions for 
Call Report purposes. Therefore, when dealing with the recognition and 
measurement of events and transactions in the Call Report, the General 
Instructions' reference to ``significant'' errors should be interpreted 
to mean errors that are ``material'' for the reporting bank.
    In addition to situations involving recognition and measurement, 
the issue of materiality also arises in connection with how items must 
be classified or categorized in the Call Report, i.e., on what line of 
the Call Report must an item be reported. The Call Reports are 
standardized forms with preprinted captions for specific types of 
information. The agencies use the data reported on specific lines of 
the Call Report for purposes such as the FDIC's measurement of banks' 
assessable deposits in order to calculate deposit insurance premiums. 
The Board's research divisions use Call Report data for a variety of 
purposes, including for constructing and benchmarking various measures 
of the domestic (U.S.) banking system and for construction of the Flow-
of-Funds accounts, all of which are provided to the Board of Governors 
and the Federal Open Market Committee, and for providing the Board of 
Governors with policy analyses of fundamental banking issues. Because 
of uses such as these for Call Report data, the need for banks to 
report items on the proper line of the standardized form may not be 
fully compatible with the concept of materiality. The agencies will 
need to give further study to the issue of materiality in relation to 
the classification of items in the Call Report.
    Fourth, a number of commenters requested that they be given the 
opportunity to review and comment on the Call Report instructions as 
they would be revised to bring them into conformity with GAAP before 
they are finalized prior to the March 31, 1997, report date. One other 
commenter specifically suggested that the agencies provide a comment 
period after March 31 in order to permit banks to comment on any Call 
Report instructions they feel do not conform to GAAP. These commenters 
indicated that this process would help to ensure that the instructions 
do not inadvertently contain wording that is inconsistent with GAAP or 
otherwise presents problems to banks. Accordingly, the FFIEC's Task 
Force on Reports will provide draft instructions to each commenter who 
requested this opportunity and to the members of the Inter-Association 
Committee on Bank Accounting as they become available. In addition, 
once the new or revised instructions for 1997 are issued, the Task 
Force on Reports will set a specific time period, which will likely 
begin in the second quarter of 1997, during which banks can submit 
further comments about instructions that appear inconsistent with GAAP.
    Fifth, the agencies proposed to add certain new items and to modify 
a number of existing Call Report items because of the effect that the 
adoption of GAAP will have on the manner in which several types of 
transactions or activities are reported in 1997. In the proposal, the 
caption to Schedule RC-F--Other Assets, item 3, ``Excess [first lien 1-
to-4 family] residential mortgage servicing fees receivable,'' was to 
be revised to refer to interest-only strips receivable in response to 
the provisions of (FASB) Statement No. 125, ``Accounting for Transfers 
and Servicing of Financial Assets and Extinguishments of Liabilities'' 
(FAS 125), which take effect in 1997. The agencies also proposed to add 
a new item to this schedule for interest-only strips receivable on 
other financial assets. One commenter recommended adding two more new 
items for interest-only strips receivable: one for mortgage-related 
assets other than first lien 1-to-4 family residential mortgages and 
another for credit card-related assets. After considering this 
commenter's suggestion, the FFIEC decided that only two items on 
interest-only strips receivable should be collected, but that the 
coverage of the proposed item for interest-only strips receivable on 
first lien 1-to-4 family residential mortgage loans be expanded to 
include all mortgage loans. The second proposed item would continue to 
refer to all other financial assets, but would no longer include any 
amounts related to mortgage loans.
    Sixth, the proposal further noted that while the treatment of 
assets sold with recourse would be brought into conformity with GAAP 
for purposes of the Call Report balance sheet and income statement, the 
agencies' risk-based capital standards refer to the existing Call 
Report instructions as the source for the definition of asset sales 
with recourse. Thus, the Call Report Glossary entry for ``Sales of 
Assets'' would be recaptioned ``Sales of Assets for Risk-Based Capital 
Purposes.'' The Glossary entry's existing general rule would remain 
applicable for identifying those asset sales that would be treated as 
recourse transactions for risk-based capital purposes and be reportable 
as such in Call Report Schedule RC-R--Regulatory Capital.
    The proposal also explained that, in connection with the 
implementation of FAS 125 in 1997, banks may be able to reflect as an 
asset certain previously nonrecognized (for Call Report purposes) 
contractual cash flows (e.g., excess servicing fees that are placed in 
so-called ``spread accounts'') that act as credit enhancements for 
assets (typically credit card receivables) that have been transferred 
and securitized. However, asset transfers that qualify for sale 
treatment under GAAP, but which use such cash flows as credit 
enhancements and carry them as on-balance sheet assets at a discounted 
amount, would be treated as sales with recourse under the ``Sales of 
Assets for Risk-Based Capital Purposes'' general rule because the bank 
has retained risk of loss with respect to these asset amounts. This 
means that a bank would have to hold risk-based capital against the 
full amount of assets transferred with recourse, but such transfers may 
qualify for low-level recourse capital treatment which would limit the
[[Page 8082]]
required amount of capital to the carrying amount of these contractual 
cash flows net of any noncapital GAAP recourse liability account 
associated with the asset transfer.
    The proposed post-1996 reporting treatment for asset transfers in 
which certain contractual cash flows act as credit enhancements was 
intended to produce the same regulatory capital outcome as the current 
(non-GAAP) nonrecognition of these cash flows. Several commenters 
concurred with the agencies' desire for the move to GAAP in this area 
to produce no significant change in the risk-based capital ratios 
calculated for a bank using the data reported in the Call Report's 
risk-based capital schedule. However, they observed that this would not 
be the case because a bank's reported assets would increase based on 
the carrying amount of these ``spread accounts,'' but the amount by 
which its reported undivided profits and Tier 1 capital would increase 
would be reduced by the related tax effect. The agencies and the FFIEC 
did not intend for the adoption of GAAP to significantly penalize 
institutions from a risk-based capital perspective. Accordingly, until 
any new regulatory capital rules for recourse arrangements and direct 
credit substitutes take effect, the Call Report instructions relating 
to the completion of the regulatory capital schedule will permit banks 
to apply the low-level recourse capital rule on a net of tax basis to 
``spread accounts'' that act as credit enhancements for asset 
    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.
[[Page 8083]]
    Comments on Other Instructional Changes--The agencies proposed to 
revise the Call Report instructions in six other areas, two of which 
were addressed by commenters.
    The first area involves the reporting of full-time equivalent 
employees and their compensation expense. Two commenters expressed 
concern that the proposal would cause banks to break out the 
compensation component of intercompany cost allocations and the related 
pro rata full-time equivalent employees. However, this was not the 
intent of the proposed change. Instructions will so indicate.
    The second area involves the proposed elimination of conflicting 
instructions concerning the reporting of loans and leases held for 
sale. One commenter did not disagree with this proposed clarification, 
but suggested that the agencies also clarify that loans and leases held 
for short-term trading purposes and marked-to-market through the income 
statement may continue to be reported as trading assets. The agencies 
had not intended to change this existing reporting practice which is 
consistent with GAAP and will make this additional suggested 
instructional clarification.
    Comments on Enhanced Interest Rate Risk Information--The industry 
comments on the proposed additions to the Call Report for interest rate 
risk monitoring purposes were generally unfavorable. Nearly three-
fourths of the commenters, including almost all of the community banks, 
addressed the revisions related to interest rate risk. Most considered 
these revisions unnecessary, many stated that the expanded data will 
increase the cost and burden of the Call Report. Others suggested that 
the marginal benefit of these data to the agencies (in terms of earlier 
identification of some banks with interest rate risk problems than at 
present) would exceed the cost to implement the proposed changes. Some 
commenters reported that they or their data processing servicers would 
not have sufficient time to make the necessary systems changes by the 
proposed March 1997 implementation date and urged the agencies to move 
this date until June or September 1997 if they decide to proceed with 
their proposal. Some commenters also noted that the agencies just made 
some changes to the Call Report's maturity and repricing data in March 
1996, are proposing further revisions for 1997, and may make additional 
changes as they design the common core report for banks, savings 
associations, and bank holding companies which at present is targeted 
for implementation not earlier than in 1998. In contrast, one 
commenting bankers' association agreed that, in general, ``the proposed 
changes are appropriate to analyze interest rate risk,'' but went on to 
state that it had some objections, including the cost.
    After considering the comments, the agencies still believe that a 
revision of the Call Report that is substantially the same as proposed 
is necessary in order to obtain information that is better suited for 
off-site identification of institutions that have either minimal or 
potentially high interest rate risk. Revisions allowing a better 
identification of basic repricing/maturity mismatches and the presence 
of potential option risk are particularly important. A few commenters 
recognized that the proposed revisions accomplish this objective but 
commented negatively on the increased burden and the costs incurred in 
making programming changes to current systems.
    Some commenters questioned the agencies' commitment to developing a 
risk assessment approach to determining the capital adequacy of an 
institution for interest rate risk. These commenters questioned the 
need for any revision to the Call Report given the increased focus on 
on-site examination of qualitative and quantitative risk management 
factors. Moreover, they viewed these modifications as auguring a shift 
in the policy stance taken by the agencies in the June 26, 1996, Joint 
Agency Policy Statement on Interest Rate Risk (1996 Policy Statement). 
Indeed, some industry commenters questioned whether these revisions 
represented a way to eventually implement a standardized model approach 
to assessing capital adequacy for interest rate risk.
    The agencies remain committed to a risk assessment approach to 
determining capital adequacy for interest rate risk. However, the 1996 
Policy Statement explicitly noted the Agencies' intent to ``use various 
quantitative screens and filters to identify banks that may have high 
exposures or complex risk profiles, to allocate examiner resources, and 
to set examination priorities. These tools rely on Call Report data and 
various economic indicators and data.'' The agencies do not intend, 
with or without these Call Report changes, to construct a standardized 
supervisory measure of interest rate risk. The recent adoption of the 
market risk capital charge clearly signals and establishes precedent 
that the agencies will rely increasingly on the internal risk measures 
of institutions. The agencies intend to use the data from the Call 
Report as it would be revised to develop screens that will permit the 
allocation of examiner resources toward the potentially riskier 
institutions and away from potentially less risky institutions.
    Without the increased identification power provided by the 
additional data, the agencies may tend to conduct more in-depth on-site 
examinations than might otherwise be conducted. With the revisions to 
the Call Report, the agencies will be better equipped to identify both 
high and low interest rate risk institutions, off-site, and will be 
able to better focus examiner resources to address interest rate risk 
in a more efficient and burden sensitive manner.
    The agencies recognize that the cost associated with changing the 
Call Report is not inconsequential. However, the proposed modifications 
will cause institutions to incur a significant one-time reprogramming 
cost with a smaller increase in periodic reporting cost. Moreover, 
these revisions are a small fraction of the proposed data collection 
requirements contained in the Supervisory Policy Statement Concerning a 
Supervisory Framework for Measuring and Assessing Banks' Interest Rate 
Risk Exposure which the agencies proposed in August 1995. The agencies 
have chosen only those modifications that afford the greatest potential 
benefit to off-site risk identification and resource allocation. The 
increased transparency provided by the changes will enhance the 
agencies' ability to distinguish institutions with potentially higher 
interest rate sensitivity. Additionally, it extends the agencies' 
ability to monitor structural changes in portfolio composition over 
time, enhancing the agencies' ability to redirect resources in a timely 
fashion as potential risks at individual institutions change.
    In response to the burden concerns raised by commenters, the 
agencies and the FFIEC reviewed the specific interest rate risk-related 
changes that had been proposed and have made some modifications to the 
original proposal. First, the FFIEC deferred the effective date for the 
interest rate risk revisions to the Call Report from March until June 
1997. This will increase the lead time that banks and their servicers 
will have to make necessary systems changes. Commercial banks will 
report the existing Call Report items that provide maturity and 
repricing data in March 1997. FDIC-supervised savings banks will 
continue to complete their supplemental interest rate risk schedule 
(Schedule RC-J) in March 1997, except for the weighted average cost and 
yield factors and the principal payments
[[Page 8084]]
received memorandum items which will be eliminated.
    Second, the FFIEC dropped three of the new items that had been 
proposed because of their relatively lower importance for interest rate 
risk screening purposes. These three items are ``Long positions in 
interest rate futures and forwards,'' ``Short positions in interest 
rate options,'' and ``Outstanding principal balance of 1-to-4 family 
residential mortgage loans held in portfolio that are serviced by 
others.'' The first two items would have been added to the off-balance 
sheet schedule (Schedule RC-L) and the third would have appeared on the 
memoranda schedule (Schedule RC-M).
    Third, another proposed memoranda schedule item on servicing, 
``Outstanding principal balance of loans other than 1-to-4 family 
residential mortgage loans that are serviced for others,'' will not be 
completed by all banks. Instead, this item will be applicable only to 
those banks filing the FFIEC 031, 032, and 033 report forms that 
service more than $10 million of such loans and whose servicing volume 
exceeds 10 percent of the reporting bank's assets. This item will not 
be applicable to banks with less than $100 million in assets that file 
the FFIEC 034 report form.
    Fourth, the coverage of one of the proposed off-balance sheet items 
on interest rate swaps held for purposes other than trading has been 
revised to provide the agencies with a better indication of the volume 
of such swaps used for hedging purposes. The proposed item for 
``Interest rate swaps where the bank has undertaken a floating rate 
obligation'' has been changed to cover those swaps ``where the bank has 
agreed to pay a fixed rate.''
    Dated: February 14, 1997.
Karen Solomon,
Director, Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency.
    Board of Governors of the Federal Reserve System, February 7, 
William W. Wiles,
Secretary of the Board.
    Dated at Washington, D.C., this 7th day of February, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-4363 Filed 2-20-97; 8:45 am]
BILLING CODE OCC: 4810-33-P \1/3\, Board: 6210-01-P \1/3\, FDIC: 6714-
01-P \1/3\

Last Updated 02/21/1997

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