Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34801

1On the FDIC’s web site, draft copies of the

proposed Call Report forms will be attachments to

the Financial Institution Letter that transmits this

proposal to all institutions that file Call Reports.

Continued

commenters in the same docket

questioned NHTSA’s research in

justifying the proposed release timing

requirement. Freightliner indicates that

one commenter stated that it is difficult

to determine the effect of trailer release

timing and tractor/trailer release

differentials on compatibility and

suggested testing indicated 0.90 second

is sufficient. Freightliner also indicates

that another commenter argued that a

1.00 second release timing would be

more practical and accomplish the

objective of the proposal, and that

NHTSA stated that:

A short glad hand release time is not as

important for safety and, in fact, it is not

desirable to have the glad hand release before

the tractor brakes.

Freightliner believes that requiring

the rearmost vehicle to release last tends

to ‘‘stretch’’ out the unit (vehicle

combination) and make it more stable,

and that slower than the required

release time may actually help overall

stability.

Freightliner summarizes its petition

by stating that an estimated 280 to 2170

tractors were manufactured without

quick release valves such that the glad

hand release timing may be slightly

higher than the 0.75 second specified in

FMVSS No. 121, and that nearly all

(99.6 percent) do not exceed 0.90

second. Freightliner believes that this

timing difference of 0.0 to 0.15 second

has no discernable or measurable effect

on braking performance and thus no

detrimental effect on highway safety.

Therefore, it requests that we grant its

petition to exempt it from the

notification and remedy requirements of

the Motor Vehicle Safety Act.

Comments and Docket Submissions

Interested persons are invited to

submit written data, views, and

arguments on Freightliner’s petition for

inconsequential noncompliance

described above. Comments should refer

to the Docket Number and be submitted

to Docket Management at the address

given above under ADDRESSES.

All comments received before the

close of business on the closing date

indicated below will be considered. The

application, supporting materials, and

comments also will be filed in the

docket. Comments received after the

closing date will also be filed and

considered to the extent possible. When

the petition is granted or denied, the

notice will be published in the Federal

Register pursuant to the authority

indicated below.

Comment closing date: June 30, 2000.

(15 U.S.C. 1417; delegation of authority

at 49 CFR 1.50 and 49 CFR 501.8)

Issued on: May 23, 2000.

Stephen R. Kratzke,

Associate Administrator for Safety

Performance Standards.

[FR Doc. 00–13536 Filed 5–30–00; 8:45 am]

BILLING CODE 4910–59–P

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

System (Board); and Federal Deposit

Insurance Corporation (FDIC).

ACTION: Notice and request for comment.

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 July 31, 2000.

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, SW, Third

Floor, Attention: 1557–0081,

Washington, DC 20219. In addition,

comments may be sent by facsimile

transmission to (202) 874–5274, or by

electronic mail to

regs.comments@occ.treas.gov.

Comments will be available for

inspection and photocopying at the

OCC’s Public Reference Room, 250 E

Street, SW, Washington, DC 20219

between 9 a.m. and 5 p.m. on business

days. Appointments for inspection of

comments may be made by calling (202)

874–5043.

Board: Written comments should be

addressed to Jennifer J. Johnson,

Secretary, Board of Governors of the

Federal Reserve System, 20th and C

Streets, NW, Washington, DC 20551,

submitted by electronic mail to

regs.comments@federalreserve.gov, 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, NW. Comments received may

be inspected in room M–P–500 between

9 a.m. and 5 p.m., except as provided

in section 261.12 of the Board’s Rules

Regarding Availability of Information,

12 CFR 261.12(a).

FDIC: Written comments should be

addressed to Robert E. Feldman,

Executive Secretary, Attention:

Comments/OES, Federal Deposit

Insurance Corporation, 550 17th Street,

NW, Washington, DC 20429. Comments

may be hand-delivered to the guard

station at the rear of the 550 17th Street

Building (located on F Street), on

business days between 7 a.m. and 5 p.m.

[FAX number: (202) 898–3838; Internet

address: comments@fdic.gov].

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: Alexander T. Hunt, Office

of Information and Regulatory Affairs,

Office of Management and Budget, New

Executive Office Building, Room 3208,

Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT:

Draft copies of the two versions of the

Call Report forms that are proposed to

replace the current four versions of the

Call Report may be obtained at the

FFIEC’s web site (www.ffiec.gov) and at

the FDIC’s web site.1 Draft copies of

34802 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

Financial Institution Letters can be accessed at

http://www.fdic.gov/news/news/financial/2000/

index.html.

2The FFIEC 031 report form would continue to

be filed by banks with domestic and foreign offices.

At present, the FFIEC 032 report form is filed by

banks with domestic offices only and $300 million

or more in total assets, the FFIEC 033 report form

is filed by banks with domestic offices only and

$100 million or more but less than $300 million in

total assets, and the FFIEC 034 report form is filed

by banks with domestic offices only and less than

$100 million in total assets. The proposed FFIEC

041 report form would replace the FFIEC 032, 033,

and 034 report forms and would be filed by all

banks with domestic offices only.

3The Annual Report of Trust Assets (FFIEC 001)

and the Annual Report of International Fiduciary

Activities (FFIEC 006): for the OCC, OMB Number

1557–0127; for the Board, OMB Number 7100–

0031; and for the FDIC, OMB Number 3064–0024.

The FDIC does not collect the FFIEC 006.

these proposed revised Call Report

forms also 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: Mary M. West, Chief, Financial

Reports Section, (202) 452–3829,

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 contact Diane Jenkins,

(202) 452–3544, Board of Governors of

the Federal Reserve System, 20th and C

Streets, NW, Washington, DC 20551.

FDIC: Steven F. Hanft, FDIC Clearance

Officer, (202) 898–3907, Office of the

Executive Secretary, Federal Deposit

Insurance Corporation, 550 17th Street

NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Proposal

to revise the following currently

approved collections of information:

Report Title: Consolidated Reports of

Condition and Income.

Form Number: Current form numbers:

FFIEC 031, 032, 033, and 034.

Proposed form numbers: FFIEC 031

and 041.2

Frequency of Response: Quarterly.

Affected Public: Business or other forprofit.

For OCC:

OMB Number: 1557–0081.

Estimated Number of Respondents:

2,400 national banks.

Estimated Time per Response: 41.76

burden hours.

Estimated Total Annual Burden:

400,865 burden hours.

For Board:

OMB Number: 7100–0036.

Estimated Number of Respondents:

1,014 state member banks.

Estimated Time per Response: 47.56

burden hours.

Estimated Total Annual Burden:

192,903 burden hours.

For FDIC:

OMB Number: 3064–0052.

Estimated Number of Respondents:

5,734 insured state nonmember

banks.

Estimated Time per Response: 30.81

burden hours.

Estimated Total Annual Burden:

706,633 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 14 to

500 hours, depending on individual

circumstances. In addition, the effect on

the time per response of the proposed

changes to the Call Report that are

discussed in this notice will vary from

bank to bank. After adjusting to the

proposed revisions to the reporting

requirements, many smaller banks

should experience a decrease in time

per response because they do not have

trust powers and are not involved in the

activities for which new information

would be collected. In contrast, the time

per response for some large banks is

expected to increase because the

proposed new information would be

applicable to them and because the

reporting of trust activities would be

moved into the Call Report from two

separate trust activities reports.3

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 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 onsite 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 Actions

I. Overview

The agencies are requesting comment

on proposed revisions to the Call Report

that are intended to make the content of

the report more relevant to the agencies.

The more significant revisions include:

• An approximate 10 percent

decrease in the number of currently

existing separately reportable data items

(outside of regulatory capital

information) whose collection is no

longer warranted;

• A new regulatory capital reporting

approach that uses step-by-step

‘‘building blocks’’ to compute the key

elements of the capital ratios;

• Combining the three separate report

forms for banks of different sizes that

have only domestic offices into a single

form while retaining the separate form

for banks with foreign offices;

• New information on:

—Nontraditional and higher risk bank

activities, i.e., subprime loans,

securitizations and asset sale

activities, additional categories of

noninterest income, and restructured

derivative contracts; and

—Federal Home Loan Bank advances

and other borrowings;

• Replacing the two separate trust

activities reports with a single,

streamlined trust Call Report schedule;

• Eliminating the confidential

treatment for loans, leases, and other

assets that are past due 30 through 89

days; and

• Eliminating the additional 15-day

period that banks with more than one

foreign office are given for submitting

their Call Reports.

These revised reporting requirements

are also designed to complement the

agencies’ emphasis on risk-focused

supervision. Furthermore, the proposal

addresses certain aspects of sections

307(b) and (c) of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (the Riegle

Act). These sections direct the federal

banking agencies to work jointly toward

more uniform reporting, review the

information that institutions currently

report, and eliminate existing reporting

requirements that are not warranted for

safety and soundness or other public

policy purposes.

Type of Review: Revision of a

currently approved collection.

The proposed revisions to the Call

Report have been approved for

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34803

4These three types of financial institutions file

different regulatory report forms. Banks file Call

Reports, savings associations file Thrift Financial

Reports, and bank holding companies subject to

consolidated reporting requirements file the FR Y–

9C reports.

publication by the FFIEC. The agencies

would implement these proposed Call

Report changes as of the March 31,

2001, report date. Nonetheless, as is

customary for Call Report changes,

banks are advised that, for the March 31,

2001, report date only, reasonable

estimates may be provided for any new

or revised item for which the requested

information is not readily available. The

specific wording of the captions for the

new and revised Call Report items and

the numbering of the items in the report

forms should be regarded as

preliminary.

II. Streamlining the Existing Reporting

Requirements

The agencies have carefully reviewed

the purposes for which and extent to

which they use each data item that they

currently collect from banks in the Call

Report. This process involved

requesting feedback from the staffs

within the three agencies on the specific

uses of each Call Report item. The

agencies also considered the magnitude

of the aggregate amounts reported for

each item in the Call Report, the number

and size distribution of banks reporting

amounts for each Call Report item, and

bankers’ comments about the most

burdensome aspects of the Call Report.

Based on this information, the agencies

identified items that appeared to be of

lesser significance to them, taking into

account the effect that eliminating

certain items and reducing the amount

of detail in certain schedules would

have on the agencies. In addition, the

agencies considered ways to limit the

number of banks that are required to

complete certain items and schedules

based on bank size or other criteria in

order to focus the collection of this

information on those institutions for

which the data are most relevant.

Based on the agencies’ evaluations of

their users’ input, the agencies are

proposing to implement numerous

revisions that will streamline the

existing reporting requirements. While

the effect of these revisions on reporting

burden, either through the outright

elimination of items or reductions in the

amount of detail required in certain

areas, will vary across the four existing

sets of reporting requirements, many of

the recommended revisions will affect

information currently reported by

substantially all banks. In other cases,

the recommended changes will apply

only to a subset of banks such as those

with foreign offices or banks within a

particular size range. This burdenreducing effort will produce an

approximate 10 percent decrease in the

number of separately reportable items

on the four existing sets of Call Report

forms (outside of regulatory capital

information) before considering the

agencies’ new information needs, which

are discussed in Section III below.

These eliminations and reductions in

detail will help the agencies achieve the

objective set forth in section 307(c) of

the Riegle Act, which directs the

agencies to review the information that

institutions currently report in the Call

Report and eliminate existing reporting

requirements that are not warranted for

safety and soundness or other public

policy purposes.

As part of the streamlining process,

the agencies are proposing several

reporting changes that will introduce

more uniformity to certain aspects of

bank regulatory reporting. These

changes will provide more uniformity to

the Call Report requirements themselves

and will bring some elements of the

regulatory reporting requirements for

banks, savings associations, and bank

holding companies into closer

alignment.4 In this regard, over the past

several years, banking organizations

have sought greater consistency among

the reporting requirements imposed on

banks, savings associations, and bank

holding companies. Thus, for example,

the agencies are proposing to eliminate

the differing definitional schemes for

loans that now exist within the Call

Report for banks of different sizes and

to conform other Call Report definitions

to those used by savings associations.

Moreover, the proposed new regulatory

capital reporting approach incorporates

some elements of the format used by

bank holding companies to report

regulatory capital information. Other

proposed modifications to the Call

Report are intended to make its form

and content more closely resemble the

manner in which information is

presented in financial statements that

banks prepare in accordance with

generally accepted accounting

principles (GAAP) for other financial

reporting purposes.

An additional outcome of this

streamlining effort is that the agencies

believe that there is no longer a need for

three separate versions of the Call

Report based on asset size for banks

with domestic offices only. The agencies

are therefore proposing to combine

these three reports (FFIEC 032, 033, and

034) into a single report (FFIEC 041).

Nevertheless, within this single report,

certain schedules or items would only

be applicable to banks that meet

specified criteria, e.g., asset size. The

agencies would retain the separate

version of the Call Report for banks with

foreign offices (FFIEC 031).

Increasing the uniformity of the Call

Report requirements, both among banks

and among the different types of

institutions supervised by the federal

financial institution regulators, is a

necessary step toward achieving the

goal of a single set of reporting

requirements for the filing of core

information that is set forth in section

307(b) of the Riegle Act. It should also

reduce reporting burden for banking

organizations comprised of two or more

separate entities that must file

regulatory reports with their primary

federal regulators.

A. Specific Proposed Deletions,

Reductions in Detail, Changes To

Increase Uniformity in Regulatory

Reporting, and Revisions To Conform

With GAAP (Outside of Regulatory

Capital Reporting)

The agencies propose to delete

existing items from or reduce the

amount of detail currently required in

most of the schedules of the Call Report.

Other changes throughout the existing

report will be made to bring about more

uniformity in the reporting

requirements for banks or among banks

and other types of financial institutions

insured or supervised by the agencies or

to better conform with the requirements

of GAAP. In addition, the specific

location of certain items within the Call

Report will be modified so that it better

matches the presentation required by

GAAP or followed in practice by most

institutions. Some of these revisions

will affect information that is now

collected in all four versions of the Call

Report (FFIEC 031, 032, 033, and 034)

while other changes may affect only one

report form.

A schedule-by-schedule listing of

these proposed revisions, using the

current numbers and captions for the

affected items, follows:

Schedule RC—Balance Sheet: For all

banks:

(1) Item 15.b, ‘‘Demand notes issued

to the U.S. Treasury,’’ would be

eliminated as a separate item and would

be reported instead as part of item 16,

‘‘Other borrowed money.’’

(2) Items 26.b, ‘‘Net unrealized

holding gains (losses) on available-forsale securities,’’ 26.c, ‘‘Accumulated net

gains (losses) on cash flow hedges,’’ and

27, ‘‘Cumulative foreign currency

translation adjustments,’’ would be

combined and reported as

‘‘Accumulated other comprehensive

34804 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

5The first two of these components of

‘‘Accumulated other comprehensive income’’

would be separately identified in the proposed new

regulatory capital schedule, which is discussed in

Section II.B. below.

income.’’ 5 In addition, any minimum

pension liability adjustment recognized

in accordance with Financial

Accounting Standards Board (FASB)

Statement No. 87, Employers’

Accounting for Pensions, which banks

have to net against ‘‘Undivided profits

and capital reserves’’ due to the

constraints of the current Call Report

balance sheet, would be included in this

new item for ‘‘Accumulated other

comprehensive income.’’ This change

would conform the presentation of the

equity capital section of the Call Report

balance sheet to FASB Statement No.

130, Reporting Comprehensive Income.

(3) Loans and leases held for sale are

currently included on the balance sheet

in item 4.a, ‘‘Loans and leases, net of

unearned income,’’ together with loans

that the bank has the intent and ability

to hold for the foreseeable future or

until maturity or payoff, but loans and

leases held for sale are separately

identified in the loan schedule in

Schedule RC–C, part I, Memorandum

item 5. The agencies propose to move

‘‘Loans and leases held for sale’’ onto

the balance sheet as an asset category

separate from the loan portfolio. This

change will bring the Call Report

balance sheet presentation of these two

categories of loans into conformity with

GAAP. However, loans and leases held

for sale would continue to be reported

with the bank’s other loans in the loan

schedule (Schedule RC–C, part I).

(4) Item 4.c, ‘‘Allocated transfer risk

reserve,’’ would be deleted from the

balance sheet, but would be reported in

the new regulatory capital schedule,

which is discussed in section II.B.

below. Banks would report their loans

and leases net of any allocated transfer

risk reserve in the loan schedule

(Schedule RC–C, part I).

(5) A new item for ‘‘Other equity

capital components’’ would be added to

the equity capital section of the balance

sheet. This item would cover treasury

stock and unearned Employee Stock

Ownership Plan shares which, under

GAAP, are to be reported in a contraequity account on the balance sheet.

Due to the constraints of the equity

capital section of the current Call Report

balance sheet, banks are forced to report

these amounts as reductions of

undivided profits. Thus, this change

will make the equity capital section

more consistent with GAAP and with

the equity capital section of the balance

sheet in the Thrift Financial Report.

(6) Memorandum item 1 requires all

banks to report the highest level of

comprehensive external auditing work

they have had performed during the

previous year. In November 1999, the

agencies issued a joint policy statement

that encourages banks with less than

$500 million in total assets to consider

engaging an independent public

accountant to perform a full scope

annual audit or, alternatively, an

attestation engagement to examine

management’s assessment of the

effectiveness of their internal control

structure over financial reporting or an

audit of the bank’s balance sheet. A new

code category would be added to

Memorandum item 1 to capture data on

internal control attestations. Also, the

instructions for code categories 1 and 2

of Memorandum item 1, which

currently apply to full scope audits,

would be revised to include balance

sheet audits performed in accordance

with generally accepted auditing

standards.

Schedule RC–A—Cash and Balances

Due From Depository Institutions: At

present, this schedule appears only on

the FFIEC 031, 032, and 033 forms,

which means that the schedule is not

completed by banks with domestic

offices only and total assets of less than

$100 million. The agencies are

proposing to reduce the number of

banks with domestic offices only to

which this schedule applies by raising

the size threshold for the schedule from

$100 million to $300 million in total

assets. All banks with foreign offices

would continue to complete Schedule

RC–A. However, for all banks to which

the schedule would remain applicable,

the agencies propose to delete

Memorandum item 1, ‘‘Noninterestbearing balances due from commercial

banks in the U.S.’’

Schedule RC–B—Securities: For all

banks:

(1) The three separate items for

‘‘General obligations,’’ ‘‘Revenue

obligations,’’ and ‘‘Industrial

development and similar obligations’’

(items 3.a, 3.b., and 3.c, respectively)

would be combined into a single item

for ‘‘Securities issued by states and

political subdivisions in the U.S.’’

(2) Item 6.b, ‘‘All other equity

securities,’’ i.e., equity securities

without readily determinable fair

values, would be moved to a new item

in Schedule RC–F—Other Assets. These

equity securities are outside the scope of

FASB Statement No. 115, Accounting

for Certain Investments in Debt and

Equity Securities. Therefore, including

them in the Call Report with availablefor-sale securities in Schedule RC–B,

albeit at historical cost rather than at fair

value, has not been consistent with

GAAP. Moving equity securities without

readily determinable fair values to the

other assets schedule is intended to

eliminate this inconsistency.

(3) In Memorandum items 2.a and 2.b,

which provide maturity and repricing

data for debt securities (except

collateralized mortgage obligations

(CMOs), real estate mortgage investment

conduits (REMICs), and stripped

mortgage-backed securities), banks

currently report their floating rate debt

securities by repricing frequency. The

agencies are proposing to change this

reporting method so that floating rate

debt securities would instead be

reported based on their next repricing

date in these two memorandum items.

The interest rate risk measurement

models in use at most banks take the

next repricing date, not the repricing

frequency, of floating rate debt

securities into consideration. Therefore,

this proposed change would bring the

Call Report treatment of these securities

into line with banks’ internal risk

measurement systems.

Additionally, banks now filing the

FFIEC 034, i.e., banks with domestic

offices only and less than $100 million

in total assets, would begin to report

‘‘Foreign debt securities’’ as a separate

category of securities. These banks

currently report foreign debt securities,

if any, in item 5, ‘‘Other debt

securities.’’ Uniform reporting of foreign

debt securities by all banks is consistent

with the agencies’ emphasis on riskfocused supervision. This proposed

change would not significantly increase

overall reporting burden because of the

small percentage of banks filing the

FFIEC 034 that hold ‘‘Foreign debt

securities.’’

Schedule RC–C, Part I—Loans and

Leases:

(1) For all banks:

(a) The definition of ‘‘Construction

and land development’’ loans (item 1.a)

and, hence, the definitions for the other

categories of loans secured by real estate

(items 1.b through 1.e) would be revised

to make them consistent with reporting

requirements in this area for savings

associations on the Thrift Financial

Report. The Call Report instructions for

‘‘Construction and land development’’

loans currently direct banks to exclude

from this loan category: (i) Loans to

acquire and hold vacant land and (ii)

construction loans with original

maturities greater than 60 months.

These two types of loans are instead

reported as loans secured by farmland,

1–4 family residential properties,

multifamily residential properties, or

nonfarm nonresidential properties, as

appropriate. The agencies are proposing

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34805

to revise the definitions for the five

categories of ‘‘Loans secured by real

estate’’ so that land loans and long-term

construction loans are reported in a

recaptioned item 1.a, ‘‘Construction,

land development, and other land

loans.’’

(b) The separate loan categories for

‘‘Loans to depository institutions’’ and

‘‘Acceptances of other banks’’ (items 2

and 5, respectively) would be combined.

(c) Item 6.a, ‘‘Credit cards and related

plans’’ to individuals for household,

family, and other personal expenditures,

would be split into separate loan

categories for ‘‘Credit cards’’ and ‘‘Other

revolving credit plans.’’ For banks with

foreign offices, this breakdown would

be provided for both the consolidated

bank and for domestic offices; the

amount of ‘‘Other’’ consumer loans,

currently reported for the consolidated

bank only, would also begin to be

reported for domestic offices.

(d) A single memorandum item for the

total amount of a bank’s ‘‘Loans and

leases restructured and in compliance

with modified terms’’ would replace the

multiple memorandum items in which

banks must currently report information

about such restructured credits

(Memorandum items 1.a and 1.b on the

FFIEC 034, Memorandum items 2.a and

2.b on the FFIEC 033, and Memorandum

items 2.a through 2.c on the FFIEC 031

and 032). Restructured loans secured by

1–4 family residential properties and

restructured consumer loans would

continue to be excluded from the

revised Memorandum item.

(e) In Memorandum items 2.a and 2.b

on the FFIEC 034 and in Memorandum

items 3.a and 3.b on the FFIEC 031, 032,

and 033, which provide maturity and

repricing data for loans and leases,

banks currently report their floating rate

loans by repricing frequency. The

agencies are proposing to change this

reporting method so that floating rate

loans would instead be reported based

on their next repricing date in these two

memorandum items. The interest rate

risk measurement models in use at most

banks take the next repricing date, not

the repricing frequency, of floating rate

loans into consideration. Therefore, this

proposed change would bring the Call

Report treatment of these loans into line

with banks’ internal risk measurement

systems.

(f) The Memorandum items for

‘‘Loans secured by nonfarm

nonresidential properties with a

remaining maturity of over five years’’

and ‘‘Commercial and industrial loans

with a remaining maturity of over three

years’’ (Memorandum items 2.d and 2.e

on the FFIEC 034 and Memorandum

items 3.d and 3.e on the FFIEC 031, 032,

and 033) would be deleted.

(2) For banks that currently file the

FFIEC 033, i.e., banks with domestic

offices only and total assets of $100

million or more but less than $300

million:

(a) The five-way breakdown of ‘‘Loans

to depository institutions’’ (items 2.a.(1)

through 2.c.(2)) would be replaced with

a single item for the total amount of

such loans (plus acceptances of other

banks, as discussed above).

(b) The breakdown of ‘‘Commercial

and industrial loans’’ between those to

U.S. addressees and those to non-U.S.

addressees (items 4.a and 4.b) would be

eliminated in favor of a single item for

total ‘‘Commercial and industrial

loans.’’

(c) Item 9.a, ‘‘Loans for purchasing or

carrying securities,’’ and item 9.b, ‘‘All

other loans,’’ would be combined into a

single item for ‘‘Other loans.’’

(3) Banks now filing the FFIEC 034,

i.e., banks with domestic offices only

and less than $100 million in total

assets, would begin to report ‘‘Loans to

foreign governments and official

institutions’’ as a separate loan category.

At present, these banks report these

loans, if any, in item 8, ‘‘All other

loans.’’ This proposed change would

result in uniform reporting of these

foreign exposures by all banks and

would enhance the agencies’ riskfocused supervision. However, it would

not significantly increase overall

reporting burden because of the nominal

number of banks filing the FFIEC 034

that have ‘‘Loans to foreign governments

and official institutions.’’

(4) Banks now filing the FFIEC 031

and 032, i.e., banks with foreign offices

or with $300 million or more in total

assets, currently report a U.S.-non-U.S.

addressee breakdown of their ‘‘Loans

secured by real estate’’ when they report

their past due and nonaccrual loans in

Schedule RC–N and their loan chargeoffs and recoveries in Schedule RI–B,

part I. However, these banks are not

currently required to report the amount

of ‘‘Loans secured by real estate’’ to U.S.

and non-U.S. addressees as of the report

date in Schedule RC–C, part I. In order

to enhance their ability to evaluate the

performance of real estate loans by

addressee, the agencies are proposing to

add a memorandum item to Schedule

RC–C, part I, for ‘‘Loans secured by real

estate to non-U.S. addressees

(domicile)’’ that would be completed by

banks that would currently file the

FFIEC 031 and 032.

Schedule RC–D—Trading Assets and

Liabilities: This schedule must currently

be completed by banks with either $1

billion or more in total assets or $2

billion or more in par/notional amount

of derivative contracts. To reduce

reporting burden for banks of this asset

size that have minimal trading activity

while, at the same time, focusing for the

first time on banks with less than $1

billion in assets that are engaging in this

activity, the criteria for completing this

schedule would be revised. Thus, the

agencies are proposing that banks that

reported a quarterly average for trading

assets of $2 million or more (in

Schedule RC–K, item 7) for any quarter

of the preceding year would complete

Schedule RC–D. Banks with domestic

offices only and less than $100 million

in total assets would continue to be

exempt from reporting this quarterly

average and from completing Schedule

RC–D.

Schedule RC–E—Deposit Liabilities:

For all banks:

(1) The reporting of demand deposits

by category of depositor in column B of

the body of the deposits schedule would

be eliminated, with banks reporting

instead only the total amount of their

demand deposits in this column. Banks

would continue to provide a categoryby-category breakdown of their total

transaction accounts in column A,

which includes their demand deposits,

but the current duplicate reporting of

demand deposits by category in both

columns A and B would end.

(2) The number of categories of

depositors used in the breakdowns of

transaction and nontransaction accounts

in the body of the deposit schedule

would be reduced.

(a) ‘‘Certified and official checks’’

(item 6 on the FFIEC 034 and item 8 on

the FFIEC 031, 032, and 033) would be

combined with deposits of ‘‘Individuals,

partnerships, and corporations’’ (item

1).

(b) Deposits of ‘‘Commercial banks in

the U.S.’’ (item 4) and ‘‘Other depository

institutions in the U.S.’’ (item 5) would

be combined.

However, in order to achieve

uniformity in depositor categories for all

banks, institutions that currently file the

FFIEC 034 would begin to report

deposits of ‘‘Banks in foreign countries’’

separately from deposits of ‘‘Foreign

governments and official institutions’’

instead of on a combined basis (in

current item 7). This change for banks

filing the FFIEC 034 would not

significantly increase reporting burden

because of the limited number of these

banks that currently hold deposits from

these categories of depositors.

(3) Memorandum item 3, ‘‘All NOW

accounts,’’ would be deleted.

(4) In Memorandum items 5.a and 6.a,

which provide maturity and repricing

data for time deposits, banks currently

34806 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

6An example of a component of ‘‘Other’’ assets

for which a preprinted caption would need to be

added to the Call Report in 2001 would be

‘‘Derivatives held for purposes other than trading

that have a positive fair value.’’

report their floating rate time deposits

by repricing frequency. The agencies are

proposing to change this reporting

method so that floating time deposits

would instead be reported based on

their next repricing date in these two

memorandum items. The interest rate

risk measurement models in use at most

banks take the next repricing date, not

the repricing frequency, of floating rate

time deposits into consideration.

Therefore, this proposed change would

bring the Call Report treatment of these

deposits into line with banks’ internal

risk measurement systems.

In addition, for banks that file the

FFIEC 031, i.e., banks with foreign

offices, the agencies are proposing to

modify the reporting of deposits in

foreign offices by category of depositor

(in part II of Schedule RC–E). As was

proposed above for domestic deposits,

‘‘Certified and official checks’’ in

foreign offices (item 5) would be

combined with deposits of ‘‘Individuals,

partnerships, and corporations’’ (item

1). Deposits of U.S. depository

institutions other than banks, currently

reported in ‘‘All other deposits’’ in

foreign offices (item 6), would be

removed from this category and

included with deposits of ‘‘U.S. banks’’

(item 2). This would leave only deposits

of the U.S. Government and of states

and political subdivisions in the U.S.

remaining in what is now the ‘‘All other

deposits’’ category, so this category

would be recaptioned accordingly.

Schedule RC–F—Other Assets: For all

banks:

(1) The scope of item 1, ‘‘Income

earned, not collected on loans,’’ would

be expanded to cover all ‘‘Accrued

interest receivable.’’ Broadening this

category to include interest earned, not

collected on earning assets other than

loans would be more consistent with the

typical presentation of accrued interest

receivable in financial statements

prepared for other financial reporting

purposes.

(2) The requirement that significant

components of the residual ‘‘Other’’

assets item in Schedule RC–F (item 4)

be itemized and described would be

retained. However, to improve the

usefulness of this information, the

agencies plan to add preprinted

captions for those components of

‘‘Other’’ assets most commonly itemized

and described by banks.6 At present,

several banks may describe the same

type of ‘‘Other’’ asset using different

terminology, which makes it difficult for

the agencies and other users of the Call

Report to identify and compare banks

holding particular types of ‘‘Other’’

assets in amounts exceeding the

threshold for itemization. In addition to

the specific captions that would be

included for ‘‘Other’’ assets, the

agencies would also provide blank text

fields like those presently found in

Schedule RC–F for assets not listed

among the preprinted captions.

Furthermore, the agencies request

comment on suggested alternatives to

the current threshold for itemizing and

describing significant components of

‘‘Other’’ assets, i.e., 25 percent of the

total amount reported for ‘‘Other’’

assets.

(3) Memorandum item 1, ‘‘Deferred

tax assets disallowed for regulatory

capital purposes,’’ would be moved to

the revised regulatory capital schedule

(Schedule RC–R), which is discussed in

Section II.B. below. This proposed

change is part of an effort by the

agencies to place all items collected

principally for regulatory capital

calculation purposes in a revised

Schedule RC–R rather than having these

items scattered across various Call

Report schedules as they are at present.

Schedule RC–G—Other Liabilities: For

all banks:

(1) Item 3, ‘‘Minority interest in

consolidated subsidiaries,’’ would be

moved to the liability side of the

balance sheet (Schedule RC). As a

result, the location where this liability

category appears on the Call Report

balance sheet would correspond to the

location where banks and bank holding

companies are instructed by Article 9 of

the Securities and Exchange

Commission’s Regulation S–X to report

any minority interest on balance sheets

filed with the Securities and Exchange

Commission.

(2) A specific new item for the

‘‘Allowance for credit losses on offbalance sheet credit exposures,’’ which

must be reported separately on the

balance sheet from the allowance for

loan and lease losses, would be added

to Schedule RC–G. At present, the

limited number of banks that have an

allowance for credit losses on offbalance credit exposures combine this

allowance with their allowance for loan

and lease losses when completing

Schedule RI–B, part II—Changes in

Allowance for Credit Losses. Because

the allowance for loan and lease losses

is reported on the Call Report balance

sheet (Schedule RC), the amount of the

allowance for credit losses on offbalance sheet exposures can be derived.

However, as discussed below, the

agencies are proposing to revise the

scope of Schedule RI–B, part II. That

change creates the need for the

proposed new item in Schedule RC–G

so that the agencies can identify the

amount, if any, of a bank’s allowance for

credit losses on off-balance sheet

exposures.

(4) The requirement that significant

components of the residual ‘‘Other’’

liabilities item in Schedule RC–G (item

4) be itemized and described would be

retained. However, consistent with the

proposed change described above for

the ‘‘Other’’ assets item in Schedule RC–

F, the agencies plan to add preprinted

captions for those components of

‘‘Other’’ liabilities most commonly

itemized and described by banks.

Likewise, the agencies would provide

blank text fields like those presently

found in Schedule RC–G for liabilities

not listed among the preprinted

captions. The agencies also request

comment on suggested alternatives to

the current threshold for itemizing and

describing significant components of

‘‘Other’’ liabilities, i.e., 25 percent of the

total amount reported for ‘‘Other’’

liabilities.

Schedule RC–H—Selected Balance

Sheet Items for Domestic Offices (FFIEC

031 only): This schedule is completed

by banks with foreign offices.

Memorandum items 1 and 2 for the ‘‘Net

due from the IBF of the domestic offices

of the reporting bank’’ or the ‘‘Net due

to the IBF’’ of these offices would be

deleted. In addition, consistent with the

proposed change to the reporting of

equity securities without readily

determinable fair values discussed

under Schedule RC–B above, item 16.b

of Schedule RC–H, ‘‘All other equity

securities,’’ would be renumbered so

that it is no longer included as part of

a bank’s total held-to-maturity and

available-for-sale securities in item 17 of

Schedule RC–H.

Schedule RC–I—Selected Assets and

Liabilities of IBFs (FFIEC 031 only): This

schedule is completed by banks with

IBFs and other types of foreign offices.

The agencies are proposing to eliminate

item 2, ‘‘Total IBF loans and lease

financing receivables,’’ item 3, ‘‘IBF

commercial and industrial loans,’’ item

5, ‘‘IBF deposit liabilities due to banks,

including other IBFs,’’ and item 6,

‘‘Other IBF deposit liabilities.’’

Schedule RC–K—Quarterly Averages:

For all banks:

(1) The categories of securities for

which averages would be collected

would be uniform for all banks and

would better correspond with the

securities categories in Schedule RC–B.

In addition, the number of quarterly

averages of securities that banks are

required to report would be reduced or

remain the same. Banks would report

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34807

quarterly averages for the three

following categories of securities: (a)

U.S. Treasury securities and U.S.

Government agency obligations, (b)

mortgage-backed securities; and (c) all

other securities.

(2) The categories of loans (in

domestic offices) for which averages

would be collected would also be

defined uniformly for all banks required

to report these averages. The loan

category definitions used by all banks in

Schedule RC–K would correspond to

the standard definitions used in the loan

schedule, Schedule RC–C. This would

end the separate loan reporting scheme

for banks with domestic offices only and

less than $300 million in assets which

currently permits these banks to define

for themselves which of their loans to

include in the general loan categories

used in Schedule RC–K (and three other

schedules) on the FFIEC 033 and 034.

Adopting uniform categories and

standard definitions will enable the

agencies to obtain more consistent loan

information for monitoring trends and

critical ratios across banks and within

individual institutions and is a

necessary step toward achieving the

Riegle Act’s goal of a single set of

reporting requirements for core

information.

Thus, banks would report a quarterly

average for total loans (in domestic

offices) and for the five following

categories of loans (in domestic offices):

(a) Loans secured by real estate; (b)

loans to finance agricultural production

and other loans to farmers (except as

noted below); (c) commercial and

industrial loans; (d) credit cards to

individuals for household, family, and

other personal expenditures; and (e)

other consumer loans. Banks with

foreign offices would also continue to

report a quarterly average for their total

loans in foreign offices. The agencies

would retain the existing Schedule RC–

K reporting threshold for agricultural

loans for banks with domestic offices

only and less than $300 million in

assets. These banks would not be

required to report a quarterly average for

‘‘Loans to finance agricultural

production and other loans to farmers’’

if these loans are less than or equal to

5 percent of total loans. In addition, a

request for comment on the reporting of

average loans by loan category by banks

with domestic offices only and less than

$25 million in assets is addressed in

Section V.B. below.

(3) The quarterly averages for ‘‘Money

market deposit accounts’’ and ‘‘Other

savings deposits’’ (items 9.a and 9.b on

the FFIEC 034; items 11.a and 11.b on

the FFIEC 031, 032, and 033) would be

combined. Banks would report a single

quarterly average for all ‘‘Savings

deposits.’’

In addition, for banks that currently

file the FFIEC 034, i.e., banks with

domestic offices only and less than $100

million in assets, the option to report

the quarterly averages for securities,

loans, leases, and total assets using an

average of four month-end figures

would be eliminated. These averages,

like the other averages in Schedule RC–

K, would be calculated using either

daily or weekly figures for the quarter,

which are the other options presently

available to these banks.

Schedule RC–L—Off-Balance Sheet

Items:

(1) For all banks:

(a) Item 6, ‘‘Participations in

acceptances acquired by the reporting

(nonaccepting) bank,’’ and

Memorandum item 3, ‘‘Unused

commitments with an original maturity

exceeding one year,’’ would be collected

only on the proposed new regulatory

capital schedule, discussed in Section

II.B. below, and would be deleted from

Schedule RC–L.

(b) Item 7, ‘‘Securities borrowed,’’

would no longer be collected from all

banks. Instead, the amount of borrowed

securities would be reported, when

appropriate, in item 12, ‘‘Other offbalance sheet liabilities.’’

(c) The information collected in items

9.a, 9.b, and 9.c on the outstanding

principal balance of and amount of

recourse on three categories of financial

asset transfers would be moved from

Schedule RC–L and incorporated into

the proposed new schedule on

securitization and asset sale activities,

which is discussed in Section III.B.

below.

(d) The requirement that off-balance

sheet liabilities and assets that exceed

25 percent of equity capital be itemized

and described in items 12 and 13 would

be retained. However, consistent with

the proposed changes described above

for ‘‘Other’’ assets and ‘‘Other’’

liabilities in Schedules RC–F and RC–G,

the agencies plan to add preprinted

captions for those off-balance sheet

items most often itemized and described

by banks.

The agencies would also retain blank

text fields like those presently found in

Schedule RC–L for off-balance sheet

items not listed among the preprinted

captions.

(e) Item 16.b for the gross notional

amount of derivative contracts held for

purposes other than trading that are not

marked to market would be deleted. All

derivative contracts, including those

held for purposes other than trading,

will be marked to market once a bank

adopts FASB Statement No. 133,

Accounting for Derivative Instruments

and Hedging Activities, which is

effective for fiscal years beginning after

June 15, 2000. Thus, item 16.b will no

longer have any relevance in 2001.

(2) For banks that file the FFIEC 031,

032, and 033, i.e., banks with foreign

offices or with $100 million or more in

total assets:

(a) Items 17.c.(1) and (2) for the gross

positive and gross negative fair values of

derivatives held for purposes other than

trading that are not marked to market

would be deleted because of the effect

of FASB Statement No. 133.

(b) Memorandum item 3.a,

‘‘Participations in commitments with an

original maturity exceeding one year

conveyed to others,’’ would be

eliminated.

(3) For banks that file the FFIEC 031

and 032, i.e., banks with foreign offices

or with $300 million or more in total

assets:

(a) Memorandum item 4, ‘‘Standby

letters of credit (and foreign office

guarantees) issued to non-U.S.

addressees (domicile),’’ would be

deleted.

(b) The information collected in

Memorandum items 5.a, 5.b, and 5.c on

three categories of consumer loans that

have been securitized and sold would

be moved from Schedule RC–L and

incorporated into the proposed new

schedule on securitization and asset sale

activities, which is discussed in section

III.B. below.

Schedule RC–M—Memoranda:

(1) For all banks:

(a) Items 4.a through 4.d, in which

banks report a six-way breakdown of the

‘‘Outstanding principal balance of 1–4

family residential mortgage loans

serviced for others’’ would be moved

from Schedule RC–M and condensed

into a two-way servicing breakdown in

the proposed new schedule on

securitization and asset sale activities,

which is discussed in Section III.B.

below.

(b) Item 6.e, ‘‘Amount of intangible

assets that have been grandfathered or

are otherwise qualifying for regulatory

capital purposes,’’ item 7, ‘‘Mandatory

convertible debt, net of common or

perpetual preferred stock dedicated to

redeem the debt,’’ item 9,

‘‘Noncumulative perpetual preferred

stock and related surplus,’’ and

Memorandum item 1, ‘‘Reciprocal

holdings of banking organizations’’

capital instruments,’’ would no longer

be collected as specific items in

Schedule RC–M, but would be

incorporated into the calculation of Tier

1, Tier 2, and total risk-based capital in

the proposed new regulatory capital

34808 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

7 In addition to the categories of loans secured by

real estate in the current breakdown, banks that file

the FFIEC 031, i.e., banks with foreign offices,

would also separately report their past due and

nonaccrual loans secured by real estate in foreign

offices, but they would no longer separately report

their past due and nonaccrual loans secured by real

estate to U.S. addressees.

schedule, which is discussed in Section

II.B. below.

(c) Item 6.c, ‘‘Goodwill,’’ would be

moved from this schedule and would

appear on the balance sheet (Schedule

RC) as a specific item. This proposed

change would be made to conform to

the FASB’s proposed accounting

standard, Business Combinations and

Intangible Assets, which would require

all goodwill to be aggregated and

presented as a separate line item on the

balance sheet.

(d) Items 10.a through 10.f, which

collect data on quarterly sales of

annuities, mutual funds, and

proprietary products, would be

eliminated. In place of these items, each

bank would respond to a ‘‘yes’’ or ‘‘no’’

question asking whether it sells private

label or third party mutual funds and

annuities. In addition, banks would

report the total assets under the

reporting bank’s management in

proprietary mutual funds and annuities.

For banks with proprietary mutual

funds and annuities, reporting the

amount of assets under management

should be significantly less burdensome

than reporting the quarterly sales

volume for these proprietary products.

(e) Item 11, ‘‘Net unamortized realized

deferred gains (losses) on off-balance

sheet derivative contracts included in

assets and liabilities reported in

Schedule RC,’’ and item 12, ‘‘Amount of

assets netted against nondeposit

liabilities (and deposits in foreign

offices) on the balance sheet (Schedule

RC) in accordance with generally

accepted accounting principles,’’ would

be eliminated.

(2) For banks that file the FFIEC 034,

i.e., banks with domestic offices only

and less than $100 million in total

assets, items 3.a, ‘‘Noninterest-bearing

balances due from commercial banks in

the U.S,’’ and 3.b, ‘‘Currency and coin,’’

would be deleted.

(3) For banks that file the FFIEC 031,

032, and 033, i.e., banks with foreign

offices or with $100 million or more in

total assets:

(a) Item 2, ‘‘Federal funds sold and

securities purchased under agreements

to resell with U.S. branches and

agencies of foreign banks,’’ would be

deleted.

(b) Item 13, ‘‘Outstanding principal

balance of loans other than 1–4 family

residential mortgage loans that are

serviced for others,’’ would be moved

from Schedule RC–M to the proposed

new schedule on securitization and

asset sales activities, which is discussed

in section III.B. below. This information

would continue to be reported when

this balance is more than $10 million.

The current requirement that the

balance must also exceed 10 percent of

total assets in order for it to be reported

would be eliminated.

(4) For banks with $1 billion or more

in total assets that file the FFIEC 031

and 032, the U.S.-non-U.S. addressee

breakdown of ‘‘Customers’’ liability to

this bank on acceptances outstanding’’

in items 5.a and 5.b would be

eliminated.

Schedule RC–N—Past Due and

Nonaccrual Loans, Leases, and Other

Assets:

(1) The categories of loans and leases

for which past due and nonaccrual

information would be collected would

be defined uniformly for all banks, but

banks with foreign offices or with $300

million or more in total assets would

provide more detail for certain loan

categories and for leases than other

banks would. The loan category

definitions used by all banks in

Schedule RC–N would correspond to

the standard definitions used in the loan

schedule, Schedule RC–C. As discussed

above under Schedule RC–K, this

proposed change would end the

separate loan reporting scheme for

banks currently filing the FFIEC 033 and

034 which permits these banks to define

for themselves the composition of the

general loan categories used in Schedule

RC–N (and three other schedules). Thus,

all banks would report past due and

nonaccrual information for the

following categories of loans and leases:

(a) Loans secured by real estate using

the current breakdown from the

Memoranda section of the schedule

(Memorandum item 4 on the FFIEC 033

and 034; Memorandum item 3 on the

FFIEC 031 and 032); 7 (b) loans to

depository institutions and acceptances

of other banks; (c) loans to finance

agricultural production and other loans

to farmers (except as noted below); (d)

commercial and industrial loans; (e)

credit cards to individuals for

household, family, and other personal

expenditures; (f) all other consumer

loans; (g) loans to foreign governments

and official institutions; (h) all other

loans; and (i) lease financing

receivables.

Banks with foreign offices or with

$300 million or more in assets would

also continue to report past due and

nonaccrual information for: (a) Loans

secured by real estate to non-U.S.

addressees; (b) loans to foreign banks;

(c) commercial and industrial loans to

non-U.S. addressees; and (d) lease

financing receivables of non-U.S.

addressees. The agencies would retain

the existing Schedule RC–N reporting

threshold for agricultural loans for

banks with domestic offices only and

less than $300 million in assets. These

banks would not be required to report

past due and nonaccrual data for ‘‘Loans

to finance agricultural production and

other loans to farmers’’ if these loans are

less than or equal to 5 percent of total

loans.

(2) For banks that currently file the

FFIEC 031 and 032, i.e., banks with

foreign offices or with $300 million or

more in assets, Memorandum item 4.b,

‘‘Replacement cost of [past due

derivative] contracts with a positive

replacement cost,’’ would be deleted.

Once banks adopt FASB Statement No.

133, Accounting for Derivative

Instruments and Hedging Activities, all

of their derivative contracts will be

carried on the balance sheet at fair

value. Since the replacement cost of a

derivative contract is its fair value and

its book value will also be its fair value,

Memorandum items 4.a., ‘‘Book value of

amounts carried as assets,’’ and 4.b

would duplicate each other. The caption

for Memorandum item 4.a would be

revised to read ‘‘Fair value of amounts

carried as assets.’’

Schedule RI—Income Statement:

(1) For all banks:

(a) Consistent with the approach for

reporting loan information discussed

above under Schedules RC–K and RC–

N, the categories of loans for which loan

income (in domestic offices) would be

collected would be defined uniformly

for all banks required to report loan

income by category. The loan category

definitions used in Schedule RI would

correspond to the standard definitions

used in the loan schedule, Schedule

RC–C. As previously discussed, this

proposed change would end the

separate loan reporting scheme for

banks currently filing the FFIEC 033 and

034 which permits these banks to define

for themselves the composition of the

general loan categories used in Schedule

RI (and three other schedules).

The agencies are proposing to have

banks report interest and fee income for

the following seven categories of loans

(in domestic offices): (a) Loans secured

by real estate; (b) loans to finance

agricultural production and other loans

to farmers (except as noted below); (c)

commercial and industrial loans; (d)

credit cards to individuals for

household, family, and other personal

expenditures; (e) all other consumer

loans; (f) loans to foreign governments

and official institutions; and (g) all other

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34809

loans. Banks with foreign offices would

also continue to report the total amount

of their interest and fee income on loans

in foreign offices. The agencies would

retain the existing Schedule RI reporting

threshold for agricultural loans for

banks with domestic offices only and

less than $300 million in assets. These

banks would not be required to report

interest and fee income on ‘‘Loans to

finance agricultural production and

other loans to farmers’’ if these loans are

less than or equal to 5 percent of total

loans. In addition, a request for

comment on the reporting of loan

income by loan category by banks with

domestic offices only and less than $25

million in assets is addressed in section

V.B. below.

(b) The method of reporting taxexempt income from loans and leases to

states and political subdivisions in the

U.S. used by banks that currently file

the FFIEC 034 would be extended to all

banks. Thus, the agencies are proposing

to have all banks report the combined

amount of their tax-exempt loan and

lease income in a single income

statement Memorandum item. This

would mean that, going forward, the

body of the income statement (Schedule

RI) would contain only a single item

(item 1.b) for income from lease

financing receivables and it would no

longer contain any items for income on

‘‘Obligations (other than securities and

leases) of states and political

subdivisions in the U.S.’’

(c) The categories of securities for

which interest and dividend income

would be collected would be uniform

for all banks and would correspond

with the securities categories for which

quarterly averages are collected in

Schedule RC–K. In addition, the number

of categories of securities income that

banks are required to report would be

reduced or remain the same. Banks

would report their income for the three

following categories of securities in the

body of the income statement: (a) U.S.

Treasury securities and U.S.

Government agency obligations; (b)

mortgage-backed securities; and (c) all

other securities. Banks would report

their ‘‘Income on tax-exempt securities

issued by states and political

subdivisions in the U.S.’’ in a new

income statement Memorandum item

rather than in the income statement

(Schedule RI) itself.

(d) The agencies are proposing to add

a new item for ‘‘Other interest income’’

to the interest income section of

Schedule RI. This new item would be

used for reporting interest income on

assets other than those properly

reported in items 1 through 5 of the Call

Report balance sheet (Schedule RC),

e.g., interest income on interest-only

strips receivable (not in the form of a

security) that are reported in Schedule

RC–F, item 3. In addition, because this

proposed new item is currently

included in the interest income section

of the income statement in the Board’s

FR Y–9C bank holding company report,

this change would increase the

uniformity between that report’s income

statement and Call Report Schedule RI.

(e) The separate interest expense

items for interest on ‘‘Money market

deposit accounts’’ and ‘‘Other savings

deposits’’ (items 2.a.(2)(a) and (b) on the

FFIEC 032, 033, and 034; items

2.a.(1)(b)(1) and (2) on the FFIEC 031)

would be combined. Banks would

report an interest expense item for

interest on all ‘‘Savings deposits.’’

(f) Item 4.a, ‘‘Provision for credit

losses,’’ would be revised so that it

includes only the provision for loan and

lease losses. Banks would report any

provision for credit losses on off-balance

sheet exposures in ‘‘Other noninterest

expense’’ and they would itemize and

describe this provision in Schedule RI–

E—Explanations, if it is significant.

(g) Item 4.b, ‘‘Provision for allocated

transfer risk,’’ would be eliminated as a

specific income statement item. Banks

would report any provision for allocated

transfer risk in ‘‘Other noninterest

expense’’ and itemize and describe it in

Schedule RI–E if it is significant.

(h) Memorandum item 12, ‘‘Deferred

portion of total applicable income taxes

included in Schedule RI, items 9 and

11,’’ would be deleted.

(2) For banks currently filing the

FFIEC 031, 032, and 033, i.e., banks

with foreign offices or with total assets

of $100 million or more:

(a) A threshold test would be added

to determine which banks should

complete Memorandum items 8.a

through 8.d, which provide a

breakdown of trading revenue by risk

exposure. At present, regardless of the

amount of a bank’s trading revenue, the

bank must report the breakdown. To

take a more risk-focused approach to

reporting this information, the agencies

are proposing to require that only those

banks that reported a quarterly average

for trading assets of $2 million or more

(in Schedule RC–K, item 7) for any

quarter of the preceding year would

report the trading revenue breakdown.

This is the same threshold test proposed

for Schedule RC–D—Trading Assets and

Liabilities. In addition, Section III.C.

below discusses the agencies’ proposal

to collect separate information on

trading revenue from cash instruments

from banks with $5 billion or more in

notional amount of derivatives.

(b) Memorandum items 9.a through

9.c request banks to disclose the impact

of derivatives held for purposes other

than trading on interest income, interest

expense, and noninterest income

(expense). For reporting beginning in

2001 when FASB Statement No. 133,

Accounting for Derivative Instruments

and Hedging Activities, is in effect, the

instructions for these items, and

possibly the items themselves, will need

to be revised because all derivatives will

be reported on the balance sheet at fair

value and the accounting for fair value

and cash flow hedges under Statement

No. 133 differs from current hedge

accounting practices. The agencies

request comment on how the existing

instructions for Memorandum items 9.a

through 9.c, or these three items

themselves, should be modified in

response to Statement No. 133. In

particular, banks are encouraged to

describe the information they plan to

provide for internal management

purposes on the effect of derivatives

held for purposes other than trading on

their earnings.

(3) Banks currently filing the FFIEC

031 and 032, i.e., banks with foreign

offices or with total assets of $300

million or more, must report the amount

of ‘‘Credit losses on off-balance sheet

derivatives’’ in Memorandum item 10.

With all derivatives carried on the

balance sheet at fair value after banks

adopt FASB Statement No. 133, credit

losses related to derivatives will be

reflected in the fair value of these

instruments and no allowances for

credit losses on derivatives should be

maintained. Thus, the agencies request

comment on how the existing

instructions for Memorandum item 10

should be revised in response to

Statement No. 133. The agencies would

be especially interested in comments

explaining how banks plan to measure

and report credit losses on derivatives

for internal management purposes.

Schedule RI–A—Changes in Equity

Capital: For all banks:

(1) The agencies are proposing to

change the manner in which the

previous year-end balance of equity

capital is reported in this schedule so

that it better corresponds with how this

balance is presented in financial

statements prepared in accordance with

GAAP. At present, banks must report

the ‘‘Total equity capital originally

reported’’ in the Call Report for the

previous year-end in item 1. If the bank

has filed any amendments to this

previous year-end Call Report that

affected its originally reported total

equity capital, these equity capital

adjustments are reported in item 2, and

the amended equity capital balance for

34810 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

8 In addition to the categories of loans secured by

real estate in the current breakdown, banks that file

the FFIEC 031, i.e., banks with foreign offices,

would also separately report their charge-offs and

recoveries on loans secured by real estate in foreign

offices, but they would no longer separately report

their charge-offs and recoveries on loans secured by

real estate to U.S. addressees.

the previous year-end is reported in

item 3. The agencies are proposing to

eliminate item 2 and, in effect, have

banks report what is now reported in

item 3 as their previous year-end equity

capital balance. Thus, as Schedule RI–

A would be revised, banks would report

the ‘‘Total equity capital most recently

reported’’ for the previous year-end in

item 1. Next, the agencies propose to

combine items 9, ‘‘Cumulative effect of

changes in accounting principles from

prior years,’’ and 10, ‘‘Corrections of

material accounting errors from prior

years,’’ and designate the combined

items as item 2, ‘‘Restatements due to

corrections of material accounting errors

and changes in accounting principles,’’

of revised Schedule RI–A. The next item

in revised Schedule RI–A (item 3)

would then be captioned ‘‘Balance end

of previous calendar year as restated.’’

(2) The net amount of a bank’s

treasury stock transactions, which is

now included in item 5, ‘‘Sale,

conversion, acquisition, or retirement of

capital stock, net,’’ would be reported in

a new item. This item would enable the

agencies to monitor the volume and

extent of this activity during the year-todate reporting period. Moreover, this

proposed change would bring the

reporting of treasury stock transactions

in Schedule RI–A into closer conformity

with the reporting of these transactions

in the corresponding schedule in the

Board’s FR Y–9C bank holding company

report.

(3) Items 11.a, ‘‘Change in net

unrealized holding gains (losses) on

available-for-sale securities,’’ and 11.b.,

‘‘Change in accumulated net gains

(losses) on cash flow hedges,’’ (and, on

the FFIEC 031 only, item 12, ‘‘Foreign

currency translation adjustments’’)

would be combined and replaced by an

item for ‘‘Other comprehensive

income.’’ This item would also include

any minimum pension liability

adjustment recognized during the yearto-date in accordance with GAAP,

which banks currently have to report

elsewhere in Schedule RI–A. Identifying

‘‘Other comprehensive income’’ in the

changes in equity capital schedule is

consistent with FASB Statement No.

130, Reporting Comprehensive Income.

In addition, banks now filing the

FFIEC 034, i.e., banks with domestic

offices only and less than $100 million

in total assets, would begin to complete

Schedule RI–A quarterly rather than

annually as of December 31. Sound

financial reporting practices dictate that

an institution prepare a year-to-date

reconcilement of equity capital in its

workpapers each quarter to ensure that

it properly measures the total equity

capital to be reported on the Call Report

balance sheet. Thus, completing

Schedule RI–A each quarter should not

represent a significant increase in

burden for most banks that file the

FFIEC 034. Compared to annual

reporting, quarterly completion of this

schedule should also improve the

accuracy of the reported data by

enabling the agencies to more promptly

identify any direct entries to equity

capital that should have been recorded

in earnings or another account. In

addition, banks that file the FFIEC 034

currently report the amount of cash

dividends declared during the calendar

year-to-date in Schedule RI,

Memorandum item 5, in the quarters

when they do not complete Schedule

RI–A. As part of this proposed change,

Memorandum item 5 would be deleted.

Schedule RI–B—Charge-Offs and

Recoveries on Loans and Leases and

Changes in Allowance for Credit Losses:

For all banks:

(1) The proposed changes to the

categories of loans and leases for which

charge-offs and recoveries are reported

in Part I of this schedule would be the

same as those discussed above for past

due and nonaccrual loans and leases in

Schedule RC–N. Thus, the loan and

lease categories in Schedule RI–B, part

I, would be defined uniformly for all

banks using the standard definitions

from the loan schedule (Schedule RC–

C), but banks with foreign offices or

with $300 million or more in total assets

would provide more detail for certain

loan categories and for leases than other

banks would. As previously mentioned,

this proposed change would end the

separate loan reporting scheme for

banks currently filing the FFIEC 033 and

034 which permits these banks to define

for themselves the composition of the

general loan categories used in Schedule

RI–B, part I. Thus, banks would report

past due and nonaccrual information for

the following categories of loans and

leases: (a) Loans secured by real estate

using the current breakdown from

Memoranda item 5; 8 (b) loans to

depository institutions and acceptances

of other banks; (c) loans to finance

agricultural production and other loans

to farmers (except as noted below); (d)

commercial and industrial loans; (e)

credit cards to individuals for

household, family, and other personal

expenditures; (f) all other consumer

loans; (g) loans to foreign governments

and official institutions, (h) all other

loans, and (i) lease financing

receivables.

Banks with foreign offices and banks

with domestic offices only and $300

million or more in assets would also

continue to report past due and

nonaccrual information for: (a) Loans

secured by real estate to non-U.S.

addressees; (b) loans to foreign banks;

(c) commercial and industrial loans to

non-U.S. addressees; and (d) lease

financing receivables of non-U.S.

addressees. The agencies would retain

the existing Schedule RI–B, part I,

reporting threshold for agricultural

loans for banks with domestic offices

only and less than $300 million in

assets. These banks would not be

required to report past due and

nonaccrual data for ‘‘Loans to finance

agricultural production and other loans

to farmers’’ if these loans are less than

or equal to 5 percent of total loans.

(2) The scope of part II would be

revised to cover changes in the

allowance deleted.for loan and lease

losses rather than the entire allowance

for credit losses. In addition, similar to

the proposal discussed above for

Schedule RI–A—Changes in Equity

Capital, the agencies would change the

manner in which the previous year-end

balance of the allowance is reported in

Schedule RI–B, part II, so that it better

corresponds with its presentation in

financial statements prepared in

accordance with GAAP. At present,

banks report the balance of the

allowance as ‘‘originally reported’’ in

their previous year-end Call Report in

item 1. The effects of any amendments

to the previous year-end Call Report on

the allowance as originally reported are

included in item 5, ‘‘Adjustments.’’ The

agencies are proposing to revise item 1

to eliminate the need to report these

adjustments from amended Call Reports

in item 5. Thus, banks would report the

‘‘Balance most recently reported’’ for the

previous year-end allowance for loan

and lease losses in item 1.

In addition, banks now filing the

FFIEC 034, i.e., banks with domestic

offices only and less than $100 million

in total assets, would begin to complete

Schedule RI–B, part II, quarterly rather

than annually as of December 31 for the

same reasons cited above in the

discussion of quarterly reporting of

Schedule RI–A. The principal items that

enter into the year-to-date

reconcilement of the allowance for loan

and lease losses are charge-offs,

recoveries, and the provision for loan

and lease losses, all of which each bank

already reports quarterly. Thus,

completing Schedule RI–B, part II, each

quarter should not represent a

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34811

9Unless otherwise specified, the measurement

date for determining whether a bank meets a

particular reporting threshold, such as the total

assets threshold, is June 30 of the preceding year.

significant increase in burden for most

banks that file the FFIEC 034.

Schedule RI–D—Income From

International Operations (FFIEC 031

only):

(1) In part I—Estimated Income From

International Operations, the reporting

of interest income and expense by

booking location and related

adjustments in items 1 and 2 would be

streamlined and replaced with items

that are more consistent with the

approach used in the remainder of part

I for international operations. Thus,

those banks that are required to

complete this schedule would report

their ‘‘Gross interest income’’ and their

‘‘Gross interest expense’’ attributable to

international operations. From these

two figures, banks would report their

‘‘Net interest income attributable to

international operations.’’ Because of

this streamlined approach,

Memorandum items 1 and 2 on

intracompany interest income and

expense, respectively, would be deleted.

(2) Part II—Supplementary Details on

Income from International Operations,

which has been collected to

accommodate certain data needs of the

Departments of Commerce and

Treasury, would be eliminated.

Schedule RI–E—Explanations: For all

banks:

(1) The requirement that banks

itemize and describe significant

components of other noninterest income

and other noninterest expense in items

1 and 2 would be retained. However,

similar to proposals discussed above for

Schedules RC–F, RC–G, and RC–L, the

agencies propose to add preprinted

captions for the most commonly

itemized and described categories of

other noninterest income and expense.

Blank text fields like those presently

contained in items 1 and 2 would be

retained for noninterest income and

expense items not specifically covered

in the preprinted captions. Furthermore,

the agencies request comment on the

current thresholds for itemizing and

describing significant components of

other noninterest income and other

noninterest expense, i.e., 10 percent of

the total amount reported for other

noninterest income and other

noninterest expense, respectively. In

particular, the agencies request

comment on whether it would be more

appropriate to base the threshold for

itemizing and describing significant

components of both other noninterest

income and other noninterest expense

on the sum of ‘‘Net interest income’’

plus ‘‘Total noninterest income.’’

(2) Item 2.a, ‘‘Amortization expense of

intangible assets,’’ would be moved

from Schedule RI–E to the income

statement (Schedule RI), where it would

be split into separate items for

‘‘Amortization expense of intangible

assets (excluding goodwill)’’ in the

noninterest expense section and

‘‘Goodwill charges.’’ This latter item

would be reported on a net-of-tax basis

and placed after item 10, whose caption

would be revised to read ‘‘Income (loss)

before goodwill charges, extraordinary

items, and other adjustments.’’ The

‘‘Goodwill charges’’ item would be

followed by a new item captioned

‘‘Income (loss) before extraordinary

items and other adjustments.’’ The

agencies are proposing these changes in

response to the FASB’s proposed

accounting standard, Business

Combinations and Intangible Assets,

which requires this method of financial

statement presentation for goodwill

charges and the amortization expense

for intangible assets other than

goodwill. The agencies will monitor the

progress of this proposed accounting

standard in order to ensure that the

presentation of these items in the Call

Report income statement conforms to

the presentation required by the FASB’s

final standard on business combinations

and intangible assets.

(3) To conform to the changes

proposed above for Schedules RI–A and

RI–B:

(a) Item 4, ‘‘Equity capital adjustments

from amended Reports of Income (from

Schedule RI–A, item 2),’’ would be

deleted.

(b) Items 5, ‘‘Cumulative effect of

changes in accounting principles from

prior years (from Schedule RI–A, item

9),’’ and 6, ‘‘Corrections of material

accounting errors from prior years (from

Schedule RI–A, item 10),’’ would be

combined and recaptioned as

‘‘Restatements due to corrections of

material accounting errors and changes

in accounting principles from prior

years (from Schedule RI–A, item 2).’’

(c) The scope of item 8 would be

revised to cover ‘‘Adjustments to

allowance for loan and lease losses

(from Schedule RI–B, part II, item 4).’’

As the preceding listing of proposed

revisions shows, even though the

agencies are proposing to reduce the

number of different versions of the Call

Report from four to two, there will

continue to be differences in the amount

of information that banks will be

required to report to the agencies. These

differences are primarily based on

whether a bank has any foreign offices

(as defined in the Call Report

instructions) and on a bank’s total

assets.9 For example, Schedule RC–A—

Cash and Balances Due From Depository

Institutions would be completed by all

banks with foreign offices or with $300

million or more in total assets. In some

cases, the threshold for determining

which banks must report certain

information is based on other criteria.

For example, to implement a more riskfocused approach to the reporting of

trading activity, the agencies are

proposing that banks (with foreign

offices or with $100 million or more in

total assets) that reported a quarterly

average for trading assets of $2 million

or more (in Schedule RC–K, item 7) for

any quarter of the preceding year must

complete Schedule RC–D—Trading

Assets and Liabilities each quarter of the

current year.

However, questions have been raised

as to whether using reporting

thresholds, other than those based on

total assets or other readily available

information that all banks must report,

is an effective method for exempting

banks from reporting certain

information in the Call Report and

thereby reducing reporting burden. For

example, if the agencies ask banks to

report the amount of a certain type of

asset only if a bank has more than a

specified dollar amount of this type of

asset, is this less burdensome than

simply requiring all banks to report the

amount of this type of asset? In other

words, what effect would Call Report

reporting thresholds of this type have on

the reporting burden imposed on

individual banks and on banks as a

whole?

B. Proposed New Regulatory Capital

Reporting Approach

The agencies propose to revise the

regulatory capital schedule (Schedule

RC–R) by incorporating many of the

reporting concepts of the Call Report’s

optional regulatory capital worksheet as

well as some of those contained in the

regulatory capital schedule currently

filed by bank holding companies on the

FR Y–9C report form. Under the

agencies’ proposal, all banks would be

required to complete the entire revised

regulatory capital schedule.

In general, the proposed revised

format would use a systematic, step-bystep ‘‘building block’’ approach under

which all banks would report the

various components and adjustments

that determine Tier 1, Tier 2, and total

capital, as well as risk-weighted assets.

This means that all bank capital ratios—

the Tier 1 leverage ratio, the Tier 1 riskbased capital ratio, and the total riskbased capital ratio—would be derived

34812 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

10For risk-based capital purposes, banks are not

required to identify each on-balance sheet asset and

off-balance sheet item that qualifies for a risk

weight of less than 100 percent (50 percent for

derivatives). Thus, when completing the proposed

revised Schedule RC–R, each bank would decide for

itself how detailed an analysis of its assets and offbalance sheet items it wishes to perform and how

many of the specific lower risk-weighted items it

wishes to identify. In other words, a bank can pick

and choose among the asset items and the credit

equivalent amounts of off-balance sheet items that

have a risk weight that is less than the maximum

and risk-weight them accordingly, or simply riskweight some or all of these items at a 100 percent

risk weight (50 percent for derivatives).

11For the retained recourse on financial assets

sold with low-level recourse, banks would have the

ability to apply their institution-specific factors if

they use the ‘‘direct reduction method’’ for

converting low-level exposures to credit equivalent

amounts.

12For example, if a bank has $100 face value of

performance standby letters of credit and the credit

conversion factor for these letters of credit is 50

percent, then the credit equivalent amount is $50.

The bank would assign the credit equivalent

amount of $50 to the appropriate risk weight

categories according to the obligor or, if relevant,

the guarantor or the nature of the collateral in

accordance with the risk-based capital guidelines.

directly from the items that banks report

on this schedule. These ratios would

also be disclosed in the schedule. To

eliminate redundant reporting, the

agencies expect that the Call Report

preparation software products used by

most banks would automatically take,

i.e., carry forward, the carrying values of

all on-balance sheet asset values and the

face value or notional amount of most

off-balance sheet items used in the

capital calculations from other areas of

the Call Report and enter these amounts

into the proposed revised schedule.

These carried-forward values would

function as ‘‘control totals’’ and banks

would allocate these amounts to the

appropriate risk weight categories in

accordance with the risk-based capital

guidelines.

Currently, banks with total assets of

less than $1 billion that have total

capital greater than or equal to 8 percent

of ‘‘adjusted total assets,’’ as defined,

need to complete only existing items 1–

3.f on Schedule RC–R. All other banks

must complete the current version of

Schedule RC–R in its entirety. Existing

item 3 requires the reporting of the

major capital categories—Tier 1, Tier 2,

Tier 3, and total risk-based capital—as

well as risk-weighted assets and average

total assets, which is used in the Tier 1

leverage ratio. The amounts reported in

these existing items should be the

amounts determined by banks for their

own internal capital analyses consistent

with the applicable capital standards.

These items, i.e., items 3.a through 3.f,

are so-called ‘‘self-reported’’ capital

items. The first part of the proposed

revised regulatory capital schedule

would essentially replicate the steps

that banks are already going through to

determine the major capital categories

on a ‘‘self-reported’’ basis and therefore

should not impose significant additional

reporting burden. Moreover, to facilitate

this proposed step-by-step ‘‘building

block’’ approach to computing these

capital categories, the agencies propose

to move a number of items that are

collected principally for regulatory

capital calculation purposes from their

currently scattered locations in other

Call Report schedules to their more

logical position in the proposed revised

capital schedule. For example, the item

for ‘‘Deferred tax assets disallowed for

regulatory capital purposes’’ that is

currently collected in Schedule RC–F—

Other Assets, would now be included in

the proposed revised Schedule RC–R. In

addition, existing Schedule RC–R items

2.a and 2.b, which require the reporting

of qualifying limited-life capital

instruments that are includible in Tier

2 capital, would be collected on a

combined basis in the proposed revised

schedule.

Existing items 4–9 of Schedule RC–R

would be replaced with a format that

closely resembles the format of Part 2 of

the current Call Report optional

regulatory capital worksheet (and

portions of Schedule HC–I of the bank

holding company FR Y–9C report).

Banks’ Call Report software would take

the carrying values of banks’ balance

sheet asset categories, as reported on

Schedule RC, and automatically carry

these amounts forward to column A of

the on-balance sheet portion of the

proposed revised capital schedule.

Banks would then allocate these asset

values to the appropriate risk weight

categories in accordance with the riskbased capital guidelines to the same

extent that they do at present for their

own internal capital analyses, which is

part of the same process banks currently

use when determining net risk-weighted

assets for ‘‘self-reported’’ item 3.d.(1) of

Schedule RC–R.10 During the allocation,

column B of the on-balance sheet

portion of the proposed schedule would

be used by banks to report assets that

are not subject to risk weighting under

the capital guidelines. For banks that

currently complete Schedule RC–R in

its entirety, column B would be

equivalent to existing item 8 of

Schedule RC–R.

Similarly, banks’ Call Report software

would automatically take the face value

or notional amount of those off-balance

sheet items included in the calculation

of risk-weighted assets that are reported

elsewhere in the Call Report (generally,

in Schedule RC–L) and include these

amounts in column A of the off-balance

sheet portion of the proposed regulatory

capital schedule. However, banks would

need to separately identify the amounts

of their low-level recourse transactions

and other financial assets sold with

recourse. The Call Report software

products would likely embed the credit

conversion factors applicable to the

various off-balance sheet items into the

software for this schedule.11 The

software should then calculate the

credit equivalent amount for each offbalance sheet item (column B) by

multiplying the face or notional amount

by the credit conversion factor. Banks

would next allocate the credit

equivalent amounts to the appropriate

risk weight categories like they do for

their own internal risk-based capital

analyses.12 As with the on-balance sheet

items, banks must currently follow this

same allocation process for their offbalance sheet items in order to complete

the calculation of their net riskweighted assets for ‘‘self-reported’’ item

3.d.(1) of Schedule RC–R.

An advantage to this ‘‘building block’’

approach is that banks, the agencies,

and other Call Report users would be

assured that the sum of the amounts

allocated to each risk weight category

(plus the on-balance sheet items not

subject to risk weighting) would agree to

the balance sheet total for each asset

category and the credit equivalent

amount for each off-balance sheet item.

This type of approach has been used for

many years in the bank holding

company FR Y–9C report and, from

comments the agencies have received in

the past, seems to be the preferred riskbased capital reporting format by

bankers who must complete both the

Call Report and the FR Y–9C.

Furthermore, via the Call Report

preparation software products used by

most banks, a large portion of the inputs

to the proposed schedule’s riskweighting process for both on- and offbalance sheet items would be taken

automatically from other parts of the

Call Report. These software products

should also perform the final

calculation of total risk-weighted assets

as well as the risk-based and leverage

capital ratios reported in the proposed

schedule. Thus, the power of the

software should help minimize

reporting burden.

Overall, the agencies believe that the

proposed revisions to the regulatory

capital schedule of the Call Report

provide a rational, systematic approach

to reporting the elements of capital as

well as the components of risk-weighted

assets. The proposed approach should

offer both enhanced and efficient

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34813

reporting for both banks and Call Report

users.

III. Proposed New Information

In addition to streamlining the

existing Call Report requirements by

eliminating information that is no

longer of significant value, the agencies

are also endeavoring to improve the

relevance of the Call Report by

identifying new types of information

that are considered critical to the

agencies’ supervisory data needs going

forward. In so doing, the agencies have

focused primarily on new activities and

other recent developments that may

expose institutions to new or different

types of risk. The agencies expect that

most of the proposed new reporting

requirements discussed below will

affect a relatively small percentage of

banks because of the limited number of

institutions that are involved in the

activities these reporting requirements

address.

Furthermore, by proposing to

implement the following new reporting

requirements in the same reporting

period as the Call Report streamlining

changes, banks will be able to make all

of the necessary systems changes at one

time. The agencies believe that

combining these various types of

revisions into a single package should

result in lower start-up costs and

reporting burden for banks from a

systems perspective.

The agencies are currently reviewing

various provisions of the Gramm-LeachBliley Act (Pub. L. 106–102, codified at

15 U.S.C. 6801 et seq.), which was

signed into law on November 12, 1999.

Because of the new affiliations that

banks are permitted to have and the new

activities in which banks and bank

subsidiaries may engage, the agencies

may need to implement changes to the

Call Report in the future on account of

this new law.

A. Subprime Loans

Subprime lending is a high-risk

activity that poses increased risk to the

institutions involved and to the deposit

insurance funds if appropriate

safeguards are not in place. Insured

institutions have increasingly entered

the subprime lending market in recent

years, and industry analysts predict that

many nonbank subprime specialists will

seek to be acquired by insured

institutions to take advantage of the

relatively less expensive, more stable

funding source that insured deposits

provide. The exact number of

institutions involved in subprime

lending is not known with certainty;

however, the FDIC has estimated that

approximately 150 insured institutions

currently have significant exposures in

the subprime lending business. Despite

a favorable economic environment, a

disproportionate number of insured

institutions that engage in subprime

lending are problem institutions. The

estimated number of insured subprime

lenders represents just over one percent

of all insured institutions, yet they

account for nearly 20 percent of all

problem institutions.

The actual extent of insured

institutions’ involvement in subprime

lending is not known because there is

no periodic reporting of this activity to

the banking agencies. The estimates that

have been made come from examination

data, but the quality and timeliness of

the subprime lending data gleaned from

examination reports is constrained by

inconsistent reporting and by the length

of the examination cycle. The issue of

timeliness is particularly troublesome

from a safety and soundness

perspective, since subprime lending

tends to be a volume-oriented business

that encourages rapid portfolio growth.

Consequently, there is no reliable way

to regularly monitor individual

institutions’ subprime lending

programs. In several instances, this has

resulted in the unexpected and severe

deterioration in the condition of an

institution from one examination to the

next.

Accordingly, the agencies are

proposing to add a number of new items

to the Call Report on subprime lending.

These proposed items would make

possible the early detection and proper

supervision of subprime lending

programs through offsite monitoring

procedures. Banks involved in subprime

lending would report quarter-end data

for the following eight categories of

subprime loans in their loan portfolios:

(1) Revolving, open-end loans secured

by 1–4 family residential properties

extended under lines of credit, (2)

closed-end loans secured by first liens

on 1–4 family residential properties, (3)

closed-end loans secured by junior liens

on 1–4 family residential properties, (4)

loans secured by other properties, (5)

credit cards to individuals for

household, family, and other personal

expenditures, (6) consumer loans

secured by automobiles, (7) other

consumer loans, and (8) other subprime

loans. This information would be

reported in new Memorandum items in

the loan schedule (Schedule RC–C, part

I). Thus, for example, the proposed

Memorandum item for subprime closedend loans secured by first liens on 1–4

family residential properties should

contain all subprime loans that are

included in Schedule RC–C, part I, item

1.c.(2)(a). Banks involved in subprime

lending would also report their past due

and nonaccrual subprime loans and the

year-to-date charge-offs and recoveries

on these loans in new Memorandum

items in Schedules RC–N and RI–B, part

I. In these two areas, two broader loan

categories would be used: loans secured

by real estate and loans not secured by

real estate.

The quality and validity of the

proposed subprime lending information

to be collected in the Call Report hinges

on a workable definition of subprime

lending. Furthermore, subprime loans

could be defined on the basis of either

(a) loan portfolios or programs that

possess certain characteristics or (b)

individual loans with these

characteristics. Whether the portfolio or

program approach or the individual

loan approach ultimately is adopted, the

agencies are proposing the following

definition of subprime loans for

purposes of reporting information on

these loans in the Call Report:

Subprime loans are extensions of credit to

borrowers who, at the time of the loan’s

origination, exhibit characteristics indicating

a significantly higher risk of default than

traditional bank lending customers. Risk of

default may be measured by traditional credit

risk measures, e.g., credit/repayment history

and debt-to-income levels, or by alternative

measures such as credit scores. Subprime

borrowers represent a broad spectrum of

debtors ranging from those who have

exhibited repayment problems prior to

origination of their loans due to an adverse

event, such as job loss or medical emergency,

to those who persistently mismanage their

finances and debt obligations. Subprime

lending does not include loans to borrowers

who have had minor, temporary credit

difficulties since the origination of their

loans but are now current. Subprime loans

may take the form of direct extensions of

credit; loans purchased from other lenders,

including delinquent or credit impaired

loans purchased at a discount; and

automobile or other financing paper

purchased from other lenders or dealers.

The agencies invite comment on all

aspects of the proposed new Call Report

items on subprime lending. In

particular, the agencies seek comment

on the proposed definition of subprime

loans generally and on the following

issues relating to this definition:

(1) Should all individual subprime

loans be reported in the proposed new

Call Report items or should only those

subprime loans that are held in a

segregated portfolio or program be

reported? Do you foresee any difficulties

in reporting individual subprime loans

or segregated groups of subprime loans?

(2) Based on the proposed definition

of subprime loans above, approximately

what percentage of your bank’s loan

portfolio would currently be categorized

34814 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

as subprime? Using your bank’s own

internal definition of a subprime loan,

what percentage of your loan portfolio

does your bank currently classify as

subprime? Please indicate whether these

percentages are based on an individual

subprime loan approach or a segregated

portfolio or program approach. To the

extent possible, provide percentages for

your bank’s loan portfolio under both

approaches.

(3) What criteria does your bank use

to determine which loans are subprime?

Are the criteria the same for all types of

loans, e.g., mortgage, automobile, and

credit cards? If not, how do they differ?

(4) In defining subprime loans, which

factor(s) listed below are the best

indicators of a higher risk of default?

(a) Higher loan fees.

(b) Higher interest rates. For example,

should all loans made at a contract rate

200 basis points above the rate that is

offered to a traditional bank customer

for the same type of loan be included as

subprime loans?

(c) Debt-to-income ratios. For

example, should a loan to a borrower

with a specific debt-to-income ratio

above a stipulated level automatically

be a subprime loan?

(d) Delinquency history. For example,

should a loan be categorized as

subprime if the customer’s credit history

at the time of the loan’s origination

indicates that he or she had two or more

payments that were 30 days past due in

the last 12 months or had loans charged

off in the last 12 months? When would

your bank consider that a customer’s

delinquency history makes that

customer a subprime borrower?

(e) Loan-to-value ratio. Is there a loanto-value ratio above which a loan

secured by real estate would be

considered subprime?

(f) Credit scores or other ratings. If

your bank uses credit scoring to

determine whether a loan should be

categorized as subprime, are the scores

custom or generic bureau scores?

(1) If generic bureau scores were used,

below what score cutoff would a loan be

considered subprime?

(2) Does the score cutoff differ by loan

type?

(g) Bankruptcy status. For example,

how far back in the customer’s credit

history would your bank go to

determine whether a bankruptcy should

affect your categorization of a loan?

(h) Lack of credit history.

(i) Other factors. Please identify any

other factor that should be considered

an indicator of a higher risk of default

and explain why it should be

considered.

(5) Should the definition of subprime

be identical for all types of loans, or

should it differ by type of loan, e.g.,

mortgage, automobile, and credit cards?

(6) Can your bank determine from its

records whether borrowers with

subprime characteristics have credit

support (e.g., public or private

guarantees, co-signers, and insurance)

on specific loans? If yes, do you

categorize loans with such credit

support as subprime loans?

(7) The proposed subprime loan

definition relies on differences between

traditional and ‘‘higher risk’’ borrowers?

How should the agencies take into

account shifts in that difference (e.g.,

what happens if ‘‘traditional’’ lending

standards drop)?

(8) Should the subprime loan

definition distinguish between

institutions that target higher risk

borrowers as opposed to those

institutions that serve a community in

an economically disadvantaged area

where the repayment ability of area

borrowers can be or has been adversely

affected?

(9) Should there be a de minimus

level of subprime loans below which

reporting is not required?

(10) Should smaller institutions be

treated differently from larger

institutions for reporting purposes?

(11) What types of loans or lending

programs, if any, should be excluded

from the definition of subprime loans

or, if included in the definition,

reported separately from other subprime

loans? Please explain the reasons for the

exclusion or separate reporting.

(12) Should the proposed Call Report

items on subprime loans be treated as

confidential for a limited period of time

in order to give banks time to resolve

issues surrounding which loans should

and should not be reported as

subprime?

Although this proposal would create

several new Call Report items, the

burden of reporting this information

will fall only upon those institutions

engaged in subprime lending as it will

be defined. Even if the number of banks

involved in this activity turns out to be,

say, four times the current estimate,

these proposed new reporting

requirements would affect only 6

percent of the banks that file Call

Reports. The agencies would welcome

any additional information commenters

can provide on the number of banks that

are subprime lenders in order to

improve the agencies’ assessment of the

potential reporting burden of this

proposal.

B. Bank Securitization and Asset Sale

Activities

At present, the Call Report includes

several items in various schedules that

the agencies use to assess bank

involvement in securitization and asset

sale activities. The items generally focus

on the securitization and sale of 1–4

family residential mortgages and

consumer loans. However, over the past

few years, the scope and volume of bank

asset securitization activities have

expanded significantly beyond the

traditional 1–4 family residential

mortgage and consumer loan areas into

other areas, most notably into the areas

of home equity and commercial lending.

The agencies propose to revise and

expand the information collected in the

Call Report to facilitate more effective

analysis of the impact of securitization

and asset sale activities on bank credit

exposures. In this regard, the agencies

are proposing to introduce a separate

new Call Report schedule (Schedule

RC–S) that would comprehensively

capture information related to bank

securitization and asset sale activities.

Under this proposal, banks involved

in securitization and asset sale activities

would report quarter-end (or year-todate) data for seven loan categories

similar to the manner in which they

report their loan portfolios. These data

would cover 1–4 family residential

loans, home equity lines, credit card

receivables, auto loans, other consumer

loans, commercial and industrial loans,

and all other loans. For each loan

category, banks would report: (1) The

outstanding principal balance of assets

sold and securitized with recourse or

seller-provided credit enhancements, (2)

the maximum amount of credit

exposure arising from recourse or credit

enhancements to securitization

structures (separately for those

sponsored by the reporting bank and

those sponsored by other institutions),

(3) the past due amounts and charge-offs

and recoveries on the underlying

securitized assets, (4) the amount of any

commitments to provide liquidity to the

securitization structures, (5) the

outstanding principal balance of assets

sold with recourse or seller-provided

credit enhancements that have not been

securitized, and (6) the maximum

amount of credit exposure arising from

assets sold with recourse or sellerprovided credit enhancements that have

not been securitized. A limited amount

of information would also be collected

on bank credit exposures to assetbacked commercial paper conduits.

For the home equity line, credit card

receivable, and the commercial and

industrial loan categories, banks would

also report the amount of any ownership

(or seller’s) interests in securitizations

that are carried as securities and the

past due amounts and charge-offs and

recoveries on the assets underlying

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34815

these seller’s interests. The agencies

request comment on whether these

proposed items for ownership (or

seller’s) interests in securitizations

should also include seller’s interests not

in security form that continue to be

carried as loans on the balance sheet or

whether information on these nonsecurity seller’s interests should be

collected separately. Expanding the

proposal to incorporate data on seller’s

interests that are not in security form

would provide the agencies a complete

picture of this element of banks’

securitization activities. The agencies

also request comment on whether banks

are engaging in transactions in which

they retain ownership (or seller’s)

interests in asset securitizations that

involve loans outside of the three

categories included in the proposal (i.e.,

home equity lines, credit card

receivables, and commercial and

industrial loans).

In addition, the agencies request

comment on the manner in which

banks’ internal management reports

capture information on asset

securitization activities. In particular,

do bank management reports primarily

furnish information on the basis of

whether the bank provides recourse or

credit enhancements (which is the basis

upon which proposed Schedule RC–S is

structured, consistent with the agencies’

risk-based capital requirements) or do

these reports primarily furnish

information on the basis of whether the

bank performs the servicing on the

underlying assets?

With the collection of this expanded

information on bank securitization and

asset sale activities, the following

existing Call Report items on Schedule

RC–L would be eliminated:

(1) For all banks, items 9.a.(1) and (2)

on the outstanding principal balance

and amount of recourse exposure on

first lien 1–4 family residential mortgage

loans sold with recourse, and items

9.b.(1) and (2) on the outstanding

principal balance and amount of

recourse exposure on other financial

assets sold with recourse.

(2) For banks filing the FFIEC 031 and

032, i.e., banks with foreign offices or

with $300 million or more in total

assets, Memorandum items 5.a, 5.b, and

5.c on the outstanding amount of auto

loans, credit cards, and other consumer

loans that have been securitized and

sold (with servicing retained).

In addition, the six items on 1–4

family residential mortgage loan

servicing that all banks currently

complete on Schedule RC–M (items 4.a

through 4.d) would be combined into

two items and moved to the proposed

new securitization and asset sale

activities schedule. These two items

would cover residential mortgages

serviced for others with credit

enhancements and with no credit

enhancements. The separate Schedule

RC–M item on the servicing of all other

loans (item 13), which is currently

reported by banks filing the FFIEC 031,

032, and 033, i.e., banks with foreign

offices or with $100 million or more in

total assets, would be moved to the

proposed new schedule and would be

applicable to all banks. This servicing

item would continue to be reported only

if the amount is more than $10 million,

but the agencies would eliminate the

additional current threshold that it must

exceed 10 percent of total assets in order

to be reported.

Based on a review of the Call Report

information currently collected on

assets transferred with recourse,

mortgages serviced with recourse, and

securitized consumer loans, the

agencies estimate that approximately 5

percent of all banks are currently

involved in securitization and asset sale

activities. Thus, although the proposed

new schedule would collect a

considerable amount of information on

these activities, most banks will not be

affected by Schedule RC–S and the

increase in reporting burden associated

with the schedule’s new or expanded

information will be confined to a

relatively small segment of the banking

industry.

On a related matter, the agencies also

propose to collect information to

facilitate more effective assessments of

bank credit and other exposures related

to their portfolios of asset-backed

securities. Currently, virtually all nonmortgage asset-backed securities are

reported in a single Call Report item,

i.e., Schedule RC–B, item 5, ‘‘Other debt

securities.’’ The proposed segregation of

specific categories of asset-backed

securities from ‘‘Other debt securities’’

would promote risk-focused supervision

by enhancing the agencies’ ability to

assess credit exposures and asset

concentrations. Under the proposal,

banks would report quarter-end fair

value and amortized cost information

for six categories of asset-backed

securities that are currently included in

the item for ‘‘Other debt securities.’’ The

six categories are securities backed by:

(1) Home equity lines, (2) credit card

receivables, (3) auto loans, (4) other

consumer loans, (5) commercial and

industrial loans, and (6) all other loans.

C. Additional Categories of Noninterest

Income

Noninterest income has grown

substantially over the last few years as

a source of revenue for banks. For 1999,

noninterest income in the aggregate for

commercial banks accounted for 42

percent of their net interest income plus

noninterest income, 8 percentage points

higher than in 1994. Most of this growth

in noninterest income has come from

new or expanded services provided by

banks. A more detailed breakdown of

noninterest income would provide the

agencies with valuable supervisory

information on the amount and type of

fee-generating activities within the

bank.

Therefore, the agencies are proposing

to add several new noninterest income

categories to those currently collected in

the Call Report income statement

(Schedule RI). These categories were

selected in part based on a review of

noninterest income information

currently reported by banks in Schedule

RI–E—Explanations. In this schedule,

banks must itemize and describe, using

their own terminology, their most

significant categories of ‘‘Other

noninterest income.’’ Three of the

proposed new income statement

categories represent items, or

modifications of items, for which

specific preprinted captions currently

appear in Schedule RI–E (items 1.a, 1.b,

and 1.c and items 2.b, 2.c, and 2.d). As

a result, these items would no longer be

reported in Schedule RI–E.

The categories of noninterest income

that would be added as specific items

on the Call Report income statement are:

(1) Investment banking, advisory,

brokerage, and underwriting fees and

commissions, (2) venture capital

revenue, (3) net servicing fees, (4) net

securitization income, (5) insurance

commissions and fees, (6) loan and

other credit-related fees (not reported as

part of interest and fee income on

loans), (7) net gains (losses) on sales of

loans, (8) net gains (losses) on sales of

other real estate owned, and (9) net

gains (losses) on sales of other assets

(excluding securities). The current

income statement item for ‘‘Other fee

income’’ (item 5.b.(1) on the FFIEC 034;

item 5.f.(1) on the FFIEC 031, 032, and

033) would be discontinued. These new

noninterest income items would be

included on the report forms for all

banks. However, in most cases, small

banks are not likely to be involved in

several of these activities or transactions

and, therefore, will be subject to only

limited additional reporting burden in

this area.

The new noninterest income items

would provide greater comparability

among the categories of noninterest

income currently reported by banks.

Some of the proposed noninterest

income categories would represent the

only information provided in the Call

34816 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

13A number of entities that do not submit Call

Reports to the agencies file the existing trust

reports. In this regard, savings associations and

savings and loan service corporations with trust

powers currently file the FFIEC 001. Likewise,

state-chartered nondeposit trust companies that are

subsidiaries of a bank or savings association, bank

holding company, savings and loan holding

company, or savings and loan service corporation

also file the FFIEC 001. Bank subsidiaries located

outside the United States, and bank holding

Report on certain bank activities. By

collecting more detailed noninterest

income data, the significance of each of

these activities can be compared to

other income-generating activities of the

bank.

Finally, for the limited number of

large banks that have $5 billion or more

in notional amount of derivatives held

for trading, the agencies are proposing

to modify the information currently

collected on trading revenue by risk

exposure (in Schedule RI, Memorandum

item 8). In order to distinguish between

trading revenue from cash instruments

and from derivative contracts, these

banks would begin to report their

revenue from cash instruments by risk

exposure in addition to their total

trading revenue by risk exposure.

D. Federal Home Loan Bank Advances

As of year-end 1999, over 5,300 or

approximately three fifths of the 8,600

insured commercial banks were

members of the Federal Home Loan

Bank System. Nearly all of the more

than 1,600 thrift institutions, including

FDIC-supervised savings banks, also

were members. Many commercial banks

have joined the Federal Home Loan

Bank System in recent years in order to

gain a new source of funding. As a

result, the volume of Federal Home

Loan Bank advances to commercial

banks has risen dramatically. The

Federal Home Loan Bank System had

advances outstanding of $155 billion to

about 3,700 commercial banks at the

end of 1999 according to aggregate data

that the Federal Housing Finance Board

(FHFB) supplied to the agencies. These

advances represented almost 40 percent

of total advances of $392 billion to all

Federal Home Loan Bank System

members at the end of 1999. Federal

Home Loan Bank advances to banks and

thrifts are expected to further increase

because recent legislation expands the

types of assets that institutions can

pledge as collateral for advances.

At present, Federal Home Loan Bank

advances are reported as part of a bank’s

‘‘Other borrowed money’’ in the Call

Report (Schedule RC, item 16). The

aggregate amount of ‘‘Other borrowed

money’’ at commercial banks has

increased significantly over the past few

years, growing at a faster rate than the

total liabilities of commercial banks.

Between year-end 1994 and 1999,

aggregate ‘‘Other borrowed money’’

more than doubled to $508 billion.

Thus, about 30 percent of aggregate

‘‘Other borrowed money’’ currently

consists of advances from Federal Home

Loan Banks. While the agencies have

been able to obtain information on

advances indirectly through the FHFB

and relate it to Call Report data on

borrowings, the agencies’ future ability

to obtain timely and consistent data on

advances may be more difficult after the

FHFB implements its plan to give the 12

Federal Home Loan Banks more

autonomy and reporting responsibility.

Therefore, to improve their

monitoring and understanding of

individual banks’ funding sources,

asset-liability management, and

liquidity, the agencies are proposing to

have banks report Federal Home Loan

Bank advances separately from their

remaining ‘‘Other borrowed money,’’

including the existing three-way

maturity breakdown of these

borrowings. This would also provide

more consistent information on

borrowings by banks and savings

associations because the latter already

report the amount of their Federal Home

Loan Bank advances on the Thrift

Financial Report.

In addition to Federal Home Loan

Bank advances, ‘‘Other borrowed

money’’ includes other types of

nondeposit liabilities to third parties

that may be partially or fully secured by

bank assets. Examples of these

collateralized borrowings include loans

sold under repurchase agreements that

mature in more than one business day,

mortgage indebtedness on bank

premises, and borrowings from Federal

Reserve Banks. The FDIC is currently

evaluating the effect of bank assets that

secure borrowings in the context of risk

to the insurance funds and the setting of

appropriate deposit insurance

assessment rates. Accordingly, the

agencies seek comment on the existing

availability of information in bank

records on the collateralization of bank

borrowings and the amounts and types

of collateral involved. To the extent it is

not currently available, comment is

requested on the burden associated with

developing and maintaining this

information. Data on the collateral

securing bank borrowings would also

enable the agencies to more efficiently

evaluate the cost of resolving a failed or

failing institution and market it to

potential acquirers.

E. Restructured Derivative Contracts

The agencies propose to require that

banks with foreign offices or with $300

million or more in total assets report the

fair value of derivative contracts carried

as assets that have been restructured or

renegotiated for reasons related to the

counterparty’s financial difficulties.

This new item would exclude derivative

contracts that are 30 days or more past

due. The purpose for adding this item

is to obtain better and more complete

information about the general credit

quality and performance of banks’

derivatives. Currently, the Call Report

collects past due information on these

contracts (Schedule RC-N,

Memorandum item 4); however, this

item rarely shows significant volumes of

delinquent derivative contracts because

the contracts are often either

renegotiated and restructured or charged

off before they become more than 30

days past due. Because counterparty

credit risk is a significant consideration

in the assessment of derivative

transactions, information on

restructured contracts is important for

supervisory purposes and will

complement the data that banks already

report on past due derivatives and on

credit losses on derivatives.

Based on December 31, 1999, Call

Report data, less than 500 banks

currently report that they have

derivative contracts outstanding.

Moreover, the seven largest commercial

bank participants in the derivatives

market hold 95 percent of the notional

amount of all derivatives held by

commercial banks. Approximately 90

percent of the Call Report information

currently collected on derivative

contracts is reported by banks with total

assets of $1 billion or more. Thus, the

burden associated with the collection of

the proposed new item on restructured

derivative contracts would be

concentrated in large banks.

IV. Reporting of Trust Data

The agencies propose to change the

manner in which banks report

information on their trust activities.

Thus, for banks, the agencies would

replace the existing Annual Report of

Trust Assets (FFIEC 001) and the

Annual Report of International

Fiduciary Activities (FFIEC 006) with a

Fiduciary and Related Services

Schedule (Fiduciary Schedule). This

new schedule (Schedule RC-T) would

become part of the bank Call Report.

Under this proposal, banks that have

total fiduciary assets greater than $100

million or fiduciary income greater than

10 percent of their combined net

interest and noninterest income, as well

as all nondeposit trust companies that

file Call Reports, would be required to

report certain trust information in

Schedule RC–T quarterly.13 This

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34817

companies with subsidiaries or affiliates located

outside the United States, that provide trust

services at any foreign location currently file the

FFIEC 006. This Call Report proposal does not

address the trust reporting requirements that would

be applicable to these entities in 2001.

information includes the number of

accounts and the market value of trust

assets for eight categories of fiduciary

activities and a fiduciary and related

services income statement. This group

of quarterly reporters would include

approximately one-half of the 2,300

institutions conducting fiduciary

activities. In the aggregate, these

institutions hold more than 90 percent

of total fiduciary assets. These

institutions would also report data on

corporate trust activities, collective

investment funds and common trust

funds, fiduciary settlements and other

losses, and types of assets held in

personal trust and agency accounts at

year-end only. The remaining trust

institutions would report the preceding

information, except the fiduciary

income statement and fiduciary

settlements and other losses, annually

as they do at present. The fiduciary and

related services income statement and

the items on fiduciary settlements and

other losses would be treated as

confidential information on an

individual institution basis, which

would maintain the treatment accorded

this information in the Annual Report of

Trust Assets. The agencies have applied

this confidential treatment to this trust

income and loss information because

these data generally pertain to only a

portion of a reporting institution’s total

operations and not to the institution as

a whole.

Collecting certain data in the new

Fiduciary Schedule from the larger trust

institutions each quarter will provide

the agencies with critical supervisory

information relating to both national

and international fiduciary activities on

a more timely basis. This will enable the

agencies to identify trends and changing

risk profiles relating to fiduciary

activities more quickly.

Most of the 51 data items that would

be reported quarterly in the Fiduciary

Schedule are currently included in the

annual trust reports. Modifications have

been made to some of the existing items

to improve their value and usefulness.

An additional 48 data items would only

be collected annually in the December

31 report. The total number of

separately reportable data items in the

proposed Fiduciary Schedule represents

a decrease of almost 60 percent in the

number of reportable items in the FFIEC

001 and FFIEC 006 combined. Although

roughly half of the trust institutions

would have a new quarterly filing

requirement under which they would

report trust data they now report only

annually, these institutions should

already have a reporting system in place

to track this information. In addition,

small trust institutions would at most

have to provide trust data in 69 items

once each year. Thus, the agencies

believe this proposal should not

produce a significant overall increase in

reporting burden for trust institutions.

The agencies are proposing to add the

new Fiduciary Schedule to the Call

Report instead of retaining separate trust

reports in order to facilitate the timely

collection and processing of the

information. Institutions filing the

current annual trust reports generally

must submit their reports within 45

days after year-end. Electronically

submitted annual trust reports, first

allowed for year-end 1998 reporting,

have a 75-day filing deadline. By

moving the reporting of fiduciary

information into the Call Report, the

submission deadline for the Call Report

would apply to this reporting

requirement. Consistent with the

proposal discussed in Section V.D.

below to shorten the Call Report

submission period for banks with

foreign offices, the length of time that

trust institutions would have for

completing the Fiduciary Schedule

would be reduced from 45 days to 30

days for most institutions and from 75

days to 30 days for institutions that file

electronically.

The agencies invite comment on all

aspects of the proposed Fiduciary

Schedule. In particular, the agencies

seek comment on the following issues

relating to this schedule:

(1) Do the proposed criteria for

determining which institutions should

report quarterly adequately capture

those institutions that should report

fiduciary activities more frequently than

annually because of the extent of their

involvement with these activities? If

not, what should the criteria be?

(2) What types of difficulties, if any,

will institutions encounter in complying

with the proposed reduction in the

amount of time for reporting trust

information in spite of the significant

decrease in the amount of data that

institutions would be required to report?

(3) Are the categories of trust accounts

for which asset and income information

would be reported in the proposed

Fiduciary Schedule an improvement

over the current reporting structure of

the Annual Report of Trust Assets

(FFIEC 001) and are the proposed trust

account categories clear? Is there an

alternative categorization of trust

accounts for asset and income reporting

purposes that would increase the

schedule’s usefulness?

(4) Is net fiduciary and related

services income, as it would be reported

in the proposed schedule, a useful

performance measure? Is the proposed

single item for ‘‘Expenses’’ too broad or

restrictive to allow for meaningful peer

analysis? Should intracompany income

credits be included, as proposed, in

computing net fiduciary and related

services income?

(5) Should individual institution

fiduciary income and loss information

continue to be accorded confidential

treatment with only aggregate income

and loss data made available to the

public or should the agencies make

some or all of this individual institution

data publicly available?

(6) What fiduciary-related trends and

ratios should be reported in the Bank

Performance Report and how should

they be presented?

(7) The FFIEC currently issues an

annual publication, ‘‘Trust Assets of

Financial Institutions,’’ containing data

reported in the Annual Report of Trust

Assets (FFIEC 001). Should the FFIEC

continue to produce such a publication

and, if so, which types of data from the

proposed schedule should the

publication contain and how often

should the FFIEC publish the data?

(8) The proposed schedule would

replace the Annual Report of

International Fiduciary Activities

(FFIEC 006). The information on

fiduciary accounts in foreign offices in

the proposed schedule is currently

reported in the FFIEC 006, but the

agencies have not made the information

collected in the FFIEC 006 available to

the public. In contrast, the foreign office

fiduciary account information in the

proposed Fiduciary Schedule would be

publicly available. Should the agencies

continue to treat this foreign office

information as confidential and, if so,

for what reasons?

V. Other Issues for Which Public

Comment is Requested

A. Subchapter S Bank Dividends

Distributed to Cover Shareholders’

Personal Tax Liabilities

Approximately 1,300 banks have so

far elected Subchapter S status for

federal income tax purposes, thereby

shifting the liability for the payment of

taxes on the bank’s taxable income from

the bank to its shareholders. As a result,

Subchapter S banks typically increase

their dividend payments to shareholders

to provide them with sufficient funds to

cover their personal tax liabilities for

their share of the bank’s earnings.

However, the agencies have not been

34818 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

fully successful in estimating the effect

that Subchapter S status has on a bank’s

earnings and dividends by adjusting for

an assumed tax rate in the Uniform

Bank Performance Report (UBPR). This

approach has been questioned by

bankers at some Subchapter S banks

who have felt the results disclosed in

the UBPR were inaccurate for their

individual institutions. As a

consequence, the agencies have found it

difficult to make valid comparisons of

the dividend rates and after-tax earnings

of Subchapter S banks and banks that

are subject to federal corporate income

taxes, i.e., Subchapter C banks.

For this reason, the agencies are

considering whether to add a new Call

Report item in which Subchapter S

banks would report the dollar amount of

dividends being distributed to

shareholders to cover their personal tax

liabilities for the bank’s taxable income.

Based on comments made by bankers

from some Subchapter S banks, they

already determine this dividend amount

after consulting with their larger

shareholders.

These bankers believe that it would be

more accurate for the UBPR to adjust

their reported earnings and dividends

using these dollar amounts in place of

a calculation that applies an assumed

tax rate to bank earnings. Therefore, the

agencies request comment on:

(1) Whether Subchapter S banks

normally perform such an analysis as

part of their dividend-setting process,

(2) How these banks determine the

amount to distribute to shareholders

given the shareholders’ differing

personal tax positions,

(3) Whether the amounts distributed

to cover shareholders’ personal tax

liabilities are measured consistently

from year to year, and

(4) Whether the agencies should add

a new Call Report item in which

Subchapter S banks would report the

amount of dividends distributed to

cover shareholders’ personal tax

liabilities.

B. Reporting of Loan Income and

Averages by Small Banks

Banks with domestic offices only and

less than $25 million in assets are not

currently required to report a

breakdown of their total loan income by

loan category or their quarterly average

for total loans by loan category. This

reporting approach for the smallest

banks took effect in 1984 and was

intended to limit the reporting burden

on these institutions at a time when

their loan systems were believed to be

primarily manual rather than

automated. These small banks do,

however, report a breakdown of their

loan portfolios by loan category as of

each quarter-end report date and they

also report their past due and

nonaccrual loans and their charge-offs

and recoveries by loan category each

quarter. With the increased use of

technology, even by small banks, since

1984, and the requirement to file Call

Reports electronically, the reason for

exempting banks with less than $25

million in assets from reporting loan

income and averages by loan category

may no longer be valid.

Removing this small bank exemption

would improve the agencies’ offsite

monitoring capability for these banks,

thereby enhancing their risk-focused

supervision. The agencies would be able

to detect changes in the loan yields for

the separate loan categories within an

individual small bank’s loan portfolio

and compare this to changes in the loan

volume in those categories and to the

yields on these loan categories at peer

group banks. This would provide the

agencies a means to more promptly

identify a small bank’s move to higher

risk, higher yielding loans. Removing

this exemption would also increase the

consistency of the information available

on bank lending for all banks, which

may prove useful to the management of

small banks as they evaluate their own

institution’s performance.

If the exemption from reporting loan

income and averages were eliminated

for banks with domestic offices only and

less than $25 million in assets, these

banks would report a breakdown of

their total interest and fee income on

loans using the following loan

categories: (1) Loans secured by real

estate, (2) commercial and industrial

loans, (3) credit cards to individuals for

household, family, and other personal

expenditures, (4) other consumer loans,

(5) loans to foreign governments and

official institutions, and (6) all other

loans. In addition, those banks with less

than $25 million in assets that have

‘‘Loans to finance agricultural

production and other loans to farmers’’

(Schedule RC–C, part I, item 3)

exceeding 5 percent of total loans would

report the amount of income on these

agricultural loans. Banks with domestic

offices only and less than $25 million in

assets would report quarterly averages

for: (1) Loans secured by real estate, (2)

commercial and industrial loans, (3)

credit cards to individuals for

household, family, and other personal

expenditures, and (4) other consumer

loans. Those banks meeting the 5

percent of total loans test would also

report a quarterly average for their

‘‘Loans to finance agricultural

production and other loans to farmers.’’

Thus, the agencies request comment

on the merits of eliminating the

exemption from reporting loan income

and averages by loan category for banks

with domestic offices only and less than

$25 million in assets. In particular, the

agencies request comment on the extent

to which these banks’ loan systems are

automated and on the availability of this

loan category information.

C. Eliminating Confidential Treatment

for Certain Past Due and Nonaccrual

Data

An important public policy issue for

the agencies has been how to use market

discipline to complement supervisory

resources. Market discipline relies on

market participants having information

about the risks and financial condition

of banking organizations. The Call

Report, in particular, is widely used by

securities analysts, rating agencies, and

large institutional investors as sources

of bank-specific data. Disclosure that

increases transparency should lead to

more accurate market assessments of

risk and value. This, in turn, should

result in more effective market

discipline on banking organizations.

Despite this emphasis on market

discipline, the FFIEC and the agencies

currently accord confidential treatment

to the information banks report in

Schedule RC–N of the Call Report on

the amounts of their loans, leases, and

other assets that are past due 30 through

89 days and still accruing (and on the

amount of restructured loans and leases

that are past due 90 days or more and

still accruing or in nonaccrual status).

This is the only financial information

currently collected on the Call Report

that is treated as confidential on an

individual bank basis. The agencies

publish aggregate data derived from

these confidential items. In contrast, the

information banks report on the

amounts of their loans, leases, and other

assets that are 90 days or more past due

and still accruing or that are in

nonaccrual status has been publicly

available since June 30, 1983.

Nevertheless, the agencies have not

precluded banks from publicly

disclosing the past due and restructured

data that the agencies treat as

confidential, provided individual

borrower information is not released. In

order to give the public, including

banks, more complete information on

the level of and trends in bank asset

quality at individual institutions, the

agencies are proposing to eliminate the

confidential treatment for the 30–89

days past due (and restructured) items

beginning with the amounts reported as

of March 31, 2001.

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34819

14For example, internationally active banking

organizations routinely provide the securities

markets with consolidated financial information

long before their bank subsidiaries with foreign

offices file their Call Reports.

In addition, the agencies request

comment on whether they should also

make publicly available the individual

bank 30–89 day past due (and

restructured) Call Report information for

some number of quarters prior to the

first quarter of 2001. This would enable

Call Report users outside the agencies to

better understand the trend of

delinquent loans by giving these users

current data that they can compare to

the 30–89 day past due (and

restructured) information for quarters

ending December 31, 2000. If prior

quarters’ data are made publicly

available, comment is requested on

which past quarter should be chosen as

the earliest quarter for which the

agencies make these data publicly

available, e.g., March 31, 2000, or March

31, 1996.

D. Shortening the Submission Period for

Banks with Foreign Offices

Banks are required to submit their

Call Reports electronically so that they

are received by the banking agencies’

electronic collection agent no later than

30 days after the quarter-end report

date, e.g., by April 30 for the March 31

report. However, banks that have (or

have previously had) more than one

foreign office, other than a ‘‘shell’’

branch or an International Banking

Facility, are permitted an additional 15

days to file their Call Reports, e.g., by

May 15 for the March 31 report. These

banks with foreign offices have been

provided this additional time to

complete and submit their reports since

at least 1980. This privilege was

granted, at least in part, because of the

length of time it took these banks to

receive information from overseas

offices that was needed for Call Report

purposes.

The agencies begin using individual

bank Call Report data for monitoring

and other analytical purposes as soon as

the report has been received without

waiting for the editing and validation

process to be completed. However, for

the banks with more than one foreign

office, a group that includes the banking

system’s largest institutions, this

process cannot begin until as much as

45 days after the quarter-end report

date. Thus, the agencies’ monitoring and

analysis of risk exposures in individual

banks and for the banking system as

whole is impeded by the delayed

submission of Call Report data by banks

with more than one foreign office.

Furthermore, with the technological

advances over the past 20 years, bank

systems have the ability to receive data

from overseas offices on a much more

timely basis.14 The 15-day extension

also gives banks with foreign offices a

comparative advantage over the

remainder of the industry that must

submit its data within 30 days. The

compilation and timely analysis of

aggregate statistics on the banking

industry’s condition and performance

also suffers from having to contend with

the two different submission deadlines,

particularly because the banks whose

data are received the latest hold the bulk

of the banking system’s assets,

liabilities, capital, and earnings.

Accordingly, the agencies believe that

there may no longer be sufficient

justification for banks with more than

one foreign office to have a lengthier

submission period than other

institutions. The agencies are therefore

proposing to eliminate the additional

15-day period that these banks have for

filing their Call Reports. Banks that

would be affected by this proposed

change are specifically invited to

comment on any difficulties that this

change would present.

VI. Request for Comment

In addition to the issues upon which

comment has been requested above,

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: May 22, 2000.

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, May 23, 2000.

Jennifer J. Johnson,

Secretary of the Board.

Dated at Washington, DC, this 22nd day of

May, 2000.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 00–13511 Filed 5–30–00; 8:45 am]

BILLING CODES OCC: 4810–33–P, Board: 6210–01–P,

FDIC: 6714–01–P