8078 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

1See Exempt. of Rail Abandonment-Offers of

Finan. Assist., 4 I.C.C.2d 164 (1987).

line of railroad extending from milepost

47.2 near Lindsay to milepost 66.0 near

Ultra, in Tulare County, CA, and to

discontinue trackage rights over 25.7

miles of railroad owned by San Joaquin

Valley Railroad Co. from SP milepost

287.1 near Ducor to SP milepost 308.7

near Famoso, including the branch line

from SP milepost 295.0 near Richgrove

to SP milepost 299.1 near Jovista, in

Tulare and Kern Counties, CA, subject

to standard employee protective

conditions and environmental

conditions.

DATES: Provided no formal expression of

intent to file an offer of financial

assistance (OFA) has been received, this

exemption is effective on March 23,

1997. Formal expressions of intent to

file an OFA 1 under 49 CFR

1152.27(c)(2) must be filed by March 3,

1997; petitions to stay must be filed by

March 10, 1997; requests for a public

use condition must be filed by March

13, 1997; and petitions to reopen must

be filed by March 18, 1997.

ADDRESSES: Send pleadings referring to

STB Docket No. AB–397 (Sub-No. 5X)

to: (1) Surface Transportation Board,

Office of the Secretary, Case Control

Branch, 1201 Constitution Ave., NW.,

Washington, DC 20423; and (2)

Petitioner’s representative: Paul C.

Oakley, 1350 New York Ave., NW, Suite

800, Washington, DC 20005–4797.

FOR FURTHER INFORMATION CONTACT:

Beryl Gordon, (202) 927–5660. (TDD for

the hearing impaired: (202) 927–5721.)

SUPPLEMENTARY INFORMATION:

Additional information is contained in

the Board’s decision. To purchase a

copy of the full decision, write to, call,

or pick up in person from: DC News &

Data, Inc., Room 2229, 1201

Constitution Ave., NW., Washington,

DC 20423. Telephone: (202) 289–4357/

4359. (Assistance for the hearing

impaired is available through TDD

services (202) 927–5721.)

Decided: February 13, 1997.

By the Board, Chairman Morgan and Vice

Chairman Owen.

Vernon A. Williams,

Secretary.

[FR Doc. 97–4273 Filed 2–20–97; 8:45 am]

BILLING CODE 4915–00–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

Federal Reserve System

Federal Deposit Insurance Corporation

Agency Information Collection

Activities: Submission for OMB

Review; Comment Request

AGENCIES: Office of the Comptroller of

the Currency (OCC), Treasury; Board of

Governors of the Federal Reserve

System (Board); and Federal Deposit

Insurance Corporation (FDIC).

ACTION: Notice of information collection

to be submitted to OMB for review and

approval under the Paperwork

Reduction Act of 1995.

SUMMARY: On September 16, 1996, the

OCC, the Board, and the FDIC (the

agencies) requested public comment for

60 days on proposed revisions to the

Consolidated Reports of Condition and

Income (Call Report), which are

currently approved collections of

information. After considering the

comments the agencies received, the

Federal Financial Institutions

Examination Council (FFIEC), of which

the agencies are members, adopted

several modifications to the revised

reporting requirements initially

proposed.

In accordance with the requirements

of the Paperwork Reduction Act of 1995

(44 U.S.C. chapter 35), the agencies may

not conduct or sponsor, and the

respondent is not required to respond

to, an information collection that has

been extended, revised, or implemented

on or after October 1, 1995, unless it

displays a currently valid Office of

Management and Budget (OMB) control

number. Comments are invited on: a.

whether the proposed revisions to the

following collections of information are

necessary for the proper performance of

the agencies’ functions, including

whether the information has practical

utility; b. the accuracy of the agencies’

estimates of the burden of the

information collections as they are

proposed to be revised, including the

validity of the methodology and

assumptions used; c. ways to enhance

the quality, utility, and clarity of the

information to be collected; d. ways to

minimize the burden of information

collection on respondents, including

through the use of automated collection

techniques or other forms of information

technology; and e. estimates of capital

or startup costs and costs of operational,

maintenance, and purchase of services

to provide information.

DATES: Comments must be submitted on

or before March 24, 1997.

ADDRESSES: Interested parties are

invited to submit written comments to

any or all of the agencies. All comments,

which should refer to the OMB control

number(s), will be shared among the

agencies.

OCC: Written comments should be

submitted to the Communications

Division, Office of the Comptroller of

the Currency, 250 E Street, S.W.,

Washington, D.C. 20219; Attention:

Paperwork Docket No. 1557–0081 [FAX

number (202) 874–5274; Internet

address: Regs.comments@occ.treas.gov].

Comments will be available for

inspection and photocopying at that

address.

Board: Written comments should be

addressed to Mr. William W. Wiles,

Secretary, Board of Governors of the

Federal Reserve System, 20th and C

Streets, N.W., Washington, D.C. 20551,

or delivered to the Board’s mail room

between 8:45 a.m. and 5:15 p.m., and to

the security control room outside of

those hours. Both the mail room and the

security control room are accessible

from the courtyard entrance on 20th

Street between Constitution Avenue and

C Street, N.W. Comments received may

be inspected in room M–P–500 between

9:00 a.m. and 5:00 p.m., except as

provided in § 261.8 of the Board’s Rules

Regarding Availability of Information,

12 CFR 261.8(a).

FDIC: Written comments should be

addressed to the Office of the Executive

Secretary, Federal Deposit Insurance

Corporation, 550 17th Street, N.W.,

Washington, D.C. 20429. Comments

may be hand-delivered to Room F–402,

1776 F Street, N.W., Washington, D.C.

20429, on business days between 8:30

a.m. and 5:00 p.m. Comments may be

sent through facsimile to: (202) 898–

3838 or by the Internet to:

comments@fdic.gov. Comments will be

available for inspection at the FDIC

Public Information Center, Room 100,

801 17th Street, N.W., Washington, D.C.,

between 9:00 a.m. and 4:30 p.m. on

business days.

A copy of the comments may also be

submitted to the OMB desk officer for

the agencies: Alexander Hunt, Office of

Information and Regulatory Affairs,

Office of Management and Budget, New

Executive Office Building, Room 3208,

Washington, D.C. 20503.

FOR FURTHER INFORMATION CONTACT: A

copy of the revised collection of

information may be requested from any

of the agency clearance officers whose

names appear below.

OCC: Jessie Gates, OCC Clearance

Officer, (202) 874–5090, Office of the
Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8079

1The FFIEC 031 report form is filed by banks

with domestic and foreign offices. The FFIEC 032

report form is filed by banks with domestic offices

only and total assets of $300 million or more. The

FFIEC 033 report form is filed by banks with

domestic offices only and total assets of $100

million or more but less than $300 million. The

FFIEC 034 report form is filed by banks with

domestic offices only and total assets of less than

$100 million.

Comptroller of the Currency, 250 E

Street, S.W., Washington, D.C. 20219.

Board: Mary M. McLaughlin, Board

Clearance Officer, (202) 452–3829,

Division of Research and Statistics,

Board of Governors of the Federal

Reserve System, 20th and C Streets,

N.W., Washington, D.C. 20551.

Telecommunications Device for the Deaf

(TDD) users only, Dorothea Thompson,

(202) 452–3544, Board of Governors of

the Federal Reserve System, 20th and C

Streets, N.W., Washington, D.C. 20551.

FDIC: Steven F. Hanft, FDIC Clearance

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

Executive Secretary, Federal Deposit

Insurance Corporation, 550 17th Street

N.W., Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: Request

for OMB approval to extend, with

revision, the following currently

approved collections of information:

Report Title: Consolidated Reports of

Condition and Income

Form Number: FFIEC 031, 032, 033,

034. 1

Frequency of Response: Quarterly.

For OCC:

OMB Number: 1557–0081.

Affected Public: National Banks.

Estimated Number of Respondents:

2,800 national banks.

Estimated Time per Response: 39.92

burden hours.

Estimated Total Annual Burden:

447,132 burden hours.

For Board:

OMB Number: 7100–0036.

Affected Public: State Member Banks.

Estimated Number of Respondents:

1,002 state member banks.

Estimated Time per Response: 45.80

burden hours.

Estimated Total Annual Burden:

183,566 burden hours.

For FDIC:

OMB Number: 3064–0052.

Affected Public: Insured State

Nonmember Commercial and Savings

Banks.

Estimated Number of Respondents:

6,374 insured state nonmember banks.

Estimated Time per Response: 29.67

burden hours.

Estimated Total Annual Burden:

756,511 burden hours.

The estimated time per response is an

average which varies by agency because

of differences in the composition of the

banks under each agency’s supervision

(e.g., size distribution of banks, types of

activities in which they are engaged,

and number of banks with foreign

offices). The time per response for a

bank is estimated to range from 15 to

400 hours, depending on individual

circumstances.

General Description of Report: This

information collection is mandatory: 12

U.S.C. 161 (for national banks), 12

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

12 U.S.C. 1817 (for insured state

nonmember commercial and savings

banks). Except for select sensitive items,

this information collection is not given

confidential treatment. Small businesses

(i.e., small banks) are affected.

Abstract: Call Reports are filed

quarterly with the agencies for their use

in monitoring the condition and

performance of reporting banks and the

industry as a whole. The call reports

also are used to calculate banks’ deposit

insurance assessments and for monetary

policy and other public policy purposes.

Current Actions: Revisions initially

proposed for the Call Report consisted

of: the deletion or combining of a

number of existing items; the revision of

the Call Report instructions to eliminate

instructions that differ from generally

accepted accounting principles (GAAP)

and the addition of a small number of

new items to meet supervisory or

insurance assessment calculation data

needs resulting from this move to

GAAP; the addition of new items and

modification of existing items to

enhance the agencies’ ability to monitor

interest rate risk, identify bank usage of

credit derivatives, and support the

FDIC’s calculation of deposit insurance

assessments for Oakar institutions; and

changes to several other instructions.

After considering the comments, the

FFIEC approved several modifications

to the initial set of proposed revisions.

The comments on the initial proposal

and the changes made in response to the

comments are discussed below.

Type of Review: Revision.

On September 16, 1996, the agencies

jointly published a notice soliciting

comments for 60 days on proposed

revisions to their currently approved

Call Report information collections (61

FR 48687). The notice described the

specific changes that the agencies, with

the approval of the FFIEC, were

proposing to implement as of March 31,

1997.

In response to this notice, the

agencies collectively received 38

comment letters: 16 from community

banks, 12 from large banks, 5 from

bankers’ associations, 2 from accounting

organizations, 1 from another

specialized trade association, 1 from a

state banking authority, and 1 from a

law firm. In general, most large banks

and bankers’ associations commented

on several, but not necessarily all, of the

areas in which the agencies proposed to

change the Call Report requirements.

Each of the remaining commenters

typically addressed only one or two

aspects of the proposal. The agencies

and the FFIEC have considered all of the

comments received on the proposal.

With respect to the proposed

deletions and reductions in detail,

commenters agreed with these changes,

but several of them stated that the

agencies had not gone far enough in

their efforts to eliminate items and

reduce reporting burden. Furthermore,

as discussed further below, virtually all

of the commenters expressing opinions

on the Call Report revisions designed to

enhance the agencies’ ability to monitor

interest rate risk opposed these

proposed changes. They found them to

be unnecessary and contrary to the

statutory mandate to the agencies set

forth in section 307 of the Riegle

Community Development and

Regulatory Improvement Act of 1994. In

this regard, the agencies and the Office

of Thrift Supervision, through the

FFIEC’s Task Force on Reports, are

working to develop a common core

report and supplemental schedules that

will satisfy the requirements of section

307. The proposed Call Report changes

for 1997 were not intended to fulfill

those requirements in their entirety, but

the deletions and reductions in detail as

well as the adoption of GAAP represent

important initial steps in that direction.

More specific information on the

comments received is presented below.

Comments on Proposed Deletions and

Reductions in Detail—The agencies had

proposed to eliminate the separate

Schedule RC–L items for ‘‘Gross

commitments to purchase’’ and ‘‘Gross

commitments to sell’’ when-issued

securities (items 10.a and 10.b) and,

instead, to have these commitments

reported as forward contracts in the offbalance sheet derivative contract

portion of that schedule. This change

was proposed because of the relatively

small number of banks reporting whenissued securities commitments and

because these commitments are treated

as derivative contracts under the

agencies’ risk-based capital standards.

However, one commenter observed that

the Financial Accounting Standards

Board (FASB) defined the term

‘‘derivative financial instrument’’ in its

June 1996 exposure draft of the

proposed accounting standard

‘‘Accounting for Derivative and Similar

Financial Instruments and for Hedging

Activities’’ as a financial instrument
8080 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

2Call Report instructions providing such specific

reporting guidance include the nonaccrual rules,

the treatment of impaired collateral dependent

loans, the Glossary entry for the ‘‘Allowance for

Loan and Lease Losses’’ which references the 1993

Interagency Policy Statement on this subject, the

separate entity method of accounting for income

taxes of bank subsidiaries of holding companies,

push down accounting, and property dividends.

that generally does not require the

holder or writer of the instrument to

own or deliver the underlying. This

commenter felt it would be confusing to

report when-issued securities as

derivatives in Schedule RC–L if they are

not reported as such for other financial

reporting purposes. The FFIEC agreed

and decided that institutions that do not

include when-issued securities

commitments as part of their disclosures

about derivatives for other financial

reporting purposes would be permitted

to report commitments to sell whenissued securities as ‘‘other off-balance

sheet assets’’ and commitments to

purchase when-issued securities as

‘‘other off-balance sheet liabilities’’ in

Schedule RC–L. There would be no

change in the risk-based capital

treatment of these contracts regardless

of the Schedule RC–L item in which

they are reported.

The agencies had proposed to

combine items 1.d, ‘‘Securities

underwriting,’’ and 1.e. ‘‘Other unused

commitments,’’ on Schedule RC–L—OffBalance Sheet Items, because only a

small number of banks report that they

have securities underwriting

commitments. However, because of

regulatory and possible statutory

changes, the extent of bank involvement

in securities underwriting may increase

in the near future. Therefore, upon

further consideration by the agencies,

item 1.d is being retained.

Comments on the Elimination of Call

Report Instructions That Differ From

GAAP, Related New Items, and Other

Affected Call Report Items and

Instructions—Commenters addressing

the adoption of GAAP as the reporting

basis for the balance sheet, income

statement, and related schedules in the

Call Report expressed broad support for

this concept. However, many of these

commenters had opinions on certain

issues relating to the implementation of

GAAP-based reporting in the Call

Report.

First, the proposal stated that the Call

Report ‘‘instructions will continue to

contain and the FFIEC and the agencies

will continue when necessary to issue

specific reporting guidance that falls

within the range of acceptable practice

under GAAP.’’ 2 The proposal further

noted that ‘‘[e]ach agency also will

retain existing authority to require an

institution to report a transaction in the

Call Report in accordance with that

agency’s interpretation of GAAP.’’

Commenters considered these practices

contrary to the proposal’s objective of

moving to GAAP and expressed concern

that the exercise of this authority would

cause the Call Report to fall back into a

reporting mode similar to the current

situation in which the instructions

contain departures from GAAP.

Moreover, permitting individual

agencies the discretion to interpret

GAAP for Call Report purposes may

affect consistency and comparability

among the reported information. Several

commenters recommended that any

plans to require a specific reporting

practice within the range of acceptable

GAAP or to interpret GAAP in a way

that departs from industry practice

should first be issued as a proposal for

public comment by all of the agencies.

The agencies and the FFIEC have in

the past limited the number of

circumstances in which they have

adopted specific Call Report guidance

that falls within GAAP to those few

situations where safety and soundness

objectives argue for a single reporting

rule for all institutions or where the

GAAP alternatives for reporting a

transaction produce accounting results

with a significant lack of comparability.

When the agencies have previously

considered implementing specific

GAAP guidance, the FFIEC’s Task Force

on Reports has normally consulted with

the staffs of the FASB and the Securities

Exchange Commission (SEC). If

reporting guidance of a supervisory

nature is being pursued, the agencies

and the FFIEC also decide whether

public comment should be solicited.

These practices are expected to continue

and the adoption of specific Call Report

instructions that fall within the range of

GAAP should remain infrequent in the

future.

In addition, the Call Report

instructions have for many years stated

that when a bank and its primary federal

regulator have differing interpretations

of how GAAP should be applied to a

specific transaction, the agency may

require the bank to report the

transaction in the Call Report in

accordance with the agency’s

interpretation and, if appropriate, to

amend previously submitted reports.

The agencies do not believe they have

excessively or improperly invoked this

authority in the past and would not

expect this to change. In practice, when

issues of GAAP interpretation are raised

with an agency’s Washington Office, the

staff normally consults with the other

agencies and with the FASB and SEC

staffs and considers the views of the

bank and its accountant before reaching

a decision. This authority is essentially

the same as the authority the SEC

exercises over the public financial

statements filed with it. The SEC can

and does challenge registrants over their

application of GAAP to specific events

or transactions reflected in their

financial statements. The SEC also can

require restatement when it concludes

that a registrant has not properly

applied GAAP given the facts and

circumstances surrounding an event or

transaction. Therefore, the agencies

believe it is appropriate to retain this

authority.

Second, the proposal reminded banks

that their regulatory capital ratios will

continue to be calculated in accordance

with the agencies’ capital standards

rather than in accordance with GAAP.

At least five commenters responded to

this statement. As long as the capital

standards differ from GAAP, some felt

that true relief from the burden of

regulatory reporting requirements will

not be achieved. Three suggested that

the agencies should adopt GAAP for

purposes of measuring regulatory

capital. On the other hand, one

commenter strongly supported the

agencies’ ability to decide whether to

adopt new accounting standards for

regulatory capital purposes. Revisions to

the agencies’ capital standards fall

outside the scope of the Call Report

proposal for 1997 and would need to be

addressed by each agency, in

consultation with the other agencies, as

part of a rulemaking. Appropriate

agency staff have been advised of this

request.

Along a similar vein, two commenters

observed that there are other laws and

regulations that are based on income or

capital levels that are reported in Call

Reports such as legal lending limits,

dividend limitations, loans to insiders,

and permissible investment activities.

One of these two commenters, which

had recommended that the agencies

adopt GAAP for regulatory capital

purposes, also urged the agencies to

adopt GAAP for purposes of these other

laws and regulations as well as for all

supervisory purposes. The other

commenter requested that the agencies

provide guidance to institutions and

examiners on how these other laws and

regulations would be applied under the

GAAP basis of reporting in the Call

Report. Appropriate agency staff have

been advised of this request.

Third, several commenters questioned

how the agencies would define

‘‘materiality’’ when they interpret GAAP

for Call Report purposes. It was stated

that the agencies cannot truly ‘‘adopt’’

GAAP without adopting the
Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8081

consideration of materiality in the

application of accounting standards.

Materiality is a qualitative characteristic

of accounting information which is

defined in FASB’s Statement of

Financial Accounting Concepts No. 2.

At the end of each Statement of

Financial Accounting Standards, the

FASB states that the Statement’s

provisions ‘‘need not be applied to

immaterial items.’’ Commenters

indicated that the agencies’ failure to

recognize the concept of materiality for

regulatory reporting purposes would

add to the cost and regulatory burden of

the Call Report. One commenter

complained that regulators consider all

items material, regardless of size.

The General Instructions section of

the Call Report instructions discusses

the applicability of GAAP to regulatory

reporting requirements. While not

specifically referring to materiality,

banks generally are directed to follow

GAAP when reporting events and

transactions in the Call Report except

where the instructions do not follow

GAAP. When discussing the need for

banks to amend previous reports, the

General Instructions to the Call Report

state that the agencies may require

amendments if reports contain

significant errors. The Glossary entry for

‘‘Accounting Changes’’ in the Call

Report instructions states that a bank

may be directed to file amended reports

for periods that were significantly

affected by a material error. Consistent

with this language, the members of the

FFIEC’s Task Force on Reports and their

agencies’ accounting policy staffs, as a

matter of practice, routinely consider

materiality when responding to

inquiries about how banks should

account for specific events and

transactions for Call Report purposes.

Therefore, when dealing with the

recognition and measurement of events

and transactions in the Call Report, the

General Instructions’ reference to

‘‘significant’’ errors should be

interpreted to mean errors that are

‘‘material’’ for the reporting bank.

In addition to situations involving

recognition and measurement, the issue

of materiality also arises in connection

with how items must be classified or

categorized in the Call Report, i.e., on

what line of the Call Report must an

item be reported. The Call Reports are

standardized forms with preprinted

captions for specific types of

information. The agencies use the data

reported on specific lines of the Call

Report for purposes such as the FDIC’s

measurement of banks’ assessable

deposits in order to calculate deposit

insurance premiums. The Board’s

research divisions use Call Report data

for a variety of purposes, including for

constructing and benchmarking various

measures of the domestic (U.S.) banking

system and for construction of the Flowof-Funds accounts, all of which are

provided to the Board of Governors and

the Federal Open Market Committee,

and for providing the Board of

Governors with policy analyses of

fundamental banking issues. Because of

uses such as these for Call Report data,

the need for banks to report items on the

proper line of the standardized form

may not be fully compatible with the

concept of materiality. The agencies will

need to give further study to the issue

of materiality in relation to the

classification of items in the Call Report.

Fourth, a number of commenters

requested that they be given the

opportunity to review and comment on

the Call Report instructions as they

would be revised to bring them into

conformity with GAAP before they are

finalized prior to the March 31, 1997,

report date. One other commenter

specifically suggested that the agencies

provide a comment period after March

31 in order to permit banks to comment

on any Call Report instructions they feel

do not conform to GAAP. These

commenters indicated that this process

would help to ensure that the

instructions do not inadvertently

contain wording that is inconsistent

with GAAP or otherwise presents

problems to banks. Accordingly, the

FFIEC’s Task Force on Reports will

provide draft instructions to each

commenter who requested this

opportunity and to the members of the

Inter-Association Committee on Bank

Accounting as they become available. In

addition, once the new or revised

instructions for 1997 are issued, the

Task Force on Reports will set a specific

time period, which will likely begin in

the second quarter of 1997, during

which banks can submit further

comments about instructions that

appear inconsistent with GAAP.

Fifth, the agencies proposed to add

certain new items and to modify a

number of existing Call Report items

because of the effect that the adoption

of GAAP will have on the manner in

which several types of transactions or

activities are reported in 1997. In the

proposal, the caption to Schedule RC–

F—Other Assets, item 3, ‘‘Excess [first

lien 1-to-4 family] residential mortgage

servicing fees receivable,’’ was to be

revised to refer to interest-only strips

receivable in response to the provisions

of (FASB) Statement No. 125,

‘‘Accounting for Transfers and Servicing

of Financial Assets and

Extinguishments of Liabilities’’ (FAS

125), which take effect in 1997. The

agencies also proposed to add a new

item to this schedule for interest-only

strips receivable on other financial

assets. One commenter recommended

adding two more new items for interestonly strips receivable: one for mortgagerelated assets other than first lien 1-to4 family residential mortgages and

another for credit card-related assets.

After considering this commenter’s

suggestion, the FFIEC decided that only

two items on interest-only strips

receivable should be collected, but that

the coverage of the proposed item for

interest-only strips receivable on first

lien 1-to-4 family residential mortgage

loans be expanded to include all

mortgage loans. The second proposed

item would continue to refer to all other

financial assets, but would no longer

include any amounts related to

mortgage loans.

Sixth, the proposal further noted that

while the treatment of assets sold with

recourse would be brought into

conformity with GAAP for purposes of

the Call Report balance sheet and

income statement, the agencies’ riskbased capital standards refer to the

existing Call Report instructions as the

source for the definition of asset sales

with recourse. Thus, the Call Report

Glossary entry for ‘‘Sales of Assets’’

would be recaptioned ‘‘Sales of Assets

for Risk-Based Capital Purposes.’’ The

Glossary entry’s existing general rule

would remain applicable for identifying

those asset sales that would be treated

as recourse transactions for risk-based

capital purposes and be reportable as

such in Call Report Schedule RC–R—

Regulatory Capital.

The proposal also explained that, in

connection with the implementation of

FAS 125 in 1997, banks may be able to

reflect as an asset certain previously

nonrecognized (for Call Report

purposes) contractual cash flows (e.g.,

excess servicing fees that are placed in

so-called ‘‘spread accounts’’) that act as

credit enhancements for assets

(typically credit card receivables) that

have been transferred and securitized.

However, asset transfers that qualify for

sale treatment under GAAP, but which

use such cash flows as credit

enhancements and carry them as onbalance sheet assets at a discounted

amount, would be treated as sales with

recourse under the ‘‘Sales of Assets for

Risk-Based Capital Purposes’’ general

rule because the bank has retained risk

of loss with respect to these asset

amounts. This means that a bank would

have to hold risk-based capital against

the full amount of assets transferred

with recourse, but such transfers may

qualify for low-level recourse capital

treatment which would limit the
8082 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

required amount of capital to the

carrying amount of these contractual

cash flows net of any noncapital GAAP

recourse liability account associated

with the asset transfer.

The proposed post-1996 reporting

treatment for asset transfers in which

certain contractual cash flows act as

credit enhancements was intended to

produce the same regulatory capital

outcome as the current (non-GAAP)

nonrecognition of these cash flows.

Several commenters concurred with the

agencies’ desire for the move to GAAP

in this area to produce no significant

change in the risk-based capital ratios

calculated for a bank using the data

reported in the Call Report’s risk-based

capital schedule. However, they

observed that this would not be the case

because a bank’s reported assets would

increase based on the carrying amount

of these ‘‘spread accounts,’’ but the

amount by which its reported undivided

profits and Tier 1 capital would increase

would be reduced by the related tax

effect. The agencies and the FFIEC did

not intend for the adoption of GAAP to

significantly penalize institutions from a

risk-based capital perspective.

Accordingly, until any new regulatory

capital rules for recourse arrangements

and direct credit substitutes take effect,

the Call Report instructions relating to

the completion of the regulatory capital

schedule will permit banks to apply the

low-level recourse capital rule on a net

of tax basis to ‘‘spread accounts’’ that

act as credit enhancements for asset

transfers.

Finally, several commenters

addressed specific Call Report

instructions or reporting practices

which the proposal had not indicated

would be revised to conform with

GAAP. Some of these commenters

offered specific suggestions about

changing how the current instructions

tell banks to report various types of

income statement and balance sheet

items so that banks are permitted to

report this information in accordance

with either the current instructions or

prevalent banking industry practice.

These commenters stated that these

instructional changes would help to

reduce reporting burden. Accordingly,

as mentioned in the Introduction, a

number of instructions will be revised

to accommodate bankers’ suggestions.

Some commenters also pointed out

certain Call Report instructions with

ambiguous wording that could be

interpreted as inconsistent with GAAP.

The agencies plan to clarify these

instructions to avoid possible

misinterpretation in a GAAP reporting

environment.

At least three commenters addressed

the regulatory reporting practice that

calls for transfers of assets (other than

cash) between a bank and an affiliate or

other related party to be reported at fair

value rather than book value. While the

agencies acknowledge that GAAP

permits such transfers to be recorded at

book value, the agencies believe that the

use of fair value falls within the range

of acceptable practice under GAAP

when an entity that is consolidated in

the GAAP financial statements of its

parent prepares separate financial

statements like the Call Report. In

addition, the provision of section 23A of

the Federal Reserve Act requiring both

covered and exempt transactions

between a bank and an affiliate to ‘‘be

on terms and conditions that are

consistent with safe and sound banking

practices’’ has been interpreted to mean

that transfers must be reported at fair

value.

One commenter disagreed with the

agencies’ proposed approach for

reporting the effect of the retroactive

application of GAAP to transactions

previously reported in accordance with

Call Report instructions that differ from

GAAP. The agencies proposed that

banks should report the effect of this

‘‘catch-up’’ adjustment on a bank’s

undivided profits as of January 1, 1997,

as a direct adjustment to equity capital.

This commenter believes that the

adoption of GAAP for Call Report

purposes represents a change in

accounting principle, the effect of which

should be reflected in the income

statement rather than as an equity

capital adjustment. The agencies

considered this comment and

concluded that they should retain the

proposed method of reporting the effect

of the retroactive application of GAAP

for Call Report purposes. Because the

agencies are permitting banks to decide

for themselves whether to retroactively

apply GAAP to previous transactions or

to continue to report them in

accordance with the existing

instructions that differ from GAAP, the

agencies believe it is more appropriate

for the retroactive effect to be reported

outside of the Call Report income

statement.

Comments on the Subchapter S

Election for Federal Income Tax

Purposes—The unanticipated change to

Subchapter S of the Internal Revenue

Code enabling banks, savings

associations, and their parent holding

companies to elect Subchapter S

corporation status for federal income tax

purposes in 1997 occurred when the

FFIEC was being asked to approve by

notation vote the publication of the

proposed Call Report changes for 1997

for a 60-day comment period as required

by the Paperwork Reduction Act of

1995. One commenter recommended

that the agencies add a Call Report item

for a bank’s tax status, indicating that

this would provide federal and state

regulatory agencies (and other users of

the Call Report) with one central data

source for identifying those institutions

that have elected Subchapter S status.

The agencies and the FFIEC agreed with

this recommendation and added a

simple ‘‘yes/no’’ question to the Call

Report asking whether the reporting

bank has a Subchapter S election in

effect for the current tax year. Such an

item should produce a nominal amount

of reporting burden.

Comments on the Reporting of

Adjusted Attributable Deposit Amounts

by Oakar Institutions—The FDIC’s final

rule amending certain provisions of its

assessment regulations that pertain to

Oakar institutions, which was published

on December 10, 1996, calls for the

FDIC to take over from Oakar

institutions the responsibility for

calculating the Adjusted Attributable

Deposit Amount (AADA) resulting from

previous assumptions of secondary-fund

deposits. To support this calculation,

the agencies proposed to revise the Call

Report for 1997 to replace the existing

item for AADAs in Schedule RC–O—

Other Data for Deposit Insurance

Assessments with two items that Oakar

institutions currently report on a

separate FDIC report form that would be

eliminated and with one new item. The

proposal indicated that Oakar

institutions should experience a net

reduction in reporting burden from

these proposed reporting changes.

However, several commenters that

addressed this reporting change

disagreed with this statement because

Oakar institutions have not previously

reported the third item that would be

added to Schedule RC–O and because

these institutions will now need to

verify the accuracy of the FDIC’s

calculation of their AADAs each

quarter. Therefore, the burden estimate

for the Call Report was modified.

Comments on Credit Derivatives—The

proposal discussed the effect of credit

derivatives on the amounts reported in

Call Report Schedule RC–R—Regulatory

Capital and several comment letters

addressed this matter. The agencies and

the FFIEC agreed with these

commenters that the instructions for

Schedule RC–R should for the time

being refer institutions to the guidance

on credit derivatives issued by their

primary federal supervisory agency

rather than providing detailed

instructional language in this evolving

area.
Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8083

Comments on Other Instructional

Changes—The agencies proposed to

revise the Call Report instructions in six

other areas, two of which were

addressed by commenters.

The first area involves the reporting of

full-time equivalent employees and

their compensation expense. Two

commenters expressed concern that the

proposal would cause banks to break

out the compensation component of

intercompany cost allocations and the

related pro rata full-time equivalent

employees. However, this was not the

intent of the proposed change.

Instructions will so indicate.

The second area involves the

proposed elimination of conflicting

instructions concerning the reporting of

loans and leases held for sale. One

commenter did not disagree with this

proposed clarification, but suggested

that the agencies also clarify that loans

and leases held for short-term trading

purposes and marked-to-market through

the income statement may continue to

be reported as trading assets. The

agencies had not intended to change

this existing reporting practice which is

consistent with GAAP and will make

this additional suggested instructional

clarification.

Comments on Enhanced Interest Rate

Risk Information—The industry

comments on the proposed additions to

the Call Report for interest rate risk

monitoring purposes were generally

unfavorable. Nearly three-fourths of the

commenters, including almost all of the

community banks, addressed the

revisions related to interest rate risk.

Most considered these revisions

unnecessary, many stated that the

expanded data will increase the cost

and burden of the Call Report. Others

suggested that the marginal benefit of

these data to the agencies (in terms of

earlier identification of some banks with

interest rate risk problems than at

present) would exceed the cost to

implement the proposed changes. Some

commenters reported that they or their

data processing servicers would not

have sufficient time to make the

necessary systems changes by the

proposed March 1997 implementation

date and urged the agencies to move this

date until June or September 1997 if

they decide to proceed with their

proposal. Some commenters also noted

that the agencies just made some

changes to the Call Report’s maturity

and repricing data in March 1996, are

proposing further revisions for 1997,

and may make additional changes as

they design the common core report for

banks, savings associations, and bank

holding companies which at present is

targeted for implementation not earlier

than in 1998. In contrast, one

commenting bankers’ association agreed

that, in general, ‘‘the proposed changes

are appropriate to analyze interest rate

risk,’’ but went on to state that it had

some objections, including the cost.

After considering the comments, the

agencies still believe that a revision of

the Call Report that is substantially the

same as proposed is necessary in order

to obtain information that is better

suited for off-site identification of

institutions that have either minimal or

potentially high interest rate risk.

Revisions allowing a better

identification of basic repricing/

maturity mismatches and the presence

of potential option risk are particularly

important. A few commenters

recognized that the proposed revisions

accomplish this objective but

commented negatively on the increased

burden and the costs incurred in making

programming changes to current

systems.

Some commenters questioned the

agencies’ commitment to developing a

risk assessment approach to

determining the capital adequacy of an

institution for interest rate risk. These

commenters questioned the need for any

revision to the Call Report given the

increased focus on on-site examination

of qualitative and quantitative risk

management factors. Moreover, they

viewed these modifications as auguring

a shift in the policy stance taken by the

agencies in the June 26, 1996, Joint

Agency Policy Statement on Interest

Rate Risk (1996 Policy Statement).

Indeed, some industry commenters

questioned whether these revisions

represented a way to eventually

implement a standardized model

approach to assessing capital adequacy

for interest rate risk.

The agencies remain committed to a

risk assessment approach to

determining capital adequacy for

interest rate risk. However, the 1996

Policy Statement explicitly noted the

Agencies’ intent to ‘‘use various

quantitative screens and filters to

identify banks that may have high

exposures or complex risk profiles, to

allocate examiner resources, and to set

examination priorities. These tools rely

on Call Report data and various

economic indicators and data.’’ The

agencies do not intend, with or without

these Call Report changes, to construct

a standardized supervisory measure of

interest rate risk. The recent adoption of

the market risk capital charge clearly

signals and establishes precedent that

the agencies will rely increasingly on

the internal risk measures of

institutions. The agencies intend to use

the data from the Call Report as it would

be revised to develop screens that will

permit the allocation of examiner

resources toward the potentially riskier

institutions and away from potentially

less risky institutions.

Without the increased identification

power provided by the additional data,

the agencies may tend to conduct more

in-depth on-site examinations than

might otherwise be conducted. With the

revisions to the Call Report, the agencies

will be better equipped to identify both

high and low interest rate risk

institutions, off-site, and will be able to

better focus examiner resources to

address interest rate risk in a more

efficient and burden sensitive manner.

The agencies recognize that the cost

associated with changing the Call

Report is not inconsequential. However,

the proposed modifications will cause

institutions to incur a significant onetime reprogramming cost with a smaller

increase in periodic reporting cost.

Moreover, these revisions are a small

fraction of the proposed data collection

requirements contained in the

Supervisory Policy Statement

Concerning a Supervisory Framework

for Measuring and Assessing Banks’

Interest Rate Risk Exposure which the

agencies proposed in August 1995. The

agencies have chosen only those

modifications that afford the greatest

potential benefit to off-site risk

identification and resource allocation.

The increased transparency provided by

the changes will enhance the agencies’

ability to distinguish institutions with

potentially higher interest rate

sensitivity. Additionally, it extends the

agencies’ ability to monitor structural

changes in portfolio composition over

time, enhancing the agencies’ ability to

redirect resources in a timely fashion as

potential risks at individual institutions

change.

In response to the burden concerns

raised by commenters, the agencies and

the FFIEC reviewed the specific interest

rate risk-related changes that had been

proposed and have made some

modifications to the original proposal.

First, the FFIEC deferred the effective

date for the interest rate risk revisions

to the Call Report from March until June

1997. This will increase the lead time

that banks and their servicers will have

to make necessary systems changes.

Commercial banks will report the

existing Call Report items that provide

maturity and repricing data in March

1997. FDIC-supervised savings banks

will continue to complete their

supplemental interest rate risk schedule

(Schedule RC–J) in March 1997, except

for the weighted average cost and yield

factors and the principal payments
8084 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

received memorandum items which will

be eliminated.

Second, the FFIEC dropped three of

the new items that had been proposed

because of their relatively lower

importance for interest rate risk

screening purposes. These three items

are ‘‘Long positions in interest rate

futures and forwards,’’ ‘‘Short positions

in interest rate options,’’ and

‘‘Outstanding principal balance of 1-to4 family residential mortgage loans held

in portfolio that are serviced by others.’’

The first two items would have been

added to the off-balance sheet schedule

(Schedule RC–L) and the third would

have appeared on the memoranda

schedule (Schedule RC–M).

Third, another proposed memoranda

schedule item on servicing,

‘‘Outstanding principal balance of loans

other than 1-to-4 family residential

mortgage loans that are serviced for

others,’’ will not be completed by all

banks. Instead, this item will be

applicable only to those banks filing the

FFIEC 031, 032, and 033 report forms

that service more than $10 million of

such loans and whose servicing volume

exceeds 10 percent of the reporting

bank’s assets. This item will not be

applicable to banks with less than $100

million in assets that file the FFIEC 034

report form.

Fourth, the coverage of one of the

proposed off-balance sheet items on

interest rate swaps held for purposes

other than trading has been revised to

provide the agencies with a better

indication of the volume of such swaps

used for hedging purposes. The

proposed item for ‘‘Interest rate swaps

where the bank has undertaken a

floating rate obligation’’ has been

changed to cover those swaps ‘‘where

the bank has agreed to pay a fixed rate.’’

Dated: February 14, 1997.

Karen Solomon,

Director, Legislative and Regulatory Activities

Division, Office of the Comptroller of the

Currency.

Board of Governors of the Federal Reserve

System, February 7, 1997.

William W. Wiles,

Secretary of the Board.

[THIS SIGNATURE PAGE PERTAINS TO

THE JOINT NOTICE AND REQUEST FOR

COMMENT, ‘‘SUBMISSION FOR OMB

REVIEW; COMMENT REQUEST’’]

Dated at Washington, D.C., this 7th day of

February, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 97–4363 Filed 2–20–97; 8:45 am]

BILLING CODE OCC: 4810–33–P 1⁄3, Board: 6210–01–P 1⁄3, FDIC: 6714–01–P 1⁄3