[Federal Register Volume 73, Number 185 (Tuesday, September 23, 2008)]
[Notices]
[Pages 54807-54822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22258]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Proposed Agency Information Collection Activities; Comment 
Request

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury; 
Board of Governors of the Federal Reserve System (Board); and Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Joint notice and request for comment.

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SUMMARY: In accordance with the requirements of the Paperwork Reduction 
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC 
(the ``agencies'') may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The Federal Financial Institutions Examination Council 
(FFIEC), of which the agencies are members, has approved the agencies' 
publication for public comment of a proposal to extend, with revision, 
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 and the agencies 
should modify the proposed revisions prior to giving final approval. 
The agencies will then submit the revisions to OMB for review and 
approval.

DATES: Comments must be submitted on or before November 24, 2008.

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: You should direct all written comments to: Communications 
Division, Office of the Comptroller of the Currency, Public Information 
Room, Mailstop 1-5, Attention: 1557-0081, 250 E Street, SW., 
Washington, DC 20219. In addition, comments may be sent by fax to (202) 
874-4448, or by electronic mail to <a href="/cdn-cgi/l/email-protection#7a081f1d0954191517171f140e093a151919540e081f1b09541d150c"><span class="__cf_email__" data-cfemail="02706765712c616d6f6f676c7671426d61612c76706763712c656d74">[email protected]</span></a>. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 874-5043. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect and photocopy comments.
    Board: You may submit comments, which should refer to 
``Consolidated Reports of Condition and Income, 7100-0036,'' by any of 
the following methods:
    <bullet> Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#790b1c1e0a571a1614141c170d0a391f1c1d1c0b18150b1c0a1c0b0f1c571e160f"><span class="__cf_email__" data-cfemail="5d2f383a2e733e3230303833292e1d3b3839382f3c312f382e382f2b38733a322b">[email protected]</span></a>. Include docket 
number in the subject line of the message.
    <bullet> Fax: 202-452-3819 or 202-452-3102.
    <bullet> Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551. All public comments are available from the 
Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. 
Accordingly, your comments will not be edited to remove any identifying 
or contact information. Public comments may also be viewed 
electronically or in paper in Room MP-500 of the Board's Martin 
Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on 
weekdays.
    FDIC: You may submit comments, which should refer to ``Consolidated 
Reports of Condition and Income, 3064-0052,'' by any of the following 
methods:
    <bullet> Agency Web Site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow the instructions for submitting comments 
on the FDIC Web site.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#30535f5d5d555e444370767479731e575f46"><span class="__cf_email__" data-cfemail="4625292b2b232832350600020f0568212930">[email protected]</span></a>. Include ``Consolidated Reports 
of Condition and Income, 3064-0052'' in the subject line of the 
message.
    <bullet> Mail: Herbert J. Messite (202-898-6834), Counsel, Attn: 
Comments, Room F-1052, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
    <bullet> Hand Delivery: 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.

[[Page 54808]]

    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal/propose.html 
including any personal information provided.
    Additionally, commenters may send a copy of their comments to the 
OMB desk officer for the agencies by mail to the Office of Information 
and Regulatory Affairs, U.S. Office of Management and Budget, New 
Executive Office Building, Room 10235, 725 17th Street, NW., 
Washington, DC 20503, or by fax to (202) 395-6974.

FOR FURTHER INFORMATION CONTACT: For further information about the 
revisions discussed in this notice, please contact any of the agency 
clearance officers whose names appear below. In addition, copies of the 
Call Report forms can be obtained at the FFIEC's Web site (http://www.ffiec.gov/ffiec_report_forms.htm).
    OCC: Mary Gottlieb, OCC Clearance Officer, (202) 874-5090, 
Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Michelle E. Shore, Federal Reserve Board Clearance Officer, 
(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 call 
(202) 263-4869.
    FDIC: Herbert J. Messite, Counsel, (202) 898-6834, Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The agencies are proposing to revise and 
extend for three years the Call Report, which are currently approved 
collections of information.
    Report Title: Consolidated Reports of Condition and Income (Call 
Report).
    Form Number: Call Report: FFIEC 031 (for banks with domestic and 
foreign offices) and FFIEC 041 (for banks with domestic offices only).
    Frequency of Response: Quarterly.
    Affected Public: Business or other for-profit.

OCC

    OMB Number: 1557-0081.
    Estimated Number of Respondents: 1,650 national banks.
    Estimated Time per Response: 46.24 burden hours.
    Estimated Total Annual Burden: 305,237 burden hours.

Board

    OMB Number: 7100-0036.
    Estimated Number of Respondents: 874 state member banks.
    Estimated Time per Response: 52.82 burden hours.
    Estimated Total Annual Burden: 184,653 burden hours.

FDIC

    OMB Number: 3064-0052.
    Estimated Number of Respondents: 5,162 insured state nonmember 
banks.
    Estimated Time per Response: 36.88 burden hours.
    Estimated Total Annual Burden: 761,498 burden hours.
    The estimated time per response for the Call Report is an average 
that varies by agency because of differences in the composition of the 
institutions under each agency's supervision (e.g., size distribution 
of institutions, types of activities in which they are engaged, and 
existence of foreign offices). The average reporting burden for the 
Call Report is estimated to range from 16 to 650 hours per quarter, 
depending on an individual institution's circumstances.

General Description of Reports

    These information collections are mandatory: 12 U.S.C. 161 (for 
national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C. 
1817 (for insured state nonmember commercial and savings banks). At 
present, except for selected data items, these information collections 
are not given confidential treatment.

Abstract

    Institutions submit Call Report data to the agencies each quarter 
for the agencies' use in monitoring the condition, performance, and 
risk profile of individual institutions and the industry as a whole. 
Call Report data provide the most current statistical data available 
for evaluating institutions' corporate applications, for identifying 
areas of focus for both on-site and off-site examinations, and for 
monetary and other public policy purposes. The agencies use Call Report 
data in evaluating interstate merger and acquisition applications to 
determine, as required by law, whether the resulting institution would 
control more than ten percent of the total amount of deposits of 
insured depository institutions in the United States. Call Report data 
are also used to calculate institutions' deposit insurance and 
Financing Corporation assessments and national banks' semiannual 
assessment fees.

Current Actions

I. Overview

    The agencies are proposing to implement several changes to the Call 
Report requirements on a phased-in basis during 2009 to better support 
their surveillance and supervision of individual banks and enhance 
their monitoring of the industry's condition and performance. The 
proposed revisions reflect a thorough and careful review of the 
agencies' data needs in a variety of areas as banks encounter the most 
turbulent environment in more than a decade. Thus, the revisions 
include new items that focus on areas in which the banking industry is 
facing heightened risk as a result of market turmoil and illiquidity 
and weakening economic and credit conditions. Where possible, the 
agencies have sought to establish reporting thresholds for proposed new 
items. Other proposed new items will be relevant to only a small 
percentage of banks. The proposed revisions are discussed in detail in 
sections II.A through IV.F of this notice.
    In their review of data needs in the current environment, the 
agencies concluded that additional information on banks' securitization 
and structured finance activities would assist the agencies in 
evaluating the nature and scope of banks' involvement with the 
traditionally off-balance sheet entities that issue these products. 
However, the Financial Accounting Standards Board (FASB) is proposing 
to amend the accounting standards governing the accounting for 
financial asset transfers and the consolidation of variable interest 
entities in a manner that may cause a substantial volume of assets in 
bank-sponsored entities to be brought onto bank balance sheets. 
Therefore, the agencies have decided to wait until the outcome of the 
FASB's amendment projects is clearer and the effect of the accounting 
changes on banks' securitization and structured finance activities can 
be evaluated before proposing to revise the information currently 
collected on these activities in Schedule RC-S, Servicing, 
Securitization, and Asset Sale Activities. Depending on the outcome of 
the amendments (including their effective date) and their impact on 
banks, the agencies may decide that they are confronted with an 
immediate and critical need for specific information pertaining to the 
securitization and structured finance activities significantly affected 
by the amended accounting standards. If that were the case, the 
agencies would consider using the previously approved supplement to the 
Call Report to collect the necessary data for a limited time period in 
accordance with the policy established for the use of the 
supplement.\1\ The agencies' ongoing

[[Page 54809]]

Call Report data needs in this area in response to the amended 
accounting standards would then be incorporated into a formal proposal 
that the agencies would publish with a request for comment in 
accordance with the requirements of the Paperwork Reduction Act of 
1995.
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    \1\ See 67 Federal Register 3995, January 27, 2004.
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    The agencies' review also identified a need for data on higher risk 
1-4 family residential mortgage loans, often referred to as subprime 
mortgages, that are either held by banks or serviced for others and on 
residential mortgage-backed securities for which a significant portion 
of the underlying mortgage loans are higher risk. The agencies will be 
developing a separate reporting proposal that would request industry 
comment on the collection of information in the Call Report on these 
higher risk residential mortgages and residential mortgage-backed 
securities, including proposed definitions for such mortgages and 
securities. The proposal would be published in the Federal Register and 
the comments received would assist the agencies in determining whether 
and how to proceed with the collection of data on these mortgages and 
securities in the Call Report.
    With respect to the proposed Call Report changes that are the 
subject of this proposal, the revisions that would take effect as of 
March 31, 2009, include:
    <bullet> The addition of new items in response to a revised 
accounting standard that will provide information on held-for-
investment loans and leases acquired in business combinations;
    <bullet> Revisions to several Call Report schedules in response to 
accounting changes applicable to noncontrolling (minority) interests in 
consolidated subsidiaries;
    <bullet> Clarifications of the definition of the term ``loan 
secured by real estate'' and of the instructions for reporting unused 
commitments;
    <bullet> The addition of a new item to be reported annually on the 
bank's fiscal year-end date;
    <bullet> Exemptions from reporting certain existing Call Report 
items for banks with less than $1 billion in total assets;
    <bullet> Instructional guidance on quantifying misstatements in the 
Call Report; and
    <bullet> The elimination of confidential treatment for data 
collected on fiduciary income, expenses, and losses.
    The proposed Call Report revisions to be implemented as of June 30, 
2009, include new or revised items for:
    <bullet> Real estate construction and development loans outstanding 
with capitalized interest and the amount of such interest included in 
income for the quarter (for banks with construction and development 
loan concentrations);
    <bullet> Holdings of collateralized debt obligations and other 
structured financial products by type of product and underlying 
collateral;
    <bullet> Holdings of commercial mortgage-backed securities;
    <bullet> Unused commitments with an original maturity of one year 
or less to asset-backed commercial paper conduits;
    <bullet> Fair value measurements by level for asset and liability 
categories reported at fair value on a recurring basis (for banks that 
have $500 million or more in total assets, apply a fair value option, 
or are required to complete the Call Report trading schedule);
    <bullet> Pledged loans and pledged trading assets;
    <bullet> Collateral held against over-the-counter (OTC) derivative 
exposures by type of collateral and type of counterparty as well as the 
current credit exposure on OTC derivatives by type of counterparty (for 
banks with $10 billion or more in total assets);
    <bullet> Remaining maturities of unsecured other borrowings and 
subordinated notes and debentures;
    <bullet> Investments in real estate ventures;
    <bullet> Held-to-maturity and available-for-sale securities in 
domestic offices (for banks that have both domestic and foreign 
offices);
    <bullet> Past due and nonaccrual trading assets;
    <bullet> Credit derivatives by credit quality and remaining 
maturity and by regulatory capital treatment; and
    <bullet> Whether the bank is a trustee or custodian for certain 
types of accounts or provides certain services in connection with 
orders for securities transactions regardless of whether the bank 
exercises trust powers, which will take the form of yes/no questions.
    The proposed Call Report revisions that would take effect December 
31, 2009, apply only to Schedule RC-T, Fiduciary and Related Services. 
These revisions include:
    <bullet> Breaking out foundations and endowments as well as 
investment advisory agency accounts as separate types of fiduciary 
accounts in the schedule's sections for reporting fiduciary and related 
assets and income;
    <bullet> Adding items for Individual Retirement Accounts and 
similar accounts included in fiduciary and related assets;
    <bullet> Expanding the breakdown of managed assets by type of asset 
to cover all types of fiduciary accounts;
    <bullet> Adding new asset types in the breakdown of managed assets 
by type of asset;
    <bullet> Revising the manner in which discretionary investments in 
common trust funds and collective investment funds are reported in the 
breakdown of managed assets by type of asset;
    <bullet> Adding items for the market value of discretionary 
investments in proprietary mutual funds and the number of managed 
accounts holding such investments; and
    <bullet> Adding items for the number and principal amount 
outstanding of debt issues in substantive default for which the 
institution serves as indenture trustee.
    For the March 31, June 30, and December 31, 2009, report dates, 
banks may provide reasonable estimates for any new or revised Call 
Report item initially required to be reported as of that date for which 
the requested information is not readily available. The specific 
wording of the captions for the new or revised Call Report data items 
discussed in this proposal and the numbering of these data items should 
be regarded as preliminary.
    Type of Review: Revision and extension of currently approved 
collections.

II. Discussion of Revisions Proposed for March 2009

A. Loans and Leases Acquired in Business Combinations
    Banks must apply Statement of Financial Accounting Standards No. 
141 (Revised), Business Combinations (FAS 141(R)), which was issued in 
December 2007, prospectively to business combinations for which the 
acquisition date is on or after the beginning of their first annual 
reporting period beginning on or after December 15, 2008. Thus, for 
banks with calendar year fiscal years, FAS 141(R) will apply to 
business combinations with acquisition dates on or after January 1, 
2009. Under FAS 141(R), all business combinations are to be accounted 
for by applying the acquisition method.
    Under current generally accepted accounting principles, loans to be 
held for investment that are acquired in a business combination 
accounted for using the purchase method generally are recorded at 
``present values of amounts to be received determined at appropriate 
current interest rates, less allowances'' for loan and lease losses 
(ALLL).\2\ Thus,

[[Page 54810]]

in practice, an acquired bank's ALLL generally is carried over to the 
acquiring bank's (consolidated) balance sheet. In contrast, under FAS 
141(R), a bank acquiring loans to be held for investment in a business 
combination accounted for using the acquisition method must record 
these loans at fair value. The fair value of these loans incorporates 
assumptions regarding credit risk. As a result, FAS 141(R) does not 
permit an acquiring bank to carry over the acquired bank's ALLL. This 
same prohibition on carrying over the ALLL would apply in those 
situations when a bank must apply push down accounting, which is the 
establishment of a new accounting basis for a bank in its separate 
financial statements and its Call Report as a result of the bank 
becoming substantially wholly owned via a purchase transaction or a 
series of purchase transactions.
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    \2\ See Statement of Financial Accounting Standards No. 141, 
Business Combinations (FAS 141), paragraph 57(b). This accounting 
treatment does not apply to those acquired loans within the scope of 
American Institute of Certified Public Accountants Statement of 
Position 03-3, Accounting for Certain Loans or Debt Securities 
Acquired in a Transfer (SOP 03-03).
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    Because of this significant change in the accounting for acquired 
loans, paragraph 68(h) of FAS 141(R) requires the following disclosures 
about the loans (not subject to SOP 03-3) and leases that were acquired 
in each business combination that occurred during the reporting period:
    <bullet> The fair value of the loans and leases;
    <bullet> The gross contractual amounts receivable; and
    <bullet> The best estimate at the acquisition date of the 
contractual cash flows not expected to be collected.
    These disclosures are intended to assist users of financial 
statements in understanding the credit quality and collectibility of 
the acquired loans and leases at the time of their acquisition. 
Accordingly, and in recognition of this significant change in 
accounting practice for business combinations, the agencies are 
proposing to add new items to the Call Report that would encompass the 
three acquisition date disclosures required by FAS 141(R) cited above 
for the following categories of acquired held-for-investment loans (not 
subject to SOP 03-3) and leases:
    <bullet> Loans secured by real estate;
    <bullet> Commercial and industrial loans;
    <bullet> Loans to individuals for household, family, and other 
personal expenditures; and
    <bullet> All other loans and all leases.
    These new items would be completed by banks that have engaged in 
business combinations that must be accounted for in accordance with FAS 
141(R) or that have been involved in push down accounting transactions 
to which the measurement principles in FAS 141(R) apply, i.e., in 
general, transactions for which the acquisition date is on or after 
January 1, 2009. A bank that has completed one or more business 
combinations or has applied push down accounting during the current 
calendar year would report these acquisition date data (as aggregate 
totals if multiple business combinations have occurred) in each Call 
Report submission after the acquisition date during that year.
    The agencies are also considering whether banks that have engaged 
in FAS 141(R) business combinations should provide additional 
information in the Call Report about the acquired held-for-investment 
loans (not subject to SOP 03-3) and leases and the loss allowances 
established for them in periods after their acquisition. The agencies 
are considering requiring banks to report the outstanding balance of 
these acquired loans and leases, their carrying amount, and the amount 
of the allowance for post-acquisition losses on these loans and leases, 
which is consistent with the information that banks currently report in 
the Call Report about ``purchased impaired loans'' accounted for in 
accordance with SOP 03-3. Since these purchased loans will be recorded 
at fair value at acquisition, this information would help the agencies 
and other users of the Call Report to track management's judgments 
regarding the collectibility of the acquired loans and leases in 
periods after the acquisition date and evaluate fluctuations in the 
level of the overall ALLL as a percentage of the held-for-investment 
loan and lease portfolio in periods after a business combination. 
However, the agencies recognize that information about acquired loans 
and leases and related allowances will become less useful from an 
analytical standpoint with the passage of time after a business 
combination.
    The agencies request comment on the merits and availability of the 
post-acquisition loan and lease data described above that are being 
considered for possible addition to the Call Report and the period of 
time after a business combination this information should be reported 
(e.g., through the end of the calendar year of the acquisition, through 
the end of the calendar year after the year of the acquisition, for a 
longer period, or for some other period such as the first four calendar 
quarters after the acquisition).
B. Noncontrolling Interests in Consolidated Financial Statements
    In December 2007, the FASB issued Statement No. 160, Noncontrolling 
Interests in Consolidated Financial Statements (FAS 160). FAS 160 
requires a bank to clearly present in its consolidated financial 
statements the equity ownership interest in and the financial statement 
results of its subsidiaries that are attributable to the noncontrolling 
ownership interests in these subsidiaries. FAS 160 defines a 
noncontrolling interest, also called a minority interest, as the 
portion of equity in a bank's subsidiary not attributable, directly or 
indirectly, to the parent bank. Under FAS 160, the ownership interests 
in subsidiaries held by the noncontrolling interests must be clearly 
identified, labeled, and presented in the consolidated balance sheet 
within equity capital, but separate from the parent bank's equity 
capital. FAS 160 also requires that the amount of consolidated net 
income attributable to the bank and to the noncontrolling interests in 
the bank's subsidiaries be clearly identified and presented on the face 
of the consolidated income statement. In this regard, the consolidated 
income statement will reflect the amount of the bank's consolidated net 
income, with separate line items then indicating the portions of the 
consolidated net income attributable to the noncontrolling interests 
and to the parent bank.
    The agencies are proposing to make several changes to conform the 
Call Report to the presentation requirements of FAS 160. The agencies 
propose to amend Schedule RC, Balance Sheet, by replacing item 22, 
``Minority interest in consolidated subsidiaries,'' which is currently 
reported outside the Equity Capital section, with a new item 27.b in 
the Equity Capital section for ``Noncontrolling (minority) interests in 
consolidated subsidiaries.'' The agencies also propose to renumber and 
rename Schedule RC, items 26 through 29 in the following manner:
    <bullet> Item 26.a, ``Retained earnings;''
    <bullet> Item 26.b, ``Accumulated other comprehensive income;''
    <bullet> Item 26.c, ``Other equity capital components;''
    <bullet> Item 27.a, ``Total bank equity capital (sum of items 23 
through 26.c);''
    <bullet> Item 27.b, ``Noncontrolling (minority) interests in 
consolidated subsidiaries;''
    <bullet> Item 28, ``Total equity capital (sum of items 27.a and 
27.b);'' and
    <bullet> Item 29, ``Total liabilities and equity capital (sum of 
items 21 and 28).''
    The agencies also propose to adjust certain captions in Schedule 
RC-R, Regulatory Capital, to reflect these changes to the Equity 
Capital section of the Call Report balance sheet and to conform to FAS 
160. Schedule RC-R, item 1, ``Total equity capital (from Schedule RC, 
item 28),'' will be renamed ``Total bank equity capital (from Schedule 
RC, item 27.a).''

[[Page 54811]]

Schedule RC-R, item 6, ``Qualifying minority interest in consolidated 
subsidiaries,'' will be renamed to ``Qualifying noncontrolling 
(minority) interest in consolidated subsidiaries.''
    Further, the agencies propose to amend Schedule RI, Income 
Statement, and Schedule RI-A, Changes in Equity Capital, to add or 
revise items to conform to FAS 160. In Schedule RI, new items 12, ``Net 
income (loss) attributable to bank and noncontrolling (minority) 
interests (sum of items 10 and 11),'' and 13, ``Less: Net income (loss) 
attributable to noncontrolling (minority) interests,'' will be added to 
identify the entity's consolidated net income and segregate net income 
attributable to noncontrolling interests. Current Schedule RI, item 12, 
``Net income (loss) (sum of items 10 and 11),'' will be renumbered as 
item 14 and renamed ``Net income (loss) attributable to bank (item 12 
minus item 13).'' The instructions to Schedule RI, item 7.d, ``Other 
noninterest expense,'' will be amended to remove net income (or loss) 
attributable to noncontrolling (minority) interests from the current 
list of components of ``Other noninterest expense.''
    Schedule RI-A will be retitled Changes in Bank Equity Capital. In 
Schedule RI-A, the following changes will be made:
    <bullet> Current item 1, ``Total equity capital most recently 
reported for the December 31, 20xx, [previous calendar year-end] 
Reports of Condition and Income (i.e., after adjustments from amended 
Reports of Income),'' will be renamed ``Total bank equity capital most 
recently reported for the December 31, 20xx, Reports of Condition and 
Income (i.e., after adjustments from amended Reports of Income);''
    <bullet> Current item 4, ``Net income (loss) (must equal Schedule 
RI, item 12),'' will be renamed ``Net income (loss) attributable to 
bank (must equal Schedule RI, item 14);'' and
    <bullet> Current item 12, ``Total equity capital end of current 
period (sum of items 3 through 11) (must equal Schedule RC, item 28),'' 
will be renamed ``Total bank equity capital end of current period (sum 
of items 3 through 11) (must equal Schedule RC, item 27.a).''

The instructions to Schedule RI-A, item 5, ``Sale, conversion, 
acquisition, or retirement of capital stock, net,'' will be amended to 
state that increases and decreases in bank equity capital resulting 
from changes in a bank's ownership interest in a subsidiary while it 
retains its controlling financial interest in the subsidiary should be 
reported in item 5.
C. Clarification of the Definition of Loan Secured by Real Estate
    The agencies have found that the definition of a ``loan secured by 
real estate'' in the Glossary section of the Call Report instructions 
has been interpreted differently by Call Report preparers and users. 
This has led to inconsistent reporting of loans collateralized by real 
estate in the loan schedule (Schedule RC-C) and other schedules of the 
Call Report that collect loan data. As a result, the agencies are 
proposing to clarify the definition by explaining that the estimated 
value of the real estate collateral must be greater than 50 percent of 
the principal amount of the loan at origination in order for the loan 
to be considered secured by real estate. Banks should apply this 
clarified definition prospectively and they need not reevaluate and, if 
appropriate, recategorize loans that they currently report as loans 
secured by real estate into other loan categories on the Call Report 
loan schedule.
    The revised definition of a ``loan secured by real estate'' would 
read as follows:

    For purposes of these reports, a loan secured by real estate is 
a loan secured wholly or substantially by a lien or liens on real 
property for which the lien or liens are central to the extension of 
the credit--that is, the borrower would not have been extended 
credit in the same amount or on terms as favorable without the lien 
or liens on real property. To be considered wholly or substantially 
secured by a lien or liens on real property, the estimated value of 
the real estate collateral (after deducting any more senior liens) 
must be greater than 50 percent of the principal amount of the loan 
at origination. A loan satisfying the criteria above, except a loan 
to a state or political subdivisions in the U.S., is to be reported 
as a loan secured by real estate in the Reports of Condition and 
Income, (1) regardless of whether the loan is secured by a first or 
a junior lien; (2) regardless of the department within the bank or 
bank subsidiary that made the loan; (3) regardless of how the loan 
is categorized in the bank's records; (4) and regardless of the 
purpose of the financing. Only in a transaction where a lien or 
liens on real property (with an estimated collateral value greater 
than 50 percent of the loan's principal amount at origination) have 
been taken as collateral solely through an abundance of caution and 
where the loan terms as a consequence have not been made more 
favorable than they would have been in the absence of the lien or 
liens, would the loan not be considered a loan secured by real 
estate for purposes of the Reports of Condition and Income. In 
addition, when a loan is partially secured by a lien or liens on 
real property, but the estimated value of the real estate collateral 
(after deducting any more senior liens) is 50 percent or less of the 
principal amount of the loan at origination, the loan should not be 
categorized as a loan secured by real estate. Instead, the loan 
should be reported in one of the other loan categories used in these 
reports based on the purpose of the loan.
D. Clarification of Instructions for Unused Commitments
    Banks report unused commitments in Schedule RC-L, item 1. The 
instructions for this item identify various arrangements that should be 
reported as unused commitments, including but not limited to 
commitments for which the bank has charged a commitment fee or other 
consideration, commitments that are legally binding, loan proceeds that 
the bank is obligated to advance, commitments to issue a commitment, 
and revolving underwriting facilities. However, the agencies have found 
that some banks have not reported commitments that they have entered 
into until they have signed the loan agreement for the financing that 
they have committed to provide. Although the agencies consider these 
arrangements to be within the scope of the existing instructions for 
reporting commitments in Schedule RC-L, they believe that these 
instructions may not be sufficiently clear. Therefore, the agencies are 
proposing to revise the instructions for Schedule RC-L, item 1, 
``Unused commitments,'' to read as follows:

    Report in the appropriate subitem the unused portions of 
commitments. Unused commitments are to be reported gross, i.e., 
include in the appropriate subitem the amounts of commitments 
acquired from and conveyed to others.

    For purposes of this item, commitments include:
    (1) Commitments to make or purchase extensions of credit in the 
form of loans or participations in loans, lease financing receivables, 
or similar transactions.
    (2) Commitments for which the bank has charged a commitment fee or 
other consideration.
    (3) Commitments that are legally binding.
    (4) Loan proceeds that the bank is obligated to advance, such as:
    (a) Loan draws;
    (b) Construction progress payments; and
    (c) Seasonal or living advances to farmers under prearranged lines 
of credit.
    (5) Rotating, revolving, and open-end credit arrangements, 
including, but not limited to, retail credit card lines and home equity 
lines of credit.
    (6) Commitments to issue a commitment at some point in the future, 
including commitments that have been entered into even though the 
related loan agreement has not yet been signed.

[[Page 54812]]

    (7) Overdraft protection on depositors' accounts offered under a 
program where the bank advises account holders of the available amount 
of overdraft protection, for example, when accounts are opened or on 
depositors' account statements or ATM receipts.
    (8) The bank's own takedown in securities underwriting 
transactions.
    (9) Revolving underwriting facilities (RUFs), note issuance 
facilities (NIFs), and other similar arrangements, which are facilities 
under which a borrower can issue on a revolving basis short-term paper 
in its own name, but for which the underwriting banks have a legally 
binding commitment either to purchase any notes the borrower is unable 
to sell by the rollover date or to advance funds to the borrower.
    Exclude forward contracts and other commitments that meet the 
definition of a derivative and must be accounted for in accordance with 
FASB Statement No. 133, which should be reported in Schedule RC-L, item 
12. Include the amount (not the fair value) of the unused portions of 
loan commitments that do not meet the definition of a derivative that 
the bank has elected to report at fair value under a fair value option. 
Also include forward contracts that do not meet the definition of a 
derivative. The unused portions of commitments are to be reported in 
the appropriate subitem regardless of whether they contain ``material 
adverse change'' clauses or other provisions that are intended to 
relieve the issuer of its funding obligations under certain conditions 
and regardless of whether they are unconditionally cancelable at any 
time.
    In the case of commitments for syndicated loans, report only the 
bank's proportional share of the commitment.
    For purposes of reporting the unused portions of revolving asset-
based lending commitments, the commitment is defined as the amount a 
bank is obligated to fund--as of the report date--based on the 
contractually agreed upon terms. In the case of revolving asset-based 
lending, the unused portions of such commitments should be measured as 
the difference between (a) the lesser of the contractual borrowing base 
(i.e., eligible collateral times the advance rate) or the note 
commitment limit, and (b) the sum of outstanding loans and letters of 
credit under the commitment. The note commitment limit is the overall 
maximum loan amount beyond which the bank will not advance funds 
regardless of the amount of collateral posted. This definition of 
``commitment'' is applicable only to revolving asset-based lending, 
which is a specialized form of secured lending in which a borrower uses 
current assets (e.g., accounts receivable and inventory) as collateral 
for a loan. The loan is structured so that the amount of credit is 
limited by the value of the collateral.
E. Fiscal Year-End Date
    Although most banks have a calendar year fiscal year, many banks do 
not. The agencies currently do not have a systematic means for 
identifying the fiscal year-end dates of banks. In contrast, savings 
associations report their fiscal year-ends to the Office of Thrift 
Supervision in the Thrift Financial Report.
    New accounting standards typically take effect for fiscal years 
beginning on or after a date specified in the standard and banks are 
expected to adopt new standards for Call Report purposes in accordance 
with their effective date. Thus, individual banks must adopt new 
standards in different quarterly Call Reports based on their fiscal 
year-end dates. In addition, the applicability of certain regulations 
is based on a bank's fiscal year. For example, the annual audit and 
reporting requirements of Part 363 of the FDIC's regulations apply to 
insured institutions with $500 million or more in total assets as of 
the beginning of their fiscal year. As another example, banks do not 
have to start complying with Regulation R--Exceptions for Banks from 
the Definition of Broker in the Securities Exchange Act of 1934 (12 CFR 
part 218), which the Board and the Securities and Exchange Commission 
(SEC) jointly adopted in September 2007, and the ``broker'' exceptions 
in section 3(a)(4) of the Securities Exchange Act of 1934 until the 
first day of their fiscal year commencing after September 30, 2008.
    To facilitate the agencies' ability to determine when individual 
banks should be implementing accounting standards and regulations and 
to assess their compliance, the agencies are proposing to add a 
Memorandum item to the Call Report balance sheet in which banks would 
report their fiscal year-end date. This item would be collected 
annually as of each March 31.
F. Exemptions From Reporting for Certain Existing Call Report Items
    The agencies have identified certain Call Report items for which 
the reported data are of lesser usefulness for banks with less than $1 
billion in total assets. Accordingly, the agencies are proposing to 
exempt such banks from completing the following Call Report items 
effective March 31, 2009:
    <bullet> Schedule RI, Memorandum item 2, ``Income from the sale and 
servicing of mutual funds and annuities (in domestic offices);''
    <bullet> Schedule RC-B, Memorandum items 5.a through 5.f, ``Asset-
backed securities,'' on the FFIEC 031 report;\3\
---------------------------------------------------------------------------

    \3\ On the FFIEC 041 report, banks with less than $1 billion in 
assets are currently exempt from completing these Memorandum items.
---------------------------------------------------------------------------

    <bullet> Schedule RC-L, item 2.a, ``Amount of financial standby 
letters of credit conveyed to others;'' and
    <bullet> Schedule RC-L, item 3.a, ``Amount of performance standby 
letters of credit conveyed to others.''
G. Quantifying Misstatements in the Call Report
    The General Instructions section of the Call Report instructions 
discusses the filing of amended Call Reports. In this regard, the 
instructions state that:
    When dealing with the recognition and measurement of events and 
transactions in the Call Report, amended reports may be required if a 
bank's primary federal bank supervisory authority determines that the 
reports as previously submitted contain errors that are material for 
the reporting bank. Materiality is a qualitative characteristic of 
accounting information which is defined in Financial Accounting 
Standards Board (FASB) Concepts Statement No. 2 as ``the magnitude of 
an omission or misstatement of accounting information that, in the 
light of surrounding circumstances, makes it probable that the judgment 
of a reasonable person relying on the information would have been 
changed or influenced by the omission or misstatement.''
    FASB Statement No. 154, Accounting Changes and Error Corrections 
(FAS 154), provides guidance for reporting the correction of an error 
or misstatement in previously issued financial statements. An error or 
misstatement can result from mathematical mistakes, mistakes in the 
application of generally accepted accounting principles, or oversight 
or misuse of facts that existed at the time the financial statements 
were prepared, and includes a change from an accounting principle that 
is not generally accepted to one that is generally accepted. The 
Glossary entry for ``Accounting Changes'' in the Call Report 
instructions includes a section on ``Corrections of Accounting Errors'' 
that provides guidance on reporting such corrections that is consistent 
with FAS 154. However, neither FAS 154 nor the Glossary entry for 
``Accounting Changes'' specifies the appropriate method to quantify an 
error or

[[Page 54813]]

misstatement for purposes of evaluating materiality.
    In September 2006, the SEC staff noted in Staff Accounting Bulletin 
No. 108, Considering the Effects of Prior Year Misstatements when 
Quantifying Misstatements in Current Year Financial Statements (SAB 
108),\4\ that in describing the concept of materiality, FASB Concepts 
Statement No. 2, Qualitative Characteristics of Accounting Information, 
indicates that materiality determinations are based on whether ``it is 
probable that the judgment of a reasonable person relying upon the 
report would have been changed or influenced by the inclusion or 
correction of the item'' (emphasis added). The staff believes 
registrants must quantify the impact of correcting all misstatements, 
including both the carryover and reversing effects of prior year 
misstatements, on the current year financial statements.
---------------------------------------------------------------------------

    \4\ SAB 108 can be accessed at http://www.sec.gov/interps/account/sab108.pdf. SAB 108 has been codified as Topic 1.N. in the 
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------

    SAB 108 describes two approaches, generally referred to as 
``rollover'' and ``iron curtain,'' that have been commonly used to 
accumulate and quantify misstatements. The rollover approach 
``quantifies a misstatement based on the amount of the error 
originating in the current year income statement,'' which ``ignores the 
`carryover effects' of prior year misstatements.'' In contrast, the 
``iron curtain approach quantifies a misstatement based on the effects 
of correcting the misstatement existing in the balance sheet at the end 
of the current year, irrespective of the misstatement's year(s) of 
origination.'' Because each of these approaches has its weaknesses, SAB 
108 advises that the impact of correcting all misstatements on current 
year financial statements should be accomplished by quantifying an 
error under both the rollover and iron curtain approaches and by 
evaluating the error measured under each approach. When either approach 
results in a misstatement that is material, after considering all 
relevant quantitative and qualitative factors, an adjustment to the 
financial statements would be required. Guidance on the consideration 
of all relevant factors when assessing the materiality of misstatements 
is provided in the SEC's Staff Accounting Bulletin No. 99, Materiality 
(SAB 99).\5\ SAB 108 observes that when the correction of an error in 
the current year would materially misstate the current year's financial 
statements because the correction includes the effect of the prior year 
misstatements, the prior year financial statements should be corrected.
---------------------------------------------------------------------------

    \5\ SAB 99 can be accessed at http://www.sec.gov/interps/account/sab99.htm. SAB 99 has been codified as Topic 1.M. in the 
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------

    The agencies have advised banks that, for Call Report purposes, a 
bank that is a public company or a subsidiary of a public company 
should apply the guidance from SAB 108 and SAB 99 when quantifying the 
impact of correcting misstatements, including both the carryover and 
reversing effects of prior year misstatements, on their current year 
Call Reports.\6\ The agencies believe that the guidance in SAB 108 and 
SAB 99 represents sound accounting practices that all banks, including 
those that are not public companies, should follow for purposes of 
quantifying misstatements and considering all relevant factors when 
assessing the materiality of misstatements in their Call Reports. 
Accordingly, the agencies are proposing to incorporate the guidance in 
these two Staff Accounting Bulletins into the section of the 
``Accounting Changes'' Glossary entry on error corrections, thereby 
establishing a single approach for quantifying misstatements in the 
Call Report that would be applicable to all banks. The Glossary entry 
would explain that the impact of correcting all misstatements on 
current year Call Reports should be accomplished by quantifying an 
error under both the rollover and iron curtain approaches and by 
evaluating the error measured under each approach. When either approach 
results in a misstatement that is material, after considering all 
relevant quantitative and qualitative factors, appropriate adjustments 
to Call Reports would be required.
---------------------------------------------------------------------------

    \6\ For example, see the Call Report Supplemental Instructions 
for June 2007 at http://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_041_suppinst_200706.pdf.
---------------------------------------------------------------------------

H. Eliminating Confidential Treatment for Fiduciary Income, Expense, 
and Loss 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 sufficient appropriate 
information about the financial condition and risks of banks. 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 individual banks' performance and risks. 
This, in turn, should result in more effective market discipline on 
banks.
    Despite this emphasis on market discipline, the FFIEC and the 
agencies currently accord confidential treatment to the information 
that certain institutions report in Call Report Schedule RC-T, 
Fiduciary and Related Services, on fiduciary and related services 
income, expenses, and losses (items 12 through 18, items 19.a through 
23, and Memorandum item 4). Approximately 400 institutions that 
exercise fiduciary powers and have either total fiduciary assets 
greater than $250 million or gross fiduciary and related services 
income greater than 10 percent of revenue report their fiduciary and 
related services income quarterly and expenses and losses annually as 
of year-end. Around 200 institutions that exercise fiduciary powers, 
have total fiduciary assets greater than $100 million but less than or 
equal to $250 million, and do not meet the fiduciary income test 
mentioned above report their fiduciary and related services income, 
expenses, and losses annually as of year-end. An additional 1,000 
institutions that exercise fiduciary powers, have total fiduciary 
assets of $100 million or less, and do not meet the fiduciary income 
test mentioned above are exempt from reporting their fiduciary and 
related services income, expenses, and losses.
    Data on fiduciary and related services income, expenses, and losses 
(except for gross fiduciary and related services income, which is also 
reported in each institution's Call Report income statement) are the 
only financial information currently collected on the Call Report that 
is treated as confidential on an individual institution basis. 
Nevertheless, the agencies publish aggregate data derived from these 
confidential items. The agencies have accorded confidential treatment 
to the fiduciary services income data for individual institutions since 
it began to be collected in 1997 in a separate report, the Annual 
Report of Trust Assets (FFIEC 001). Confidential treatment was retained 
when the reporting of trust data was incorporated into the Call Report 
and the separate trust report was eliminated in 2001. However, the 
agencies do not preclude institutions from publicly disclosing the 
fiduciary and related services income, expense, and loss data that the 
agencies treat as confidential.
    The agencies originally applied this confidential treatment to the 
fiduciary and related services income, expense, and loss information 
because these data

[[Page 54814]]

generally pertain to only a portion of a reporting institution's total 
operations and not to the institution as a whole. However, the agencies 
make publicly available on an individual bank basis the Call Report 
data they collect on income and expenses from foreign offices from 
banks with such offices where foreign activities exceed certain levels 
even though these data pertain to only a portion of these banks' total 
operations.
    In addition, under the Uniform Interagency Trust Rating System, the 
agencies assign a rating to the earnings of an institution's fiduciary 
activities at those institutions with fiduciary assets of more than 
$100 million, which are also the institutions that report their 
fiduciary and related services income, expenses, and losses in Call 
Report Schedule RC-T. The agencies' evaluation of an institution's 
trust earnings considers such factors as the profitability of fiduciary 
activities in relation to the size and scope of those activities and 
the institution's overall business, taking this into account by 
functions and product lines. Although the agencies' ratings for 
individual institutions are not publicly available, the reason for 
rating the trust earnings of institutions with more than $100 million 
in fiduciary assets--its effect on the financial condition of the 
institution--means that fiduciary and related services income, expense, 
and loss information for these institutions is also relevant to market 
participants and others in the public as they seek to evaluate the 
financial condition and performance of individual institutions. 
Increasing the transparency of institutions' fiduciary activities by 
making individual institutions' fiduciary income, expense, and loss 
data available to the public should improve the market's ability to 
assess these institutions' performance and risks and thereby enhance 
market discipline. Accordingly, the agencies are proposing to eliminate 
the confidential treatment for the data on fiduciary and related 
services income, expenses, and losses that are reported in Schedule RC-
T beginning with the amounts reported as of March 31, 2009. Fiduciary 
and related services income, expense, and loss data reported in 
Schedule RC-T for report dates prior to March 31, 2009, would remain 
confidential.

III. Discussion of Revisions Proposed for June 2009

A. Construction and Development Loans With Interest Reserves
    In December 2006, the agencies issued final guidance on commercial 
real estate (CRE) loans, including construction, land development, and 
other land (C&D) loans, entitled Concentrations in Commercial Real 
Estate Lending, Sound Risk Management Practices (CRE Guidance).\7\ This 
guidance was developed to reinforce sound risk management practices for 
institutions with high and increasing concentrations of commercial real 
estate loans on their balance sheets. It provides a framework for 
assessing CRE concentrations; risk management, including board and 
management oversight, portfolio management, management information 
systems, market analysis and stress testing, underwriting and credit 
risk review; and supervisory oversight, including CRE concentration 
management and an assessment of capital adequacy.
---------------------------------------------------------------------------

    \7\ 71 Federal Register 74580, December 12, 2006.
---------------------------------------------------------------------------

    In issuing the CRE Guidance, the agencies noted that CRE 
concentrations had been rising over the past several years and had 
reached levels that could create safety and soundness concerns in the 
event of a significant economic downturn. As a consequence, the CRE 
Guidance explains that, as part of their ongoing supervisory monitoring 
processes, the agencies would use certain criteria to identify 
institutions that are potentially exposed to significant CRE 
concentration risk. Thus, the CRE Guidance states in part that an 
institution whose total reported construction, land development, and 
other land loans is approaching or exceeds 100 percent or more of the 
institution's total risk-based capital may be identified for further 
supervisory analysis of the level and nature of its CRE concentration 
risk. As of March 31, 2008, approximately 28 percent of all banks held 
C&D loans in excess of 100 percent of their total risk-based capital.
    A practice that is common in C&D lending is the establishment of an 
interest reserve as part of the original underwriting of a C&D loan. 
The interest reserve account allows the lender to periodically advance 
loan funds to pay interest charges on the outstanding balance of the 
loan. The interest is capitalized and added to the loan balance. 
Frequently, C&D loan budgets will include an interest reserve to carry 
the project from origination to completion and may cover the project's 
anticipated sell-out or lease-up period. Although potentially 
beneficial to the lender and the borrower, the use of interest reserves 
carries certain risks. Of particular concern is the possibility that an 
interest reserve could disguise problems with a borrower's willingness 
and ability to repay the debt consistent with the terms and conditions 
of the loan agreement. For example, a C&D loan for a project on which 
construction ceases before it has been completed or is not completed in 
a timely manner may appear to be performing if the continued 
capitalization of interest through the use of an interest reserve keeps 
the troubled loan current. This practice can erode collateral 
protection and mask loans that should otherwise be reported as 
delinquent or in nonaccrual status.
    Since the CRE Guidance was issued, market conditions have weakened, 
most notably in the C&D sector. As this weakening has occurred, the 
agencies' examiners are encountering C&D loans on projects that are 
troubled, but where interest has been capitalized inappropriately, 
resulting in overstated income and understated volumes of past due and 
nonaccrual C&D loans. Therefore, to assist the agencies in monitoring 
C&D lending activities at those banks with a concentration of such 
loans, i.e., C&D loans (in domestic offices) that exceeded 100 percent 
of total risk-based capital as of the previous calendar year-end, the 
agencies are proposing to add two new Call Report items. First, banks 
with such a concentration would report the amount of C&D loans (in 
domestic offices) included in the Call Report loan schedule (Schedule 
RC-C) on which the use of interest reserves is provided for in the loan 
agreement. Second, these banks would report the amount of capitalized 
interest included in the interest and fee income on loans during the 
quarter. These data, together with information that banks currently 
report on the amount of past due and nonaccrual C&D loans, will assist 
in identifying banks with C&D loan concentrations that may be engaging 
in questionable interest capitalization practices for supervisory 
follow-up.
B. Structured Financial Products Carried in Securities and Trading 
Portfolios
    Structured financial products such as collateralized debt 
obligations (CDOs) have become increasingly more complex and the volume 
of these financial products has increased substantially in recent 
years. Structured financial products generally convert a large pool of 
assets and other exposures (such as derivatives and third-party 
guarantees) into tradable capital market debt instruments. Some of the 
more complex financial product structures mix asset classes in an 
attempt to create investment products that diversify risk.
    In recent years, increasingly complex structured financial products 
have

[[Page 54815]]

become more widely held as investments and trading assets, allowing 
investors and traders to acquire positions in a pool of assets with 
varying risks and rewards depending on the underlying collateral or 
reference assets. Synthetic structured financial products use credit 
derivatives and a reference pool of assets, which has led to the 
creation of hybrid products, which are a combination of cash and 
synthetic structured financial products. Further, complex products 
known as CDOs ``squared,'' which are CDOs backed primarily by the 
tranches of other CDOs, have contributed to the opacity and inability 
of investors to understand the performance of these highly complex 
products.
    Some holders of structured financial products have sustained 
financial losses due to defaults and losses on the underlying assets 
and other exposures. In addition, reduced market liquidity has 
contributed to significant fair value declines and lack of price 
transparency for other structured financial products. These recent 
market events have demonstrated the need for the agencies to collect 
more comprehensive information on investment products with significant 
market, credit, liquidity, and valuation risks in order to identify and 
monitor banks with exposures to these products and to track such 
exposures for the industry as a whole.
    Currently, banks separately report their holdings of regular 
mortgage-backed securities (MBS) (such as mortgage-backed pass-through 
securities, collateralized mortgage obligations, and real estate 
mortgage investment conduits) in the Call Report securities schedule 
(Schedule RC-B) or trading schedule (Schedule RC-D), as appropriate. 
All banks separately report their holdings of held-to-maturity and 
available-for-sale asset-backed securities (ABS) in the securities 
schedule. Those banks with large trading portfolios separately report 
their held-for-trading ABS in the trading schedule. Banks' holdings of 
all other debt securities not issued by governmental entities in the 
U.S. are reported as ``Other debt securities'' in either the securities 
or trading schedule, as appropriate. However, the more complex 
structured financial products discussed above are not separately 
reported in Schedules RC-B and RC-D, but are currently reported in 
other line items within these two schedules.
    Therefore, the agencies propose to separately collect certain 
structured financial product data in both the securities and trading 
schedules of the Call Report. First, the agencies would add line items 
to collect information on certain structured financial products by type 
of structure (cash, synthetic, and hybrid). Each of these three new 
line items would cover CDOs, collateralized loan obligations (CLOs), 
collateralized bond obligations (CBOs), CDOs squared and cubed, and 
similar structured financial products.\8\ These new line items would be 
added to the body of the securities schedule and the trading schedule. 
In Schedule RC-B, the amortized cost and fair value of these three 
types of structures will be reported using the current four-column 
format that distinguishes between held-to-maturity and available-for-
sale securities. In Schedule RC-D, the fair value of these three types 
of structures would be reported. Since the new items on structured 
financial products would include CDOs, the agencies will delete 
existing Memorandum items 5.a and 5.b from the trading schedule 
(Schedule RC-D).
---------------------------------------------------------------------------

    \8\ These new line items would not include mortgage-backed and 
asset-backed commercial paper, which would continue to be reported 
as MBS and ABS, respectively, in Schedules RC-B and RC-D.
---------------------------------------------------------------------------

    Second, the agencies would collect information on these complex 
structured financial products by the predominant type of collateral 
supporting the structures in new memorandum items in both Schedule RC-B 
and Schedule RC-D. The collateral supporting these products has 
distinct risk characteristics and the new information will provide the 
agencies with greater insight into the risks associated with the 
various collateralized structured financial products. The structured 
financial products would be reported according to the following types 
of collateral:
    <bullet> Trust preferred securities issued by financial 
institutions;
    <bullet> Trust preferred securities issued by real estate 
investment trusts;
    <bullet> Corporate and similar loans; \9\
---------------------------------------------------------------------------

    \9\ Securities backed by commercial and industrial loans that 
are commonly regarded as ABS rather than CLOs in the marketplace 
would continue to be reported as ABS in Schedules RC-B and RC-D.
---------------------------------------------------------------------------

    <bullet> 1-4 family residential MBS issued or guaranteed by U.S. 
government-sponsored enterprises (GSEs);
    <bullet> 1-4 family residential MBS not issued or guaranteed by 
GSEs;
    <bullet> Diversified (mixed) pools of structured financial products 
such as CDOs squared and cubed (also known as ``pools of pools''); and
    <bullet> Other collateral.
    In Schedule RC-B, amortized cost and fair value would be reported 
by the predominant type of collateral supporting the structure based on 
whether the products are classified as held-to-maturity or available-
for-sale. In Schedule RC-D, the fair value of these products would be 
reported by predominant type of collateral supporting the structure.
C. Holdings of Commercial Mortgage-Backed Securities
    At present, all banks report information on their holdings of held-
to-maturity and available-for-sale MBS in Schedule RC-B, Securities, 
without distinguishing between residential and commercial MBS. Banks 
with average trading assets of $2 million or more in any of the four 
preceding calendar quarters provide information on MBS held for trading 
in Schedule RC-D, but only those with average trading assets of $1 
billion or more disclose the amount of their residential and commercial 
MBS.
    Differences in residential mortgages and commercial mortgages carry 
through to MBS backed by these two types of mortgages. In contrast to 
residential mortgage loans, commercial mortgage loans are normally 
nonrecourse, which means that if the borrower defaults, the creditor 
cannot seize any other assets of the borrower. As a consequence, the 
ability of the underlying commercial real estate to produce income and 
the value of the property are key factors when assessing the credit 
risk of commercial MBS. In addition, the prepayment risk of commercial 
MBS is lower than on residential MBS because commercial mortgages 
normally place restrictions on prepayment that typically are not 
present on residential mortgages. Furthermore, the residential real 
estate market often performs differently than the commercial real 
estate market.
    Given the differences between residential and commercial MBS, the 
agencies are proposing to revise the reporting of MBS in Schedule RC-B, 
Securities, and Schedule RC-D, Trading Assets and Liabilities, in order 
to separately identify and track bank holdings of commercial MBS. In 
Schedule RC-B, items 4.a, ``Pass-through securities,'' and 4.b, ``Other 
mortgage-backed securities,'' would be revised to cover only 
residential MBS. New items 4.c.(1) and (2) would be added for 
``Commercial pass-through securities'' and ``Other commercial mortgage-
backed securities.'' Similarly, in Schedule RC-D, items 4.a through 4.c 
would cover only residential MBS and a new item 4.d would collect data 
on ``Commercial mortgage-backed securities.'' These new and revised 
items would replace Memorandum items 4.a, ``Residential mortgage-backed

[[Page 54816]]

securities,'' and 4.b, ``Commercial mortgage-backed securities,'' in 
Schedule RC-D, which are currently completed only by banks with average 
trading assets of $1 billion or more in any of the four preceding 
calendar quarters.
D. Unused Eligible Liquidity Facilities for Asset-Backed Commercial 
Paper (ABCP) Conduits With an Original Maturity of One Year or Less
    Under the agencies' risk-based capital guidelines, banks are 
required to hold capital against the unused portions of eligible 
liquidity facilities that provide support to ABCP programs. The capital 
guidelines apply different risk-based capital requirements to eligible 
liquidity facilities based on the original maturity of the facilities. 
Banks are currently required to hold less capital against eligible 
liquidity facilities with original maturities of one year or less than 
against liquidity facilities with original maturities in excess of one 
year. However, because of the current structure of Schedule RC-R, 
Regulatory Capital, the instructions for the schedule direct banks to 
report the credit equivalent amount of both types of eligible liquidity 
facilities in item 53, ``Unused commitments with an original maturity 
exceeding one year.'' The reporting of both types of eligible liquidity 
facilities in a single item has been accomplished by having banks 
adjust the credit equivalent amount of eligible liquidity facilities 
with original maturities of one year or less to produce the effect of 
the lower capital charge applicable to such liquidity facilities. This 
approach does not promote transparency with respect to the actual 
credit equivalent amount of eligible liquidity facilities with original 
maturities of one year or less and does not allow for verification of 
the accuracy of the credit converting and risk weighting of these 
exposures.
    To address these concerns, the agencies propose to renumber 
Schedule RC-R, item 53 as item 53.a and add a new item 53.b, ``Unused 
commitments with an original maturity of one year or less to asset-
backed commercial paper conduits,'' to Schedule RC-R. The credit 
conversion factor applied to amounts reported in item 53.b, column A, 
would be 10 percent.
E. Fair Value Measurements
    Effective for the March 31, 2007, report date, the banking agencies 
began collecting information on certain assets and liabilities measured 
at fair value on Call Report Schedule RC-Q, Financial Assets and 
Liabilities Measured at Fair Value. Currently, this schedule is 
completed by banks with a significant level of trading activity or that 
use a fair value option. The information collected on Schedule RC-Q is 
intended to be consistent with the fair value disclosures and other 
requirements in FASB Statement No. 157, Fair Value Measurements (FAS 
157).
    Based on the banking agencies' ongoing review of industry reporting 
and disclosure practices since the inception of this standard, and the 
reporting of items at fair value on Schedule RC, Balance Sheet, the 
agencies are proposing to expand the data collected on Schedule RC-Q in 
two material respects.
    First, to improve the consistency of data collected on Schedule RC-
Q with the FAS 157 disclosure requirements and industry disclosure 
practices, the agencies are proposing to expand the detail of the 
collected data. The agencies are proposing to expand the detail on 
Schedule RC-Q to collect fair value information on all assets and 
liabilities reported at fair value on a recurring basis in a manner 
consistent with the asset and liability breakdowns on Schedule RC. 
Thus, the agencies are proposing to add items to collect fair value 
information on:
    <bullet> Available-for-sale securities;
    <bullet> Federal funds sold and securities purchased under 
agreements to resell;
    <bullet> Federal funds purchased and securities sold under 
agreements to repurchase;
    <bullet> Other borrowed money; and
    <bullet> Subordinated notes and debentures.
    The agencies also are proposing to modify the existing collection 
of loan and lease data and trading asset and liability data to collect 
data separately for:
    <bullet> Loans and leases held for sale;
    <bullet> Loans and leases held for investment;
    <bullet> Trading derivative assets;
    <bullet> Other trading assets;
    <bullet> Trading derivative liabilities; and
    <bullet> Other trading liabilities.
    The agencies would also add totals to capture total assets and 
total liabilities for items reported on the schedule. In addition, the 
agencies are proposing to modify the existing items for ``other 
financial assets and servicing assets'' and ``other financial 
liabilities and servicing liabilities'' to collect information on 
``other assets'' and ``other liabilities'' reported at fair value on a 
recurring basis, including nontrading derivatives.
    Components of ``other assets'' and ``other liabilities'' would be 
separately reported if they are greater than $25,000 and exceed 25 
percent of the total fair value of ``other assets'' and ``other 
liabilities,'' respectively. In conjunction with this change, the 
existing reporting for loan commitments accounted for under a fair 
value option would be revised to include these instruments, based on 
whether their fair values are positive or negative, in the items for 
``other assets'' and ``other liabilities'' reported at fair value on a 
recurring basis, with separate disclosure of these commitments if 
significant.
    Second, the agencies are proposing to modify the reporting criteria 
for Schedule RC-Q. The current instructions require all banks that have 
adopted FAS 157 and (1) have elected to account for financial 
instruments or servicing assets and liabilities at fair value under a 
fair value option or (2) are required to complete Schedule RC-D, 
Trading Assets and Liabilities, to complete Schedule RC-Q. The agencies 
are proposing to maintain this reporting requirement for banks that use 
a fair value option or that have significant trading activity. In 
addition, the agencies are proposing to extend the requirement to 
complete Schedule RC-Q to all banks that reported $500 million or more 
in total assets at the beginning of their fiscal year, regardless of 
whether they have elected to apply a fair value option to financial or 
servicing assets and liabilities. Thus, Schedule RC-Q would be 
completed by all banks that are required to obtain an independent 
annual financial statement audit pursuant to Part 363 of the FDIC's 
regulations and are therefore required to include the FAS 157 fair 
value disclosures in their financial statements.
    The banking agencies have determined that the proposed information 
is necessary to more accurately assess the impact of fair value 
accounting and fair value measurements for safety and soundness 
purposes. The collection of the information on Schedule RC-Q, as 
proposed, will facilitate and enhance the banking agencies' ability to 
monitor the extent of fair value accounting in banks' Reports of 
Condition, including the elective use of fair value accounting and the 
nature of the inputs used in the valuation process, pursuant to the 
disclosure requirements of FAS 157. The information collected on 
Schedule RC-Q is consistent with the disclosures required by FAS 157 
and consistent with industry practice for reporting fair value 
measurements and should, therefore, not impose significant incremental 
burden on banks.

[[Page 54817]]

F. Pledged Loans in Loan and Trading Portfolios and Pledged Trading 
Securities
    Banks have been pledging loans for many years and the volume of 
these pledges has grown considerably in recent years. Pledging of bank 
loans is the act of setting aside certain loans to secure or 
collateralize bank transactions with the bank continuing to own the 
loans unless the bank defaults on the transaction. Pledging is used for 
securing public deposits, repurchase agreements, and other bank 
borrowings. Pledging affects a bank's liquidity and other asset and 
liability management programs.
    Today there are a number of alternative funding structures used by 
banks that require banks to pledge loans. Some of these funding 
structures include pledging on-balance sheet loans to finance and 
support securitization structures held by the bank that do not meet 
sales treatment, pledging loans to secure borrowings from a Federal 
Home Loan Bank, and packaging of on-balance sheet loans to 
collateralize bonds sold by banks. Currently, the Call Report does not 
provide information on the volume of pledged loans. Therefore, the 
banking agencies propose to collect the total amount of held-for-sale 
and held-for-investment loans and leases reported in Schedule RC-C, 
Loans and Lease Financing Receivables, that are pledged and the total 
amount of pledged loans that are carried in the trading portfolio and 
reported in Schedule RC-D, Trading Assets and Liabilities.
    In addition, although the agencies have long collected data on 
total amount of held-to-maturity and available-for-sale securities 
reported in Schedule RC-B, Securities, that are pledged, banks have not 
been required to report the amount of securities carried in the trading 
portfolio that are pledged. Therefore, for reasons similar to those for 
collecting data on pledged loans, the agencies are proposing to add an 
item to Schedule RC-D to capture the amount of pledged trading 
securities.
G. Collateral for OTC Derivative Exposures and Distribution of Credit 
Exposures
    The growth in banks' OTC derivatives and the related counterparty 
credit exposures has been significant in recent years. For some major 
dealer banks, the counterparty credit risk from OTC derivatives rivals 
or exceeds their commercial and industrial loans outstanding. Despite 
the magnitude of these derivative exposures, there is virtually no 
information on OTC derivative counterparty credit exposures and 
associated risk mitigation in the Call Report.
    Given the size of OTC derivative counterparty credit exposures, and 
the important risk mitigation provided by collateral held to offset or 
mitigate such exposures, information on the distribution of each would 
assist the agencies in their oversight and supervision of banks 
engaging in OTC derivative activities. Therefore, the agencies propose 
to collect data in Schedule RC-L, Derivatives and Off-Balance Sheet 
Items, that will provide a breakdown of the fair value of collateral 
posted for OTC derivative exposures by type of collateral and type of 
derivative counterparty and a separate breakdown of the current credit 
exposure on OTC derivatives by type of counterparty. This information 
would give the agencies important insights into the extent to which 
collateral is used as part of the credit risk management practices 
associated with derivative credit exposures to different types of 
counterparties and changes over time in the nature and extent of the 
collateral protection.
    Since a majority of OTC derivative transactions are conducted in 
larger banks, only banks with total assets of $10 billion or more would 
be required to report the proposed new data. These banks would report, 
using a matrix, the collateral's fair value allocated by type of 
counterparty and type of collateral as well as the current credit 
exposure associated with each type of counterparty. The proposed types 
of collateral for which the fair value would be reported are (a) cash--
U.S. dollar; (b) cash--Other currencies; (c) U.S. Treasury securities; 
(d) U.S. Government agency and U.S. Government-sponsored agency debt 
securities; (e) corporate bonds; (f) equity securities; and (g) all 
other collateral.\10\ The fair value of the collateral would be 
reported according to the following types of counterparties: (a) Banks 
and securities firms; (b) monoline financial guarantors; (c) hedge 
funds; (d) sovereign governments; and (e) corporations and all other 
counterparties. The current credit exposure (after considering the 
effect of master netting agreements with OTC derivative counterparties) 
would also be reported for these five types of counterparties. The 
total current credit exposure from OTC derivative exposures that would 
be reported for these counterparties in Schedule RC-L would not 
necessarily equal the current credit exposure in the Call Report's 
regulatory capital schedule (Schedule RC-R) because the amount reported 
in Schedule RC-R excludes derivatives not covered by the risk-based 
capital standards.
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    \10\ All other collateral would include, but not be limited to, 
mortgage-backed securities, asset-backed securities, and structured 
financial products.
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H. Maturity Distributions of Unsecured Other Borrowings and 
Subordinated Debt
    As part of the Omnibus Budget Reconciliation Act of 1993, Congress 
enacted depositor preference legislation that elevated the claims of 
depositors in domestic offices (and in insured branches in Puerto Rico 
and U.S. territories and possessions) over the claims of general 
unsecured creditors in a bank failure. When a bank fails, the claims of 
general unsecured creditors provide a cushion that lowers the cost of 
the failure to the Deposit Insurance Fund (DIF) administered by the 
FDIC. The greater the amount of general unsecured creditor claims, the 
greater the cushion and the lower the cost of the failure to the DIF.
    The FDIC is considering proposing an adjustment to the risk-based 
assessment system so that insured depository institutions with greater 
amounts of general unsecured long-term liabilities will be rewarded 
with a lower assessment rate. Currently, the Call Reports lacks 
information regarding the remaining maturities of unsecured ``other 
borrowings'' and subordinated notes and debentures. Therefore, the 
agencies are proposing to collect this information in the Call Report 
so that the FDIC would be able to implement such an adjustment. More 
specifically, banks would report separate maturity distributions for 
``other borrowings'' (as defined for Schedule RC-M, item 5.b) that are 
unsecured and for subordinated notes and debentures (as defined for 
Schedule RC, item 19) in Schedule RC-O, Other Data for Deposit 
Insurance and FICO Assessments. The maturity distributions would 
include remaining maturities of one year or less, over one year through 
three years, over three years through five years, and over five years.
I. Investments in Real Estate Ventures
    At present, a bank with investments in real estate ventures reports 
real estate (other than bank premises) owned or controlled by the bank 
and its consolidated subsidiaries that is held for investment purposes 
as a component of ``Other real estate owned'' in Schedule RC-M, item 
3.a. If a bank has investments in real estate ventures in the form of 
investments in subsidiaries that have not been consolidated; associated 
companies; and corporate

[[Page 54818]]

joint ventures, unincorporated joint ventures, general partnerships, 
and limited partnerships over which the bank exercises significant 
influence that are engaged in the holding of real estate for investment 
purposes, these investments are reported as a component of 
``Investments in unconsolidated subsidiaries and associated companies'' 
in Schedule RC-M, item 4.a. To better distinguish a bank's investments 
in real estate ventures from these other categories of assets, 
particularly because ``Other real estate owned'' also includes real 
estate acquired either through foreclosure or in any other manner for 
debts previously contracted, which presents different supervisory 
considerations than real estate investments, the agencies are proposing 
to add a new asset category to the Call Report balance sheet (Schedule 
RC) for investments in real estate ventures. This new balance sheet 
category would include those investments in real estate ventures that 
are currently reported as part of ``Other real estate owned'' and 
``Investments in unconsolidated subsidiaries and associated 
companies.'' By making this change, the agencies would be able to 
eliminate item 3.a and items 4.a through 4.c from Schedule RC-M.
J. Revisions to Schedule RC-H for Securities Held in Domestic Offices
    Information reported by banks with foreign offices on Schedule RC-
H, Selected Balance Sheet Items for Domestic Offices, on the FFIEC 031 
report form is fundamental for public policy purposes in the 
measurement and analysis of the domestic (U.S.) banking system. The 
agencies have used estimates of certain domestic office measures to 
facilitate these public policy efforts. However, the agencies have 
determined that enhanced information on available-for-sale and held-to-
maturity securities in domestic offices is necessary to accomplish 
these public policy efforts.
    At present, banks with foreign offices report the combined 
amortized (historical) cost of available-for-sale and held-to-maturity 
securities by type of security in items 10 through 17 of Schedule RC-H. 
The agencies propose to replace this combined reporting with two 
columns to collect information separately on the fair value of 
available-for-sale securities and the amortized cost of held-to-
maturity securities held in the domestic offices of banks with foreign 
offices.
    After the transition to this Schedule RC-H revision, this proposed 
change should not result in significant additional ongoing reporting 
burden because banks are required to designate securities as either 
available-for-sale, held-to-maturity, or held for trading per FASB 
Statement No. 115, Accounting for Certain Investments in Debt and 
Equity Securities, and to report the fair value and amortized cost of 
all available-for-sale and held-to-maturity securities by type of 
security in Call Report Schedule RC-B, Securities.
K. Trading Assets That Are Past Due or in Nonaccrual Status
    The agencies have observed that banks are holding assets in the 
trading category for longer periods of time due to market and other 
factors. Some of these assets are exhibiting delinquency patterns 
similar to assets held outside of the trading account. Currently, the 
agencies do not distinguish past due and nonaccrual trading assets from 
other assets on Schedule RC-N, Past Due and Nonaccrual Loans, Leases, 
and Other Assets. The agencies propose to replace Schedule RC-N, item 
9, for ``Debt securities and other assets'' that are past due 30 days 
or more or in nonaccrual status with two separate items: item 9.a, 
``Trading assets,'' and item 9.b, ``All other assets (including 
available-for-sale and held-to-maturity securities).'' These items 
would follow the existing three-column breakdown on Schedule RC-N that 
banks utilize to report assets past due 30 through 89 days and still 
accruing, past due 90 days or more and still accruing, and in 
nonaccrual status. Item 9.a would include all assets held for trading 
purposes, including loans held for trading. Collection of this 
information will allow the agencies to better assess the quality of 
assets held for trading purposes, and generally enhance surveillance 
and examination planning efforts.
    Also, the agencies propose to expand the scope of Schedule RC-D, 
Trading Assets, Memorandum item 3, ``Loans measured at fair value that 
are past due 90 days or more,'' to include loans held for trading and 
measured at fair value that are in nonaccrual status. This change would 
provide for more consistent treatment with the information that would 
be collected on Schedule RC-N and with the disclosure requirements in 
FASB Statement No. 159, The Fair Value Option for Financial Assets and 
Financial Liabilities.
L. Enhanced Information on Credit Derivatives
    Effective for the March 2006 Call Report, the agencies revised the 
information collected on credit derivatives in Schedules RC-L, 
Derivatives and Off-Balance Sheet Items, and RC-R, Regulatory Capital, 
to gain a better understanding of the nature and trends of banks' 
credit derivative activities. Since that time, the volume of credit 
derivative activity in the banking industry, as measured by the 
notional amount of these contracts, has increased steadily, rising to 
an aggregate notional amount of $16.4 trillion as of March 31, 2008. 
The Call Report data indicate that the credit derivative activity in 
the industry is highly concentrated in banks with total assets in 
excess of $10 billion. For these banks, credit derivatives function as 
a risk mitigation tool for credit exposures in their operations as well 
as a financial product that is sold to third parties for risk 
management and other purposes.
    The agencies' safety and soundness efforts continue to place 
emphasis on the role of credit derivatives in bank risk management 
practices. In addition, the agencies' monitoring of credit derivative 
activities at certain banks has identified differences in 
interpretation as to how credit derivatives are treated under the 
agencies' risk-based capital standards. To further the agencies' safety 
and soundness efforts concerning credit derivatives and to improve 
transparency in the treatment of credit derivatives for regulatory 
capital purposes, the agencies propose to revise the information 
pertaining to credit derivatives that is collected on Schedules RC-L, 
RC-N (Past Due and Nonaccrual Loans, Leases, and Other Assets), and RC-
R.
    In Schedule RC-L, item 7, ``Credit derivatives,'' the agencies 
propose to change the caption of column A from ``Guarantor'' to ``Sold 
Protection'' and the caption of column B from ``Beneficiary'' to 
``Purchased Protection'' to eliminate confusion surrounding the meaning 
of ``Guarantor'' and ``Beneficiary'' that commonly occurs between the 
users and preparers of these data. The agencies also propose to add a 
new item 7.c to Schedule RC-L to collect information on the notional 
amount of credit derivatives by regulatory capital treatment. For 
credit derivatives that are subject to the agencies' market risk 
capital standards, the agencies propose to collect the notional amount 
of sold protection and the amount of purchased protection. For all 
other credit derivatives, the agencies propose to collect the notional 
amount of sold protection, the notional amount of purchased protection 
that is recognized as a guarantee under the risk-based capital 
guidelines, and the notional amount of purchased protection that is not 
recognized as a guarantee under the risk-based capital standards.

[[Page 54819]]

    The agencies also propose to add a new item 7.d to Schedule RC-L to 
collect information on the notional amount of credit derivatives by 
credit rating and remaining maturity. The item would collect the 
notional amount of sold protection broken down by credit ratings of 
investment grade and subinvestment grade for the underlying reference 
asset and by remaining maturities of one year or less, over one year 
through five years, and over five years. The same information would be 
collected for purchased protection.
    In Schedule RC-N, the agencies propose to change the scope of 
Memorandum item 6, ``Past due interest rate, foreign exchange rate, and 
other commodity and equity contracts,'' to include credit derivatives. 
The fair value of credit derivatives where the bank has purchased 
protection increased significantly to over $500 billion at March 31, 
2008, as compared to a negative $10 billion at March 31, 2007. Thus, 
the performance of credit derivative counterparties has increased in 
importance. The expanded scope of Memorandum item 6 on Schedule RC-N 
would include the fair value of credit derivatives carried as assets 
that are past due 30 through 89 days and past due 90 days or more.
    In Schedule RC-R, the agencies propose to change the scope of the 
information collected in Memorandum items 2.g.(1) and (2) on the 
notional principal amounts of ``Credit derivative contracts'' that are 
subject to risk-based capital requirements to include only (a) the 
notional principal amount of purchased protection that is defined as a 
covered position under the market risk capital guidelines and (b) the 
notional principal amount of purchased protection that is not a covered 
position under the market risk capital guidelines and is not recognized 
as a guarantee for risk-based capital purposes. The scope of Memorandum 
item 1, ``Current credit exposure across all derivative contracts 
covered by the risk-based capital standards,'' would be similarly 
revised to include the current credit exposure arising from credit 
derivative contracts that represent (a) purchased protection that is 
defined as a covered position under the market risk capital guidelines 
and (b) purchased protection that is not a covered position under the 
market risk capital guidelines and is not recognized as a guarantee for 
risk-based capital purposes. The agencies also propose to add new 
Memorandum items 3.a and 3.b to Schedule RC-R to collect the present 
value of unpaid premiums on sold credit protection that is defined as a 
covered position under the market risk capital guidelines. Consistent 
with the information currently reported in Memorandum item 2.g, the 
agencies propose to collect this present value information with a 
breakdown between investment grade and subinvestment grade for the 
rating of the underlying reference asset and with the same three 
remaining maturity breakouts.
M. Questions Concerning Certain Trust, Custodial, Safekeeping, and 
Other Services
    Under certain circumstances, banks can serve as trustee or 
custodian for Individual Retirement Accounts (IRAs), Health Savings 
Accounts (HSAs), and other similar accounts without obtaining trust 
powers. Banks may also provide custody, safekeeping, or other services 
involving the acceptance of orders for the sale or purchase of 
securities regardless of whether they have trust powers. Under the 
Board's and the SEC's recently adopted Regulation R--Exceptions for 
Banks from the Definition of Broker in the Securities Exchange Act of 
1934 (12 CFR part 218), a bank will only be able to effect securities 
transactions for customers if the bank meets one of the exceptions from 
the broker definition in section 3(a)(4) of the Securities Exchange Act 
of 1934. Under the trust and fiduciary exception, the securities 
transactions must be effected in a trust department or other department 
of a bank that is regularly examined for compliance with fiduciary 
standards.
    Accordingly, the agencies must be able to identify banks that serve 
as trustee or custodian for IRAs, HSAs, and other similar accounts or 
provide custody, safekeeping, or other services involving the 
acceptance of securities sale or purchase orders. Depending on whether 
such banks exercise trust powers, these activities will need to be 
examined during trust examinations or other examinations, as 
appropriate, in order to ensure that the activities are conducted in a 
satisfactory manner and in compliance with the requirements for the 
exception from the broker definition. Therefore, the agencies are 
proposing to add two yes/no questions to Schedule RC-M, one of which 
would ask each bank whether it acts as trustee or custodian for IRAs, 
HSAs, and other similar accounts and the other of which would ask 
whether the bank provides custody, safekeeping, or other services 
involving the acceptance of securities sale and purchase orders.

IV. Discussion of Revisions Proposed for December 2009

    Schedule RC-T, Fiduciary and Related Services, was added to the 
Call Report effective December 31, 2001, replacing two separate 
reports, the Annual Report of Trust Assets (FFIEC 001) and the Annual 
Report of International Fiduciary Activities (FFIEC 006). Schedule RC-T 
collects data on:
    <bullet> Fiduciary and related assets by type of fiduciary account, 
with the amount of assets and number of accounts reported separately 
for managed and non-managed accounts;
    <bullet> Fiduciary and related services income by type of fiduciary 
account and expenses, including fiduciary settlements, surcharges, and 
other losses by type of fiduciary account;
    <bullet> Managed assets held in personal trust and agency accounts 
by type of asset;
    <bullet> Corporate trust and agency accounts; and
    <bullet> The number of collective investment funds and common trust 
funds and the market value of fund assets by type of fund.
    FDIC-insured banks that exercise fiduciary powers and have 
fiduciary assets or accounts and uninsured limited-purpose national 
trust banks (trust institutions) must complete specified sections of 
Schedule RC-T either quarterly or annually (as of December 31) 
depending on the amount of their total fiduciary assets as of the 
preceding calendar year-end and their gross fiduciary and related 
services income for the preceding calendar year. Approximately 400 
trust institutions with total fiduciary assets greater than $250 
million or with gross fiduciary and related services income greater 
than 10 percent of net interest income plus noninterest income report 
their fiduciary and related assets and their fiduciary and related 
services income quarterly and the remaining data items on Schedule RC-T 
annually. Around 200 trust institutions with total fiduciary assets 
greater than $100 million but less than or equal to $250 million that 
do not meet the fiduciary income test mentioned above complete all of 
Schedule RC-T annually. About 1,000 trust institutions with total 
fiduciary assets of $100 million or less that do not meet the fiduciary 
income test mentioned above must complete all of Schedule RC-T annually 
except the sections on fiduciary income and losses from which they are 
exempt.
    Since its addition to the Call Report at year-end 2001, Schedule 
RC-T has not been revised. During this time period, significant growth 
has occurred in both the assets in managed and non-managed fiduciary 
accounts at trust institutions. For the five year period ending 
December 31, 2007, managed assets increased from $3.3 trillion to

[[Page 54820]]

$5.6 trillion while non-managed assets climbed from $8.2 trillion to 
$17.7 trillion. Assets held in custody and safekeeping accounts grew 
from $21.4 trillion to $57.9 trillion over this same period. The number 
of corporate and municipal debt issues for which trust institutions 
serve as trustee has also increased over the past five years, rising 
from 237 thousand to 339 thousand, and the total par value of these 
debt issues has increased from $6.4 trillion to $15.7 trillion. The 
total market value of the assets held in collective investment funds 
and common trust funds operated by trust institutions grew from $1.6 
trillion at year-end 2002 to $3.0 trillion at year-end 2007.
    The agencies have been monitoring the growth in fiduciary 
activities and trends in this area, both from data collected in 
Schedule RC-T and through the examination process, and have determined 
that certain data should be added to Schedule RC-T to enable the 
agencies to better evaluate the trust activities of individual trust 
institutions and the industry as a whole. The agencies are proposing to 
implement the following revisions to Schedule RC-T as of December 31, 
2009.
A. Institutional Foundations and Endowments
    In both the Fiduciary and Related Assets section of Schedule RC-T 
and the Fiduciary and Related Services Income section of the schedule, 
information on the assets, number of accounts, and income from 
fiduciary accounts of institutional foundations and endowments is 
currently reported as part of the total amounts reported for ``Other 
fiduciary accounts.'' Internal Revenue Service (IRS) statistics for 
2004, the most recent year for which data are available, indicated that 
foundations and charitable trusts treated as foundations by the IRS 
held assets with a total book value of $451 billion.\11\ The agencies 
believe that trust institutions administer a substantial amount of 
these assets and that foundations and endowments are a major type of 
fiduciary account being aggregated as a component of ``Other fiduciary 
accounts.'' Given the volume of assets administered in accounts for 
foundations and endowments, separate reporting in Schedule RC-T of data 
for such a significant type of fiduciary account is warranted.
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    \11\ http://www.irs.gov/taxstats/charitablestats/article/0,,id=96996,00.html.
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B. Investment Advisory Agency Accounts
    Investment advisory agency accounts are accounts for which a trust 
institution provides investment advice for a fee, but where the 
ultimate investment decision rests with the customer. At present, the 
instructions for reporting in both the Fiduciary and Related Assets 
section of Schedule RC-T and the Fiduciary and Related Services Income 
section of the schedule do not identify the type of fiduciary account 
in which information on the assets, number of accounts, and income from 
investment advisory agency accounts should be reported. As a result, 
there is diversity in how trust institutions report this information in 
these two sections of Schedule RC-T.
    Investment management agency accounts share a common characteristic 
with investment advisory agency accounts in that both involve the 
provision of investment advice to a customer for the purpose of 
determining which securities to buy, sell, or hold. However, the former 
is a type of managed account while the latter is a type of non-managed 
account. In order to clarify where investment advisory agency accounts 
should be reported in Schedule RC-T and include them with the most 
appropriate type of fiduciary account given their characteristics, the 
agencies are proposing that investment advisory agency accounts be 
reported with investment management agency accounts in the Fiduciary 
and Related Assets and the Fiduciary and Related Services Income 
sections of Schedule RC-T. The line item captions in these two sections 
for ``Investment management agency accounts'' would be revised to read 
``Investment management and investment advisory agency accounts.'' In 
addition, given the non-managed nature of investment advisory agency 
accounts, the currently blocked items for non-managed assets and number 
of non-managed accounts in the line for investment management agency 
accounts in the Fiduciary and Related Assets section of Schedule RC-T 
would be opened to enable trust institutions to report on these 
advisory accounts.
C. IRAs, HSAs, and Other Similar Accounts
    IRAs, HSAs, and other similar accounts represent a large category 
of individual benefit and other retirement-related accounts 
administered by trust institutions for which the agencies do not 
collect specific data. At present, data for these accounts is included 
in the totals reported for ``Other employee benefit and other 
retirement-related accounts'' and ``Custody and safekeeping accounts'' 
in the Fiduciary and Related Assets section of Schedule RC-T (items 7.c 
and 13). As of year-end 2007, assets held in IRAs were estimated to be 
$4.7 trillion.\12\
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    \12\ http://www.icifactbook.org/fb_sec7.html.
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    Significant growth in IRAs administered by trust institutions is 
expected as retiring individuals roll assets held in 401(k) plans over 
into IRAs. Significant growth in HSAs is also anticipated as these 
accounts gain increased popularity with the public. IRAs, HSAs, and 
other similar accounts for individuals have risk characteristics that 
differ from employee benefit plans that are covered by the Employee 
Retirement Income Security Act. In particular, the risks of these 
accounts for individuals tend to center on compliance with the relevant 
provisions of the Internal Revenue Code and the potential penalties for 
violations thereof. To identify trust institutions experiencing 
significant changes in the number and market value of assets of these 
types of accounts for supervisory follow-up and to monitor both 
aggregate and individual trust institution growth trends involving 
these accounts, the agencies are proposing to add a line item to the 
Fiduciary and Related Assets section of Schedule RC-T for data on IRAs, 
HSAs, and other similar accounts included in ``Other employee benefit 
and other retirement-related accounts'' and ``Custody and safekeeping 
accounts.''
D. Managed Assets Held in Fiduciary Accounts
    Trust institutions currently report a breakdown of the market value 
of managed assets held in personal trust and agency accounts by type of 
asset in Memorandum item 1 of Schedule RC-T. The agencies do not 
collect a similar breakdown of the managed assets for other types of 
fiduciary accounts. The exercise of investment discretion adds a 
significant element of risk to the administration of managed fiduciary 
accounts. Therefore, it is essential that the agencies be able to 
monitor trends, both on a trust industry-wide basis and an individual 
trust institution basis, in how discretionary fiduciaries are investing 
the assets of managed accounts. The current scope of managed assets 
reporting is inadequate for monitoring and measuring risk exposures and 
provides inadequate information for examiners' examination planning 
activities.
    Despite the importance of such data, managed personal trust and 
agency

[[Page 54821]]

accounts comprised just 20 percent of the number of total managed 
accounts and the assets of managed personal trust and agency accounts 
represented 18 percent of total managed assets as of December 31, 2007. 
By comparison, as of the same date, investment management agency 
accounts comprise 66 percent of the number of total managed accounts 
and the assets of investment management agency accounts represented 36 
percent of total managed assets, while the assets of employee benefit 
and other retirement accounts comprised 41 percent of total managed 
assets.
    In order to close the significant data gap in current reporting, 
the agencies are proposing to expand Memorandum item 1 of Schedule RC-T 
to collect a three-way breakdown of the market value of all managed 
assets held in fiduciary accounts by type of asset. The market values 
for the various asset types would be reported separately for three 
categories of managed fiduciary accounts: (1) Personal trust and agency 
and investment management agency accounts, (2) employee benefit and 
other retirement accounts, and (3) all other accounts. The various 
types of fiduciary accounts have been combined into these three 
categories since each category is subject to unique regulatory and 
fiduciary standards. Data reported in this manner will assist in 
monitoring and measuring risk at trust institutions and in pre-
examination planning by examiners.
    The agencies have also reviewed the types of assets for which trust 
institutions currently provide a breakdown in Memorandum item 1. In 
this regard, discretionary investments in common trust funds (CTFs) and 
collective investment funds (CIFs) are not separately reported in this 
Memorandum item. Instead, trust institutions are required to allocate 
the underlying assets of each CTF and CIF attributable to managed 
accounts to the individual line items for the various types of assets 
reported in Memorandum item 1.
    The agencies have found this method of reporting investments in 
CTFs and CIFs to be misleading, confusing, and burdensome for trust 
institutions. It is misleading because an investment in a CTF or CIF 
that invests in common stocks is very different in nature than a direct 
investment in an individual common stock, but these investments are 
reported as if the institution were investing in a specific asset, 
rather than in a fund. It is confusing and burdensome to reporting 
institutions that often do not understand the allocation process 
currently required for reporting the value of the underlying assets of 
the CTFs and CIFs.
    This allocation process requires institutions to segregate the 
underlying assets of each CTF and CIF by asset type, rather than 
following the more straightforward approach of reporting the total 
value of managed accounts' holdings of investments in CTFs and CIFs. 
Therefore, the agencies are proposing to end the current method of 
reporting investments in CTFs and CIFs in Memorandum item 1 by adding a 
separate line item for investments in CTFs and CIFs. This new asset 
type will enable the agencies to collect data that actually reflects 
the investment choices of discretionary fiduciaries, i.e., investing in 
a fund rather than an individual asset, while simplifying the reporting 
of these investments by eliminating the requirement to report each type 
of asset held by a fund.
    At present, the asset type for ``common and preferred stocks'' in 
Memorandum item 1 includes not only these stocks, but also all 
investments in mutual funds (other than money market mutual funds, 
which are reported separately), private equity investments, and 
investments in unregistered and hedge funds. Investments in mutual 
funds (other than money market mutual funds) have long been reported 
with common and preferred stocks. However, over time, these investments 
have gone from being a relatively minor investment option for managed 
fiduciary accounts to being one of the most significant asset types for 
managed fiduciary accounts.
    As a consequence, the agencies lack specific data on discretionary 
investments in mutual funds (other than money market mutual funds) 
despite their distinctive differences from investments in individual 
common stocks. Given these differences and the growth in mutual fund 
holdings in managed fiduciary accounts, the agencies are proposing to 
add two new items to Memorandum item 1 to collect data on investments 
in equity mutual funds and in other (non-money market) mutual funds 
separately from common and preferred stocks.
    Investments in hedge funds and private equity have grown rapidly 
since the implementation of Schedule RC-T in 2001, with large 
institutional investors, e.g., large pension plans, increasing their 
allocation to these types on investments in order to increase portfolio 
returns and pursue absolute return strategies. As mentioned above, 
these types of investments are currently reported in the ``common and 
preferred stocks'' asset type in Memorandum item 1. However, given 
their unique characteristics and risks and the increasing role such 
investments are having in managed fiduciary portfolios, the agencies 
believe there is a need to identify the volume of these investments to 
monitor both aggregate trust industry exposure and trust institution-
specific exposure. Therefore, the agencies are also proposing to modify 
Memorandum item 1 by adding a new item in which trust institutions 
would report investments in unregistered funds and private equity 
investments held in managed accounts separately from common and 
preferred stocks.
    Finally, since their inception in 1994, mutual funds for which the 
reporting trust institution or its subsidiary or affiliate is the 
sponsor or serves as an investment advisor (also referred to as 
proprietary mutual funds) have posed a significant fiduciary risk when 
the institution makes investments in such mutual funds for the 
fiduciary accounts it manages. In this situation, the institution's 
dual roles present a conflict of interest, which has given rise to 
litigation on a number of occasions. Therefore, to supplement the 
proposed expanded information on mutual funds held in managed fiduciary 
accounts, the agencies are proposing to add items to Memorandum item 1 
for the reporting of the market value of discretionary investments in 
proprietary mutual funds and the number of managed accounts holding 
such investments. This information will assist the agencies in 
measuring and monitoring the risk exposure of the trust industry and 
individual trust institutions with respect to the conflicts of interest 
inherent in discretionary investments in proprietary mutual funds.
E. Corporate Trust and Agency Accounts
    Trust institutions currently report the number of corporate and 
municipal debt issues for which the institution serves as trustee and 
the outstanding principal amount of these debt issues in Memorandum 
item 2.a of Schedule RC-T. One of the major risks in the area of 
corporate trust administration involves debt issues that are in 
substantive default. A substantive default occurs when the issuer fails 
to make a required payment of interest or principal, defaults on a 
required payment into a sinking fund, or is declared bankrupt or 
insolvent.
    The occurrence of a substantive default significantly raises the 
risk profile for an indenture trustee of a defaulted issue. In such 
cases, every action or failure to act by the trustee is scrutinized 
intensely by the holders of

[[Page 54822]]

the defaulted issue, which brings about a heightened risk of being 
sued. In addition, the administrative demands in such a situation can 
result in the incurrence of significant expenses and the distraction of 
managerial time and attention from other areas of the trust department. 
Thus, to monitor and better understand the risk profile of trust 
institutions serving as an indenture trustee for debt securities and 
changes therein, the agencies are proposing to require trust 
institutions to report the number of such issues that are in 
substantive default and the principal amount outstanding for these 
issues.
    In addition, the agencies are proposing to revise the instructions 
for reporting on corporate trust accounts to state that issues of trust 
preferred stock for which the institution is trustee should be included 
in the amounts reported for corporate and municipal trusteeships.
F. Instructional Clarifications
    The instructions for reporting the managed and non-managed assets 
and number of managed and non-managed accounts for defined contribution 
plans and defined benefit plans in items 5.a and 5.b of Schedule RC-T, 
respectively, would be revised to indicate that employee benefit 
accounts for which the trust institution serves as a directed trustee 
should be reported as non-managed accounts.
    The instructions for reporting on the number of and market value of 
assets held in collective investment funds and common trust funds in 
Memorandum item 3 would be clarified by stating that the number of 
funds should be reported, not the number of assets held by these funds, 
the number of participants, or the number of accounts invested in the 
funds.

V. Request for Comment

    Public comment is requested on all aspects of this joint notice. 
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 joint 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.

    Dated: September 17, 2008.
Michele Meyer,
Assistant Director, Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency.
    Board of Governors of the Federal Reserve System, September 17, 
2008.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 16th day of September 2008.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E8-22258 Filed 9-22-08; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P


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