5028 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

(1980). On April 18, 1984, in Order No. 

676A, the bankruptcy court authorized 

MSPA to purchase the 351.50-mile 

portion of the line. On April 30, 1984, 

MSPA and Kyle entered into an 

agreement and Kyle was authorized in 

Kyle Railroad Company—Notice of 

Modified Certificate of Public 

Convenience and Necessity, Finance 

Docket No. 30490 (ICC served June 4, 

1984) to acquire from MSPA and to 

operate the line. Kyle is seeking the 

Board’s authority as required by the 

agreement to acquire and operate the 

line and to remove the potential 

impediment to exercising its option to 

acquire the line. 

The proposed transaction is 

scheduled to be consummated on June 

1, 2009. 

Kyle certifies that its projected annual 

revenues as a result of the transaction 

will not result in Kyle becoming a Class 

II or Class I rail carrier. However, 

because its projected annual revenues 

will exceed $5 million, Kyle also has 

certified to the Board that it has 

complied with the employee notice 

requirements of 49 CFR 1150.42(e). 

Pursuant to that provision, the 

exemption may not become effective 

until 60 days from the January 13, 2009, 

date of the revised certification to the 

Board, which would be March 13, 2009. 

According to Kyle, there is no 

provision or agreement that may limit 

future interchange with a third-party 

connecting carrier. 

Pursuant to the Consolidated 

Appropriations Act, 2008, Public Law 

110–161, § 193, 121 Stat. 1844 (2007), 

nothing in this decision authorizes the 

following activities at any solid waste 

rail transfer facility: Collecting, storing, 

or transferring solid waste outside of its 

original shipping container; or 

separating or processing solid waste 

(including baling, crushing, compacting, 

and shredding). The term ‘‘solid waste’’ 

is defined in section 1004 of the Solid 

Waste Disposal Act, 42 U.S.C. 6903. 

If the verified notice contains false or 

misleading information, the exemption 

is void ab initio. Petitions to revoke the 

exemption under 49 U.S.C. 10502(d) 

may be filed at any time. The filing of 

a petition to revoke will not 

automatically stay the effectiveness of 

the exemption. Stay petitions must be 

filed by March 6, 2009 (at least 7 days 

before the exemption becomes 

effective). 

An original and 10 copies of all 

pleadings, referring to STB Finance 

Docket No. 35212, must be filed with 

the Surface Transportation Board, 395 E 

Street, SW., Washington, DC 20423– 

0001. In addition, a copy of each 

pleading must be served on applicants’ 

representative, Louis E. Gitomer, Esq., 

Law Offices of Louis E. Gitomer, LLC, 

600 Baltimore Avenue, Suite 301, 

Towson, MD 21204. 

Board decisions and notices are 

available on our Web site at ‘‘http:// 

www.stb.dot.gov.’’ 

Decided: January 16, 2009. 

By the Board, David M. Konschnik, 

Director, Office of Proceedings. 

Jeffrey Herzig, 

Clearance Clerk. 

[FR Doc. E9–1544 Filed 1–27–09; 8:45 am] 

BILLING CODE 4915–01–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

FEDERAL RESERVE SYSTEM 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

Agency Information Collection 

Activities: Submission for OMB 

Review; Joint Comment Request 

AGENCIES: Office of the Comptroller of 

the Currency (OCC), Treasury; Board of 

Governors of the Federal Reserve 

System (Board); and Federal Deposit 

Insurance Corporation (FDIC). 

ACTION: Notice of information collection 

to be submitted to OMB for review and 

approval under the Paperwork 

Reduction Act of 1995. 

SUMMARY: 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. On September 

23, 2008, the agencies, under the 

auspices of the Federal Financial 

Institutions Examination Council 

(FFIEC), requested public comment for 

60 days on a proposal to extend, with 

revision, the Consolidated Reports of 

Condition and Income (Call Report), 

which are currently approved 

collections of information. After 

considering the comments received on 

the proposal, the FFIEC and the 

agencies will move forward with the 

most of the reporting changes, with 

limited modifications in response to 

certain comments, on the phased-in 

basis that had been proposed. The 

FFIEC and the agencies are continuing 

to evaluate certain other proposed 

revisions in light of the comments 

received thereon and will not 

implement these revisions on their 

proposed effective dates. 

DATES: Comments must be submitted on 

or before February 27, 2009. 

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 

regs.comments@occ.treas.gov. 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: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments 

on the http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 

• FAX: 202–452–3819 or 202–452– 

3102. 

• 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 

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 


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1 In addition, on November 26, 2008, OMB 

approved the agencies’ emergency clearance 

requests to add two items to Call Report Schedule 

RC–O, Other Data for Deposit Insurance and FICO 

Assessments, effective December 31, 2008, that are 

applicable to all banks participating in the FDIC’s 

Transaction Account Guarantee Program. A 

participating bank must report the amount and 

number of its noninterest-bearing transaction 

accounts, as defined in the FDIC’s regulations 

governing the program, of more than $250,000 in 

Schedule RC–O, Memorandum items 4.a and 4.b. 

The FDIC will use this information to calculate 

assessments for participants in the Transaction 

Account Guarantee Program. Because OMB’s 

approval of the agencies’ emergency clearance 

request expires on May 31, 2009, the agencies 

proposed on December 23, 2008, under OMB’s 

normal clearance procedures to collect these two 

items each quarter until the Transaction Account 

Guarantee Program ends. See 73 FR 78794. 

Reports of Condition and Income, 3064– 

0052,’’ by any of the following methods: 

• Agency Web Site: http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html. Follow the instructions 

for submitting comments on the FDIC 

Web site. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: comments@FDIC.gov. 

Include ‘‘Consolidated Reports of 

Condition and Income, 3064–0052’’ in 

the subject line of the message. 

• Mail: Herbert J. Messite (202–898– 

6834), Counsel, Attn: Comments, Room 

F–1052, Federal Deposit Insurance 

Corporation, 550 17th Street, NW., 

Washington, DC 20429. 

• 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. 

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. 

Comments may be inspected at the FDIC 

Public Information Center, Room E– 

1002, 3501 Fairfax Drive, Arlington, VA 

22226, between 9 a.m. and 5 p.m. on 

business days. 

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 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 forprofit. 

OCC: 

OMB Number: 1557–0081. 

Estimated Number of Respondents: 

1,620 national banks. 

Estimated Time per Response: 46.76 

burden hours. 

Estimated Total Annual Burden: 

303,027 burden hours. 

Board: 

OMB Number: 7100–0036. 

Estimated Number of Respondents: 

877 state member banks. 

Estimated Time per Response: 53.30 

burden hours. 

Estimated Total Annual Burden: 

186,976 burden hours. 

FDIC: 

OMB Number: 3064–0052. 

Estimated Number of Respondents: 

5,110 insured state nonmember banks. 

Estimated Time per Response: 37.36 

burden hours. 

Estimated Total Annual Burden: 

763,638 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 offsite 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 

On September 23, 2008, the agencies 

requested comment on proposed 

revisions to the Call Report (73 FR 

54807). The agencies proposed to 

implement the proposed changes to the 

Call Report requirements on a phasedin basis during 2009. A limited group of 

changes were proposed to take effect 

March 31, 2009; most revisions were 

proposed to take effect June 30, 2009; 

and a final group of revisions applicable 

only to trust institutions that complete 

the Call Report’s Fiduciary and Related 

Services schedule were proposed to take 

effect December 31, 2009.1

The Call Report, as it has been 

proposed to be revised, will better 

support the agencies’ surveillance and 

supervision of individual banks and 

enhance their monitoring of the 

industry’s condition and performance. 

The proposed revisions reflected a 

thorough and careful review of the 

agencies’ data needs in a variety of areas 

as banks encountered the most turbulent 

environment in more than a decade. 

Thus, the proposed revisions included 

new items that focus on areas in which 

the banking industry has faced 

heightened risk as a result of market 


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2One bank that is a member of this bankers’ 

organization referred to the organization’s comment 

letter and appeared to concur with the 

organization’s comments, but also addressed one 

aspect of the agencies’ proposal on which the 

bankers’ organization did not specifically comment. 

3See 12 U.S.C. 1831n(a). 

4The organization also recommended that 

‘‘reciprocal deposit’’ be defined as a deposit 

‘‘obtained when an insured depository institution 

exchanges funds, dollar-for-dollar, with members of 

a network of other insured depository institutions, 

where each member of the network sets the interest 

rate to be paid on the entire amount of funds it 

places with other network members, and all funds 

placed through the network are fully insured by the 

FDIC.’’ 

5 73 FR 61560, October 16, 2008. 

6See section II.C on unused commitments, 

section III.D on past due and nonaccrual trading 

assets, and the portion of section III.E addressing 

the present value of unpaid premiums on sold 

credit protection. 

turmoil and illiquidity and weakening 

economic and credit conditions. Where 

possible, the agencies sought to 

establish reporting thresholds for 

proposed new items. Other proposed 

new items would be relevant to only a 

small percentage of banks. 

The agencies collectively received 

comments from seven respondents: Two 

banks, one bank holding company, three 

bankers’ organizations, and a bank 

insurance consultant. None of these 

commenters specifically addressed all of 

the aspects of the proposal. Rather, 

individual respondents commented 

upon one or more of the proposed Call 

Report changes. In two cases, 

commenters brought up reporting 

matters that were not addressed in the 

agencies’ proposal. The following is a 

summary of the general comments 

received on the proposed Call Report 

revisions. Sections II, III, and IV of this 

notice identify the changes proposed to 

take effect March 31, June 30, and 

December 31, 2009, respectively; 

discuss the agencies’ evaluation of the 

comments received on the proposed 

changes that the FFIEC and the agencies 

have decided to implement, as 

modified; and describe the proposed 

Call Report revisions that remain under 

review by the FFIEC and the agencies. 

One bankers’ organization stated that 

it believed that the proposed revisions 

would provide additional information 

that would be useful to the agencies’ 

assessment of risk. This organization 

expressed general agreement, on 

balance, with the proposed revisions, 

but also offered several suggested 

changes for the agencies’ consideration.2

Another bankers’ organization indicated 

its understanding of the agencies’ need 

for more information on certain types of 

loans currently under stress, but noted 

that the proposed revisions would 

require many community banks to 

submit significantly more data in the 

Call Report. This organization hoped 

that the increased staff time that would 

be needed to provide the proposed Call 

Report data would be offset by a 

reduction in on-site examination time 

through examiners’ use of these data to 

better focus their examination priorities. 

In this regard, the agencies’ intent in 

proposing the revisions to the Call 

Report was to enhance their riskfocused supervision, both from an offsite and an on-site perspective. The 

third bankers’ organization commented 

on the amount of lead time necessary for 

institutions to implement systems 

changes to enable them to provide the 

requested additional data, 

recommending a minimum of three 

months between the agencies’ 

publication of final revisions in the 

Federal Register and the effective date 

of the reporting changes. 

Two commenters submitted 

comments on reporting issues that were 

not addressed in the agencies’ Call 

Report proposal. One bank holding 

company sent a copy of separate 

correspondence that it had previously 

sent to three organizations suggesting a 

suspension of the accounting rules for 

other-than-temporary impairments on 

investment securities. By law, the 

accounting principles applicable to the 

Call Report must be consistent with or, 

if certain conditions are met, no less 

stringent than generally accepted 

accounting principles.3 Therefore, the 

suggested suspension of accounting 

rules cannot be implemented for Call 

Report purposes. 

One bankers’ organization 

recommended that the Call Report be 

revised to require ‘‘reciprocal 

deposits’’ 4 to be reported separately 

from brokered deposits. This bankers’ 

organization also commented on the 

reporting of certain sweep accounts 

from other institutions, including 

affiliated institutions, in the Call Report. 

The impetus for the bankers’ 

organization’s comments about the 

reporting of these two types of deposits 

was a Notice of Proposed Rulemaking 

(NPR) on which the FDIC was 

simultaneously requesting comment 

concerning amendments to its deposit 

insurance assessment regulations (12 

CFR part 327).5 In the NPR, the FDIC 

proposed to alter the way in which it 

differentiates for risk in the risk-based 

assessment system; revise deposit 

insurance assessment rates, including 

base assessment rates; and make 

technical and other changes to the rules 

governing the risk-based assessment 

system. In its comment letter to the 

agencies on the proposed Call Report 

revisions, the bankers’ organization 

observed that the Call Report may need 

to be revised depending on the FDIC’s 

decisions on the treatment of these 

accounts for deposit insurance 

assessment purposes. Accordingly, the 

FFIEC and the agencies will monitor the 

outcome of the FDIC’s rulemaking for 

assessments and the need for new Call 

Report data items for reciprocal deposits 

and certain sweep accounts to support 

any modifications that the FDIC makes 

in its risk-based assessment system in a 

final rule. In this regard, as proposed by 

the FDIC, these modifications would 

take effect April 1, 2009, which means 

that any new reporting requirements to 

provide data for the FDIC’s risk-based 

assessment system would need to be in 

place June 30, 2009. 

After considering the comments 

received on the proposal, the FFIEC and 

the agencies will move forward with 

most of the reporting changes, with 

limited modifications in response to 

certain comments, on the phased-in 

basis that had been proposed. The 

FFIEC and the agencies are continuing 

to evaluate certain other proposed 

revisions in light of the comments 

received thereon and will not 

implement these revisions on their 

proposed effective dates.6

The agencies recognize institutions’ 

need for lead time to prepare for 

reporting changes, which led them to 

propose the phased-in implementation 

schedule for 2009. The Call Report 

items that will be new or revised 

effective March 31, 2009, are limited in 

number and all but one are linked to 

changes in generally accepted 

accounting principles taking effect at 

the same time. For the March 31, 2009, 

report date, 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. This same policy 

on the use of reasonable estimates will 

apply to the reporting of other new or 

revised items when they are first 

implemented effective June 30 and 

December 31, 2009. In addition, the 

specific wording of the captions for the 

new or revised Call Report data items 

discussed in this notice and the 

numbering of these data items should be 

regarded as preliminary. 

Type of Review: Revision of currently 

approved collections. 

II. Call Report Revisions Proposed for 

March 2009 

The agencies received no comments 

on the following two revisions that were 

proposed to take effect as of March 31, 


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7This change in accounting treatment does not 

apply to acquired held-for-investment 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 03–3). 

2009, and therefore these revisions will 

be implemented as proposed: 

• Revisions to several Call Report 

schedules in response to accounting 

changes applicable to noncontrolling 

(minority) interests in consolidated 

subsidiaries; and 

• The addition of a new item to be 

reported annually on the bank’s fiscal 

year-end date. 

The agencies received one or more 

comments addressing each of the 

following proposed March 31, 2009, 

revisions: 

• 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; 

• Clarifications of the definition of 

the term ‘‘loan secured by real estate’’ 

and of the instructions for reporting 

unused commitments; 

• Exemptions from reporting certain 

existing Call Report items for banks 

with less than $1 billion in total assets; 

• Instructional guidance on 

quantifying misstatements in the Call 

Report; and 

• The elimination of confidential 

treatment for data collected on fiduciary 

income, expenses, and losses. 

The comments related to each of these 

proposed revisions are discussed below 

along with the agencies’ response to 

these comments. 

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. Compared to 

current accounting practice, FAS 141(R) 

significantly changes the accounting for 

those loans and leases acquired in 

business combinations that will be held 

for investment.7 In response to this 

accounting change, the agencies 

proposed to add new items to the Call 

Report loan and lease schedule 

(Schedule RC–C, part I) that would 

mirror the acquisition-date disclosures 

required by FAS 141(R). These new 

items would disclose the following 

information for four categories of loans 

(not subject to SOP 03–3) and leases that 

were acquired in each business 

combination that occurred during the 

year-to-date reporting period: 

• The fair value of the loans and 

leases; 

• The gross contractual amounts 

receivable; and 

• The best estimate at the acquisition 

date of the contractual cash flows not 

expected to be collected. 

The four categories of acquired heldfor-investment loans (not subject to SOP 

03–3) and leases are: 

• Loans secured by real estate; 

• Commercial and industrial loans; 

• Loans to individuals for household, 

family, and other personal expenditures; 

and 

• All other loans and all leases. 

These new items will 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 

acquisition date data would not be 

reported in years after the year in which 

the acquisition occurs. 

One bankers’ organization stated that 

it concurred with the agencies’ proposal 

to require these additional disclosures 

for loans (not subject to SOP 03–3) and 

leases acquired in business 

combinations that occurred during the 

reporting period. No other commenter 

addressed these proposed additional 

disclosures. Accordingly, the agencies 

will implement these items in the 

March 31, 2009, Call Report, as 

proposed. 

In their proposal, the agencies also 

stated that they were considering 

whether banks that have engaged in 

FAS 141(R) business combinations 

should provide additional information 

in the Call Report (beyond the 

disclosures described above) about 

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 

proposal stated that the additional items 

under consideration included the 

outstanding balance of these acquired 

loans and leases, their carrying amount, 

and the amount of allowances for postacquisition credit losses on these loans 

and leases. The agencies indicated that 

this information would help them as 

well as other Call Report users to track 

management’s judgments regarding the 

collectability 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. The agencies 

requested comment on the merits and 

availability of these post-acquisition 

loan and lease data and the period of 

time after a business combination that 

this information should be reported. 

Two bankers’ organizations 

commented on these additional loan 

and lease disclosures. One organization 

did not specifically address the merits 

of this information, stating only that if 

banks were required to report these 

additional data, they should report it 

only through the end of the calendar 

year of the business combination. The 

second organization agreed with the 

first organization concerning the 

reporting period for these additional 

data. However, this organization also 

stated its belief that the post-acquisition 

data on acquired loans and leases would 

often not be available because acquired 

performing loans and leases would tend 

to be combined with, rather than 

segregated from, a bank’s other 

performing loans and leases. 

After considering these comments, the 

agencies have decided for the time being 

not to add items to the Call Report for 

the outstanding balance of held-forinvestment loans (not subject to SOP 

03–3) and leases acquired in FAS 141(R) 

business combinations, their carrying 

amount, and the amount of allowances 

for post-acquisition credit losses on 

these loans and leases. The agencies 

will continue to monitor accounting and 

disclosure practices with respect to 

these acquired loans and leases and 

their post-acquisition allowances and 

assess their data needs in this area. Any 

future revisions to the Call Report to 

collect data on acquired loans and 

leases and post-acquisition allowances 

will be subject to notice and comment. 

B. 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 


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5032 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

8On the FFIEC 041 report, banks with less than 

$1 billion in assets are currently exempt from 

completing these Memorandum items. 

schedule (Schedule RC–C) and other 

schedules of the Call Report that collect 

loan data. As a result, the agencies 

proposed 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 would apply this clarified 

definition prospectively and they need 

not reevaluate and recategorize loans 

that they currently report as loans 

secured by real estate into other loan 

categories on the Call Report loan 

schedule. 

One bankers’ organization stated that 

it believes that the proposed definition 

of a ‘‘loan secured by real estate’’ is 

workable and provides additional 

clarity. One bank submitted examples 

involving loans with real estate as 

collateral and asked how they would be 

reported based on the revised definition. 

The agencies will implement the 

clarified definition of ‘‘loan secured by 

real estate’’ as proposed but, in response 

to this latter comment, they will add 

examples to the definition to assist 

banks in understanding how it should 

be applied. 

C. 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 proposed to revise the 

instructions for Schedule RC–L, item 1, 

‘‘Unused commitments,’’ to more clearly 

and completely explain the 

arrangements that should be reported in 

this item. 

All three bankers’ organizations 

submitting comments on the proposed 

Call Report revisions specifically 

addressed the proposed instructional 

clarification pertaining to unused 

commitments. One organization agreed 

that clarification is needed, but 

recommended that commitments to 

issue a commitment in the future, 

including those entered into even 

though the related loan agreement has 

not yet been signed, should be removed 

from the list of types of arrangements 

that the instructions would direct banks 

to report as unused commitments. The 

other two bankers’ organizations also 

commented on the inclusion of this type 

of arrangement as an unused 

commitment. One organization 

expressed concern about reporting 

‘‘commitments that contain a relatively 

high level of uncertainty until a loan 

agreement has been signed or the loan 

has been funded with a first advance’’ 

and the reliability of data on such 

commitments. The other organization 

stated that because some banks do not 

have systems for tracking such 

arrangements, the instructions should in 

effect permit banks to exclude 

commitment letters with an expiration 

date of 90 days or less. Finally, the first 

bankers’ organization also 

recommended that the instructions for 

reporting unused commitments should 

state that amounts conveyed or 

participated to others that the conveying 

or participating bank is not obligated to 

fund should not be reported as unused 

commitments by the conveying or 

participating bank. 

The agencies are continuing to 

evaluate these commenters’ 

recommendations. As a consequence, 

the agencies will not revise the 

instructions for Schedule RC–L, item 1, 

‘‘Unused commitments,’’ effective 

March 31, 2009, as proposed and the 

existing instructions for this Schedule 

RC–L item will remain in effect. Once 

the agencies conclude their 

deliberations on these recommendations 

and determine whether and how to 

revise the instructions for reporting 

‘‘Unused commitments’’ in Schedule 

RC–L, item 1, they will publish their 

conclusions in a separate Federal 

Register notice and submit them to 

OMB for review and approval. If the 

instructions to Schedule RC–L, item 1, 

are revised, the clarifications to these 

instructions would take effect no earlier 

than December 31, 2009. 

D. 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 proposed to 

exempt such banks from completing the 

following Call Report items effective 

March 31, 2009: 

• Schedule RI, Memorandum item 2, 

‘‘Income from the sale and servicing of 

mutual funds and annuities (in 

domestic offices)’’; 

• Schedule RC–B, Memorandum 

items 5.a through 5.f, ‘‘Asset-backed 

securities,’’ on the FFIEC 031 report; 8

• Schedule RC–L, item 2.a, ‘‘Amount 

of financial standby letters of credit 

conveyed to others’’; and 

• Schedule RC–L, item 3.a, ‘‘Amount 

of performance standby letters of credit 

conveyed to others.’’ 

One commenter, a bank insurance 

consultant, objected to the agencies’ 

proposal to exempt banks with less than 

$1 billion in total assets from reporting 

Schedule RI, Memorandum item 2, 

‘‘Income from the sale and servicing of 

mutual funds and annuities (in 

domestic offices),’’ stating that this item 

should be preserved in all bank Call 

Reports. This commenter also stated 

that the agencies had not explained how 

they had determined that the collection 

of this Call Report item from banks in 

this size range is of lesser usefulness. 

This commenter added that by 

eliminating the reporting of this income 

information for these banks, ‘‘we will 

lose our sole window into community 

banks’ mutual fund and annuity 

activities.’’ 

Memorandum item 2 was added to 

Schedule RI of the Call Report in 1994. 

At that time, the agencies collected 

limited information on banks’ 

noninterest income. However, since 

2001, the agencies have significantly 

expanded the amount of detailed 

information they collect on noninterest 

income in recognition of the increasing 

importance of such income to banks’ 

earnings. As a result, all banks, 

regardless of size, currently report the 

amount of ‘‘Fees and commissions from 

securities brokerage’’ and ‘‘Fees and 

commissions from annuity sales’’ in 

Schedule RI, items 5.d.(1) and 5.d.(3), 

each quarter. Item 5.d.(1) specifically 

includes a bank’s income from the sale 

and servicing of mutual funds. Thus, in 

general, the income that a bank reports 

in Schedule RI, Memorandum item 2, 

will have been included in these two 

noninterest income items in the body of 

Schedule RI. However, although the 

bank insurance consultant stated that as 

of ‘‘June 30, 2008, more banks with less 

than $1 billion in assets reported mutual 

fund and annuity income’’ in 

Memorandum item 2 than reported 

eight other types of noninterest income 

in the body of Schedule RI,’’ the 

consultant did not provide comparative 


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9SAB 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. 

10According to SAB 108, 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.’’ 

11SAB 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. 

data for the number of such banks 

reporting ‘‘Fees and commissions from 

securities brokerage’’ or ‘‘Fees and 

commissions from annuity sales.’’ 

In addition, the agencies will 

continue to use the Call Report to 

identify banks that sell private label or 

third party mutual funds and annuities 

(Schedule RC–M, item 6) as well as 

banks managing assets held in 

proprietary mutual funds and annuities 

(Schedule RC–M, item 7). Furthermore, 

Call Report users within the agencies 

have indicated that Memorandum item 

2 on ‘‘Income from the sale and 

servicing of mutual funds and 

annuities’’ is regarded as being of lesser 

usefulness than the noninterest income 

items with which it overlaps (items 

5.d.(1) and 5.d.(3) of Schedule RI). 

Accordingly, after considering the views 

expressed by the bank insurance 

consultant, the agencies have reaffirmed 

that the existing Call Report income 

statement items for ‘‘Fees and 

commissions from securities brokerage’’ 

and ‘‘Fees and commissions from 

annuity sales’’ are sufficient to meet 

their ongoing needs for income data on 

these types of activities from banks with 

less than $1 billion in total assets and 

that such banks should be exempt from 

separately reporting ‘‘Income from the 

sale and servicing of mutual funds and 

annuities’’ beginning March 31, 2009. 

The agencies received no comments 

specifically addressing the other Call 

Report items for which they proposed to 

exempt banks with less than $1 billion 

in assets from continued reporting and 

will implement these exemptions as of 

March 31, 2009, as proposed. 

E. Quantifying Misstatements in the Call 

Report 

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 FASB Statement 

No. 154, Accounting Changes and Error 

Corrections (FAS 154). However, neither 

FAS 154 nor the Glossary entry for 

‘‘Accounting Changes’’ specifies the 

appropriate method to quantify an error 

or misstatement for purposes of 

evaluating materiality. 

In September 2006, the SEC staff 

issued Staff Accounting Bulletin No. 

108, Considering the Effects of Prior 

Year Misstatements when Quantifying 

Misstatements in Current Year Financial 

Statements (SAB 108),9 which 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 10 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).11 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. 

The agencies believe that the 

guidance in SAB 108 and SAB 99 

represents sound accounting practices 

that all banks 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 proposed to 

incorporate the guidance in these two 

Staff Accounting Bulletins into the 

section of the ‘‘Accounting Changes’’ 

Glossary entry on error corrections. 

One banking organization supported 

the agencies’ proposal for quantifying 

misstatements in the Call Report 

because it would provide a uniform 

approach for dealing with 

misstatements. The agencies will 

implement this instructional change as 

proposed. 

F. 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 their fiduciary and related services 

expenses and losses annually as of yearend. 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. 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 


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5034 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

12 Institutions with total fiduciary assets greater 

than $100 million as of the preceding December 31 

and institutions with gross fiduciary and related 

services income greater than 10 percent of revenue 

for the preceding calendar year are required to 

report fiduciary income data quarterly or annually, 

depending on their assets and income, and 

fiduciary expense and loss data annually in 

Schedule RC–T. 

and related services income, expense, 

and loss information because these data 

generally pertain to only a portion of a 

reporting institution’s total operations 

and not to the institution as a whole. 

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 proposed 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. 

One bankers’ organization opposed 

eliminating the confidential treatment of 

fiduciary income, expense, and loss 

data, stating that the agencies’ original 

reason for according confidential 

treatment to these data, i.e., that these 

data generally pertain to only a portion 

of a reporting institution’s total 

operations and not to the institution as 

a whole, still holds true. This 

commenter also cited significant 

competitive concerns with the proposed 

elimination of confidential treatment 

because making income, expense, and 

loss data publicly available ‘‘may make 

it possible for competitors to deduce’’ 

an individual institution’s fee 

schedules. In addition, the bankers’ 

organization believed that these 

publicly disclosed data may be subject 

to misinterpretation by market 

participants who would lack a proper 

understanding of the scope of the 

income, expense, and loss data reported 

in Schedule RC–T because fiduciary 

income and expenses are presented 

differently in institutions’ audited 

financial statements prepared in 

accordance with GAAP. Therefore, this 

commenter believes that institutions’ 

financial statements can satisfy market 

participants’ needs for fiduciary income, 

expense, and loss data. Finally, this 

commenter stated that market 

participants may be confused or misled 

by the fiduciary expense and loss 

information because they would be 

unable to determine the source or 

specific fiduciary activity giving rise to 

the expense or loss. 

Although the fiduciary income, 

expense, and loss data currently 

reported in Schedule RC–T and afforded 

confidential treatment apply only to a 

portion of an institution rather than an 

entire institution, all other income and 

expense data collected in the Call 

Report is publicly available, even when 

the data relates only to portions of an 

institution’s activities. As previously 

mentioned, components of net income 

attributable to foreign offices are 

reported by banks with significant 

foreign activities and made publicly 

available. In addition, banks with 

significant trading activities have 

reported a publicly available year-todate breakdown of the revenues 

generated by the trading portion of their 

activities, which discloses the net gains 

(losses) by type of exposure each 

quarter. The agencies believe that the 

likelihood that competing institutions 

will be able to deduce an individual 

institution’s fee schedule for its 

fiduciary services from the fiduciary 

income data reported in Schedule RC– 

T is largely mitigated by the fact that, in 

general, as noted above, only larger trust 

institutions are required to report 

fiduciary income, expense, and loss 

data.12 Smaller trust institutions are not 

required to report such data. Therefore, 

smaller trust institutions whose fee 

schedules for fiduciary services may 

potentially be more likely to be able to 

be deduced by competitors are not 

subject to the risk of unintended 

disclosure of their fee schedules. 

The agencies also believe that the risk 

of misinterpretation of the fiduciary 

income, expense, and loss data is 

substantially reduced by the FFIEC’s 

publication of detailed instructions for 

the preparation of Schedule RC–T, 

which are available to users of this 

schedule to assist them in 

understanding the scope of the reported 

fiduciary and related services data. 

Moreover, possible confusion about the 

source of losses is mitigated by the 

currently required reporting in 

Memorandum item 4 of Schedule RC–T 

of a breakdown of losses by type of 

fiduciary account, which is further 

segregated between managed and nonmanaged accounts. Finally, the Optional 

Narrative Statement section of the Call 

Report affords the management of trust 

institutions the ability to submit 

publicly available explanatory 

comments concerning their fiduciary 

income, expense, and losses. 

Thus, the agencies continue to believe 

that the benefit of increased 

transparency from the full disclosure of 

fiduciary income, expense, and loss data 

will improve market discipline by 

enhancing the market’s ability to assess 

institution-specific performance and 

risks. After carefully considering the 

comments on the public availability of 

fiduciary income, expense, and loss data 

reported in Schedule RC–T, the agencies 

are adopting the proposal to eliminate 

the confidential treatment of such data 

beginning with the data reported as of 

March 31, 2009. 

III. Call Report Revisions Proposed for 

June 2009 

The agencies received no comments 

on the following revisions that were 

proposed to take effect as of June 30, 

2009, and therefore these revisions will 

be implemented as proposed: 

• Holdings of collateralized debt 

obligations and other structured 

financial products by type of product 

and underlying collateral; 

• Holdings of commercial mortgagebacked securities; 

• Unused commitments with an 

original maturity of one year or less to 


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13 71 FR 74580, December 12, 2006. 

asset-backed commercial paper 

conduits; 

• Pledged loans and pledged trading 

assets; 

• Collateral held against over-thecounter (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); 

• Investments in real estate ventures; 

• Held-to-maturity and available-forsale securities in domestic offices (for 

banks that have both domestic and 

foreign offices); and 

• 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 agencies received one or more 

comments addressing each of the 

following proposed June 30, 2009, 

revisions: 

• 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); 

• 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); 

• Remaining maturities of unsecured 

other borrowings and subordinated 

notes and debentures; 

• Past due and nonaccrual trading 

assets; and 

• Credit derivatives by credit quality 

and remaining maturity and by 

regulatory capital treatment. 

The comments related to each of these 

proposed revisions are discussed below 

along with the agencies’ response to 

these comments. 

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).13 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. 

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 

C&D 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 have been 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 

proposed 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. 

One bank expressed agreement with 

the agencies’ concerns about the 

disguising of problems with a 

borrower’s willingness and ability to 

repay the debt consistent with the terms 

and conditions of the loan agreement 

through the improper use of interest 

reserves on C&D loans. The bank also 

acknowledged that real estate market 

conditions have weakened in its market 

area since the agencies issued their CRE 

Guidance in December 2006. Although 

the bank stated that it has a 

concentration of C&D loans, as defined 

above, it reported that a recent review 

of its portfolio revealed that only a 

modest number of its C&D loan 

agreements included interest reserves. 

The bank also described its lending 

policies and controls over the approval 

of interest reserves in the original 

underwriting of a C&D loan and in the 

limited cases when the original loan had 

matured or was otherwise recast. It then 

stated that both the bank lender and its 

supervisory agency should focus their 

attention—and any regulatory reporting 

requirements—on situations when 

interest reserves are added to a loan 

after a development project is 

completed or ‘‘when a project goes over 

budget or otherwise has completion 


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5036 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

14 73 FR 61560, October 16, 2008. 

issues.’’ With respect to the two 

proposed items pertaining to C&D loans 

with interest reserves, the bank noted 

that its loan system does not currently 

capture the required data and adding 

this capability to the loan system by the 

proposed June 30, 2009, effective date 

would likely be difficult, which would 

mean that the data would have to be 

compiled manually until system 

changes are in place. 

In its comments, the bank concurred 

with the agencies’ statement that the 

practice of including interest reserves as 

part of the original underwriting of a 

C&D loan is common. Although this 

bank may have a modest number of C&D 

loans with interest reserves and states 

that it controls the use of such reserves, 

the agencies remain concerned about 

the inappropriate capitalization of 

interest on C&D loans through the use 

of interest reserves. Potentially 

inappropriate interest capitalization is 

not limited to situations where interest 

reserves are added to a C&D loan after 

its originally scheduled maturity date or 

in connection with a restructuring of the 

loan. Inappropriate interest income 

recognition may also occur when 

budgeted interest reserves that were 

determined to be appropriate at the 

inception of the loan based on a 

project’s original development and sale 

or lease-up plans continue to be used 

after construction has been substantially 

curtailed or has ceased and collection of 

all principal and interest on the loan is 

in doubt. In addition, a bank may loosen 

its policies and controls over the 

recognition of interest income on C&D 

loans through the use of interest 

reserves. 

The agencies acknowledge that at 

some banks with C&D loan 

concentrations, only a limited portion of 

such loans may provide for the use of 

interest reserves. Nevertheless, the 

agencies believe that all banks with 

such concentrations should report the 

proposed data on loans with interest 

reserves to enable them to monitor this 

lending activity and detect changes in 

the extent to which such banks’ C&D 

loans provide for the use of interest 

reserves. As noted above, the new and 

existing C&D loan data will also assist 

in identifying banks whose use of 

interest reserves may warrant 

supervisory follow-up. Accordingly, 

after considering the bank’s comment, 

the agencies have decided to implement 

the proposed new items for the amount 

of C&D loans with interest reserves and 

the amount of capitalized interest 

included in income for the quarter as of 

June 30, 2009, as proposed. Banks with 

C&D loan concentrations are reminded 

that they are permitted to report 

reasonable estimates for these two 

amounts in the June 30, 2009, Call 

Report, which will provide them with 

additional flexibility in making any 

necessary systems changes. Finally, 

banks with C&D loan concentrations 

may choose to provide explanatory 

comments about their C&D loans with 

interest reserves in the Optional 

Narrative Statement section of the Call 

Report and these comments will be 

publicly available. 

B. Fair Value Measurements 

Effective March 31, 2007, 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 proposed to expand the data 

collected on Schedule RC–Q in two 

material respects. 

• First, the agencies proposed to 

expand the detail on Schedule RC–Q to 

(1) 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, (2) add 

totals to capture total assets and total 

liabilities for items reported on the 

schedule, (3) 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 and loan 

commitments), and (4) add separate 

disclosures for those components of 

‘‘other assets’’ and ‘‘other liabilities’’ 

greater than $25,000 and exceeding 25 

percent of the total fair value of ‘‘other 

assets’’ and ‘‘other liabilities,’’ 

respectively. 

• Second, the agencies proposed 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 while retaining the schedule’s 

current applicability to all banks that (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. 

One bankers’ organization commented 

that ‘‘[c]ommunity banks have long been 

concerned about the application of fair 

value accounting to their financial 

statements’’ and urged the agencies to 

use the increased data to be collected in 

Schedule RC–Q ‘‘to carefully study the 

impact of this controversial accounting 

methodology’’ because it ‘‘often does 

not reflect the reality of community 

banking.’’ In proposing the revisions to 

Schedule RC–Q, the agencies stated that 

additional data will enable them to 

more accurately assess the impact of fair 

value accounting and fair value 

measurements for safety and soundness 

purposes. This objective is consistent 

with the recommendation from this 

bankers’ organization concerning the 

manner in which the agencies should 

use these fair value data. Thus, the 

agencies will implement the revisions to 

Schedule RC–Q effective June 30, 2009, 

as proposed. 

C. 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. 

At the time the agencies issued their 

proposed revisions to the Call Report in 

2008, the FDIC was considering 

proposing an adjustment to the riskbased assessment system so that insured 

depository institutions with greater 

amounts of general unsecured long-term 

liabilities will be rewarded with a lower 

assessment rate. The FDIC has since 

issued proposed amendments to its riskbased assessment system that include an 

unsecured debt adjustment that would 

lower an institution’s base assessment 

rate.14

Because the Call Reports lack 

information regarding the remaining 


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maturities of unsecured ‘‘other 

borrowings’’ and subordinated notes 

and debentures, the agencies proposed 

to collect this information in the Call 

Report so that the FDIC would be able 

to implement an unsecured debt 

adjustment. One bankers’ organization 

expressed support for the proposed 

collection of this information to 

facilitate this risk-based assessment 

adjustment, indicating that the reporting 

of this additional data ‘‘would be 

reasonable and would not be unduly 

burdensome.’’ The agencies will 

implement the new items for reporting 

data on the remaining maturities of 

unsecured other borrowings and 

subordinated debt beginning June 30, 

2009, as proposed. 

D. Trading Assets That Are Past Due or 

in Nonaccrual Status 

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 proposed 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 

would allow the agencies to better 

assess the quality of assets held for 

trading purposes, and generally enhance 

surveillance and examination planning 

efforts. 

The agencies also proposed 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 was intended to 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. 

One bankers’ organization stated that 

it believed that disclosure requirements 

regarding the delinquency and 

nonaccrual status of trading securities is 

not particularly meaningful given that 

these securities are marked to market 

through earnings. As a consequence, 

credit risk is already incorporated into 

the market price of each trading 

security. The organization further stated 

that the nonaccrual concept 

traditionally has not been applied to 

trading securities, which makes the 

proposed reporting of such data costly 

and difficult to implement. Accordingly, 

this commenter recommended against 

adding the proposed disclosure 

requirements regarding the delinquency 

and nonaccrual status of trading 

securities. 

The agencies are continuing to 

evaluate this commenter’s 

recommendation. Therefore, the 

agencies will not implement the 

revisions to Schedule RC–N, item 9, and 

Schedule RC–D, Memorandum item 3, 

effective June 30, 2009, as had been 

proposed. These items will remain in 

their current form while the agencies 

consider the proposed reporting changes 

in light of this banking organization’s 

comment. When the agencies conclude 

their deliberations on these proposed 

disclosure requirements and determine 

whether and how to proceed with them, 

they will publish their conclusions in a 

separate Federal Register notice and 

submit them to OMB for review and 

approval. If Schedule RC–N, item 9, and 

Schedule RC–D, Memorandum item 3, 

are revised, these reporting changes 

would take effect no earlier than 

December 31, 2009. 

E. 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, increased 

steadily through March 31, 2008, rising 

to an aggregate notional amount of $16.4 

trillion as of that date. The aggregate 

notional amount has since declined 

slightly. Call Report data further 

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 

understanding and assessing 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 

proposed 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 proposed 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 proposed 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 proposed to collect the 

notional amount of sold protection and 

the amount of purchased protection. For 

all other credit derivatives, the agencies 

proposed 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. 

The agencies also proposed 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 

proposed to change the scope of 

Memorandum item 6, ‘‘Past due interest 

rate, foreign exchange rate, and other 

commodity and equity contracts,’’ to 


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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 

proposed 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 proposed 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 

proposed 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. 

No comments were received on any of 

the agencies’ proposed reporting 

revisions pertaining to credit derivatives 

described above, except for a comment 

from a bankers’ organization on the 

proposal to collect data on Schedule 

RC–R relating to the present value of 

unpaid premiums on sold credit 

protection that is defined as a covered 

position under the market risk capital 

guidelines. Accordingly, the agencies 

will implement all of the proposed 

credit derivative reporting changes— 

other than the proposed new Schedule 

RC–R items for present value data—as of 

June 30, 2009, as proposed. With respect 

to the present value data, the bankers’ 

organization requested that the agencies 

clarify the impact of this proposed 

reporting requirement on a bank’s riskbased capital calculations. The agencies 

are continuing to consider this comment 

and the proposed collection of present 

value data for certain credit derivatives. 

Therefore, the agencies will not add 

Memorandum items 3.a and 3.b to 

Schedule RC–R to collect this present 

value information effective June 30, 

2009, as had been proposed. When the 

agencies conclude their deliberations on 

the bankers’ organization’s comment 

and the proposed present value data 

items, they will publish their 

conclusions in a separate Federal 

Register notice and submit any new 

reporting requirements to OMB for 

review and approval. If Memorandum 

items 3.a and 3.b are added to Schedule 

RC–R, this new reporting requirement 

would take effect no earlier than 

December 31, 2009. 

IV. Discussion of Revisions Proposed for 

December 2009 

Schedule RC–T, Fiduciary and 

Related Services, collects data on: 

• Fiduciary and related assets by type 

of fiduciary account, with the amount of 

assets and number of accounts reported 

separately for managed and nonmanaged accounts; 

• Fiduciary and related services 

income by type of fiduciary account and 

expenses, including fiduciary 

settlements, surcharges, and other losses 

by type of fiduciary account; 

• Managed assets held in personal 

trust and agency accounts by type of 

asset; 

• Corporate trust and agency 

accounts; and 

• 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. 

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. 

The agencies have monitored 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. 

Accordingly, the agencies proposed to 

implement revisions to Schedule RC–T 

as of December 31, 2009, that would 

affect the types of fiduciary accounts for 

which fiduciary assets and income are 

reported and the types of assets and 

fiduciary accounts for which managed 

assets are reported. The agencies also 

proposed to collect data on debt issues 

in default under corporate trusteeships. 

One bankers’ organization submitted 

comments on the proposed changes to 

Schedule RC–T. This commenter 

requested that the effective date for the 

proposed changes to Schedule RC–T be 

extended from December 31, 2009, to 

December 31, 2010, in order to provide 

vendors whose systems track the data 

reported in this schedule additional 

time for system programming revisions. 

The bankers’ organization indicated that 

vendors are currently devoting 

programming resources to changes 

necessitated by the joint Securities and 

Exchange Commission and Federal 

Reserve Board Regulation R— 

Exceptions for Banks from the 

Definition of Broker in the Securities 

Exchange Act of 1934. This commenter 

also stated that some banks use multiple 

systems to track the default status of 

debt issues under corporate trusteeships 

and that moving to a single system of 

record for tracking these debt issues 

would impose significant costs and 

require a longer implementation period 

than proposed. 

After carefully considering this 

organization’s comment, the agencies 

have decided to retain the December 31, 

2009, effective date for the proposed 

changes. The agencies are not requiring 

that trust institutions change from their 

use of multiple systems for corporate 

trusteeships or that they develop a 

single system of record for such 

trusteeships. In addition, the agencies 

note that banks are to start complying 

with Regulation R beginning the first 

day of their fiscal year commencing 

after September 30, 2008 (i.e., January 1, 

2009, for most institutions), which 

implies that programming changes 

should be complete or nearing 

completion. Furthermore, as previously 

stated, the agencies’ policy is to permit 


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banks to provide reasonable estimates 

for any new or revised Call Report item 

as of the report date for which the new 

or revised item is initially required to be 

reported. The ability to report 

reasonable estimates applies to the 

Schedule RC–T revisions that will be 

implemented as of December 31, 2009, 

which will afford trust institutions and 

their vendors additional time—either 

one quarter or one year, depending on 

the item and the frequency with which 

a particular institution must submit 

Schedule RC–T—to complete any 

necessary systems changes. 

The agencies received no comments 

on the following revisions to Schedule 

RC–T that were proposed to take effect 

as of December 31, 2009, and therefore 

these revisions will be implemented as 

proposed: 

• 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; 

• Expanding the breakdown of 

managed assets by type of asset to cover 

all types of fiduciary accounts; and 

• Adding items for the market value 

of discretionary investments in 

proprietary mutual funds and the 

number of managed accounts holding 

such investments. 

The agencies received comments from 

one bankers’ organization addressing 

each of the following other proposed 

revisions to Schedule RC–T: 

• Adding items for Individual 

Retirement Accounts (IRAs), Health 

Savings Accounts (HSAs), and similar 

accounts included in fiduciary and 

related assets; 

• 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 and 

adding new asset types to this 

breakdown of managed assets; and 

• Adding items for the number and 

principal amount outstanding of debt 

issues in substantive default for which 

the institution serves as indenture 

trustee. 

The comments related to each of these 

proposed revisions are discussed below 

along with the agencies’ response to 

these comments. 

A. IRAs, HSAs, and Other Similar 

Accounts 

IRAs, HSAs, and other similar 

accounts represent a large category of 

individual benefit and retirementrelated accounts administered by trust 

institutions for which the agencies do 

not collect specific data. At present, 

data for retirement-related accounts is 

included in the totals reported for 

‘‘Other retirement accounts’’ and 

‘‘Custody and safekeeping accounts’’ in 

the Fiduciary and Related Assets section 

of Schedule RC–T (items 5.c and 10). 

Significant growth in IRAs and HSAs 

administered by trust institutions is 

expected. IRAs, HSAs, and other similar 

accounts for individuals have risk 

characteristics that differ from employee 

benefit plans covered by the Employee 

Retirement Income Security Act. To 

identify trust institutions experiencing 

significant changes in the number of 

and market value of assets in these types 

of accounts for supervisory follow-up 

and to monitor both aggregate and 

individual trust institution growth 

trends involving these accounts, the 

agencies proposed to add a new item 13 

to the Fiduciary and Related Assets 

section of Schedule RC–T to capture 

data on IRAs, HSAs, and other similar 

accounts included in recaptioned item 

5.c, ‘‘Other employee benefit and other 

retirement-related accounts’’ and 

renumbered item 11, ‘‘Custody and 

safekeeping accounts.’’ 

In its comment on this change, the 

bankers’ organization recommended 

that the data proposed to be reported in 

new item 13, ‘‘Individual Retirement 

Accounts, Health Savings Accounts, and 

other similar accounts,’’ should be 

reported instead in a new separate 

subitem of recaptioned item 5, 

‘‘Employee benefit and retirementrelated trust and agency accounts,’’ in 

the Fiduciary and Related Assets section 

of Schedule RC–T. In addition, the 

commenter requested clarification of 

how IRA, HSA, and other similar 

accounts held outside the trust 

department and in the retail side of an 

institution should be reported in 

Schedule RC–T, recommending that 

these accounts be excluded from 

Schedule RC–T. 

At present, IRAs, HSAs, and similar 

accounts that are solely custody and 

safekeeping accounts are reported in 

existing item 10, ‘‘Custody and 

safekeeping accounts.’’ Custody and 

safekeeping accounts are not considered 

fiduciary accounts per se and are 

excluded from ‘‘Total fiduciary 

accounts’’ reported in item 9 of 

Schedule RC–T. For this reason, the 

agencies do not believe that IRAs, HSAs, 

and similar accounts should be 

aggregated and reported in a new 

subitem of item 5, ‘‘Employee benefit 

and retirement-related trust and agency 

accounts,’’ which is reserved for 

fiduciary accounts. Therefore, the 

agencies are implementing new item 13, 

‘‘Individual Retirement Accounts, 

Health Savings Accounts, and other 

similar accounts,’’ as proposed. 

Regarding the reporting of IRAs, 

HSAs, and other similar accounts 

maintained outside the trust department 

and in the retail side of the institution, 

the agencies reiterate that only those 

activities offered through a fiduciary 

business unit should be reported in 

Schedule RC–T. Therefore, IRAs, HSAs, 

and other similar accounts not offered 

through a fiduciary business unit of an 

institution should not be reported in 

Schedule RC–T. 

B. Changes to the Types of Assets 

Reported in the Breakdown of Managed 

Assets Held in Fiduciary Accounts by 

Asset Type 

The agencies reviewed the types of 

managed assets for which trust 

institutions currently report a 

breakdown of such assets by market 

value in Memorandum item 1 of 

Schedule RC–T. In this regard, 

discretionary investments in common 

trust funds (CTFs) and collective 

investment funds (CIFs) are not 

separately reported at present in 

Memorandum item 1. Instead, trust 

institutions currently 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 current method of reporting 

investments in CTFs and CIFs to be 

misleading, confusing, and burdensome 

for trust institutions. It 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 proposed 

to end the current method of reporting 

these investments in Memorandum item 

1 by adding a new Memorandum item 

1.h for investments in CTFs and CIFs. 

This new asset type would 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. 

In its comment on this proposed 

change, the bankers’ organization asked 

whether both the accounts holding units 

in CTFs and CIFs and the CTFs and CIFs 

themselves should be reported in the 

Fiduciary and Related Assets section of 

Schedule RC–T and whether double 

counting of CTF and CIF units and CTFs 

and CIFs will result. The agencies note 

that only the value of units in CTFs and 

CIFs held in fiduciary accounts should 


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be reported in the Fiduciary and Related 

Assets section of RC–T. When such 

units are held by a managed fiduciary 

account, the value of the units will be 

reported in new Memorandum item 1.h. 

Look-through reporting of the 

underlying assets of CTFs and CIFs in 

Memorandum item 1 is being 

eliminated. Double counting of CTF and 

CIF assets will be avoided by limiting 

the reporting of the underlying assets of 

CTFs and CIFs to existing Memorandum 

item 3, ‘‘Collective investment funds 

and common trust funds,’’ in Schedule 

RC–T. 

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 proposed to add two new 

subitems 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. None of 

the comments the agencies received 

specifically addressed the proposed new 

subitems for mutual funds in 

Memorandum item 1, which the 

agencies will implement as proposed. 

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 

of investments in order to increase 

portfolio returns and pursue absolute 

return strategies. As mentioned above, 

these types of investments are currently 

reported as ‘‘common and preferred 

stocks’’ in Memorandum item 1. 

However, given their unique 

characteristics and risks, the increasing 

role such investments are having in 

managed fiduciary portfolios, and the 

agencies’ need to monitor the volume of 

these investments across the trust 

industry and at individual trust 

institutions, the agencies also proposed 

to modify Memorandum item 1 by 

adding a new subitem in which trust 

institutions would report investments in 

unregistered funds and private equity 

held in managed accounts. As proposed, 

these investments first would have been 

reported in the subitem for investments 

in common and preferred stocks, which 

is a component of Memorandum item 

1.o, ‘‘Total managed assets held in 

fiduciary accounts,’’ but then these 

investments would have been separately 

disclosed in new Memorandum item 1.p 

of Schedule RC–T. 

In its comment letter, the bankers’ 

organization suggested that investments 

in unregistered funds and private equity 

and investments in common and 

preferred stocks be reported as separate 

components of ‘‘Total managed assets 

held in fiduciary accounts,’’ which 

would eliminate the need for the former 

type of investments to be included in 

two subitems of Memorandum item 1 of 

Schedule RC–T. The agencies agree with 

this suggestion and are revising 

Memorandum item 1 to exclude 

investments in unregistered funds and 

private equity from the subitem for 

investments in common and preferred 

stocks. Instead, each type of investment 

will be reported as a separate 

component of ‘‘Total managed assets 

held in fiduciary accounts,’’ with the 

subitems within Memorandum item 1 

renumbered accordingly. 

The bankers’ organization also 

requested that the agencies clarify the 

definition of ‘‘private equity 

investments’’ for purposes of reporting 

such investments within Memorandum 

item 1 of Schedule RC–T and explain 

whether investments in closely-held 

family businesses should be reported as 

‘‘private equity investments.’’ In 

general, for the purposes of 

Memorandum item 1, private equity 

investments is an asset class consisting 

of purchased equity securities in 

operating companies that are not 

publicly traded on a stock exchange or 

otherwise registered with the SEC under 

federal securities laws. Investments in 

closely-held family businesses, 

however, would not be reported as 

‘‘private equity investments’’ if such 

investments represented in-kind 

transfers to a fiduciary account of 

securities in a closely-held family 

business or an increase in a fiduciary 

account’s percentage ownership of an 

existing closely-held family business 

whose securities are held in the 

account. Such investments in closelyheld family businesses would be 

reported in the subitem for 

miscellaneous assets within 

Memorandum item 1 of Schedule RC–T. 

C. 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, files for bankruptcy, 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. 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 proposed 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 its comment letter, the bankers’ 

organization suggested clarifications to 

the scope of the proposed new reporting 

requirements for debt securities in 

substantive default for which an 

institution is serving as indenture 

trustee. The commenter recommended 

that the term ‘‘substantive default’’ 

should mean that an event of default for 

an issue of securities has actually been 

declared by the trustee with notice to 

investors. In addition, the bankers’ 

organization recommended that events 

of default should include both technical 

and payment defaults. This commenter 

also proposed that issues in a cure 

period should not be reported as being 

in substantive default, and, in the case 

of private placement leases, no 

substantive default should be reported 

when the trustee is required to delay or 

waive the declaration of an event of 

default unless requested to do so in 

writing and no such request has been 

made. The commenter further suggested 

that, once the trustee’s duty with respect 

to a defaulted issue is completed, the 

issue no longer should be reported as 

defaulted. Finally, the commenter 

requested that the agencies confirm that 

‘‘amount outstanding’’ means the 

unpaid principal balance or certificate 

balance. 

After carefully considering these 

recommendations, the agencies agree 

that issues should not be reported as 


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Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 5041 

being in substantive default until such 

default has been declared by the trustee. 

Similarly, issues should not be reported 

as being in substantive default during a 

cure period, provided the bond 

indenture provides for a cure period. 

Private placement leases where the 

trustee is required to delay or waive the 

declaration of an event of default, unless 

requested in writing to make such 

declaration, should not be reported as 

being in substantive default, provided 

such written request has not been made. 

Once a trustee’s duties with respect to 

an issue in substantive default have 

been completed, the issue should no 

longer be reported as being in default. 

As for the meaning of the term ‘‘amount 

outstanding,’’ the instructions for 

Memorandum item 2 of Schedule RC–T 

currently refer to the par value of 

outstanding debt securities, except for 

zero-coupon bonds for which ‘‘amount 

outstanding’’ is described as the 

maturity amount. As suggested by the 

commenter, the instructions for 

Memorandum item 2 will be revised to 

clarify that ‘‘amount outstanding’’ for 

debt instruments means the unpaid 

principal balance. For trust preferred 

securities, the ‘‘amount outstanding’’ 

would be the redemption price. 

The agencies, however, have decided 

not to treat events of technical default 

as falling within the scope of the 

proposed new Memorandum item 

2.a.(1) on debt issues in default for 

which the institution serves as trustee. 

As previously stated, the agencies 

believe that 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 intensely scrutinized by 

bondholders of the defaulted issue. 

Moreover, an event of substantive 

default often results in the incurrence of 

significant expense and the distraction 

of managerial time. For these reasons, 

the agencies proposed to collect data on 

substantive defaults on issues for which 

the reporting trust institution serves as 

trustee under a bond indenture. The 

agencies do not believe that events of 

technical default necessarily entail the 

heightened degree of risk that 

substantive defaults do. Therefore, the 

agencies do not consider it necessary to 

monitor such events on a system-wide 

basis. The agencies will continue to 

monitor the occurrence of events of 

technical default and an institution’s 

administration of such events during 

periodic on-site examinations. 

In addition, the agencies proposed 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. 

No comments were received on this 

aspect of the corporate trust reporting 

proposal and the agencies will 

implement this instructional change as 

proposed. 

F. Instructional Clarifications 

The agencies proposed to clarify the 

instructions for reporting: 

• The managed and non-managed 

assets and number of managed and nonmanaged accounts for defined 

contribution plans and defined benefit 

plans in items 5.a and 5.b of Schedule 

RC–T, respectively, by indicating that 

employee benefit accounts for which the 

trust institution serves as a directed 

trustee should be reported as nonmanaged accounts; and 

• The number of, and market value of 

assets held in, collective investment 

funds and common trust funds in 

Memorandum item 3 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. 

No comments were received on these 

proposed instructional clarifications, 

which will be implemented as 

proposed. 

However, the bankers’ organization 

requested clarification of the term 

‘‘managed assets’’ as used in Schedule 

RC–T. The organization asked whether 

discretionary accounts in which the 

management of all or a portion of the 

account is delegated to a registered 

investment advisor, whether affiliated 

or unaffiliated with the reporting trust 

institution, should be considered 

managed or non-managed assets. The 

organization also sought clarification as 

to whether non-discretionary accounts 

that are managed by a registered 

investment advisor would be reported 

as custody or non-managed accounts. 

The current instructions for Schedule 

RC–T state that an account is considered 

managed if the institution has 

investment discretion over the assets of 

the account. Investment discretion is 

defined as the sole or shared authority 

(whether or not that authority is 

exercised) to determine what securities 

or other assets to purchase or sell on 

behalf of a fiduciary related account. An 

institution that delegates its authority 

over investments and an institution that 

receives delegated authority over 

investments are both deemed to have 

investment discretion. Therefore, 

whether an account where investment 

discretion has been delegated to a 

registered investment adviser, whether 

affiliated or unaffiliated with the 

reporting institution, should be reported 

as a managed account depends on 

whether the delegation of investment 

authority to the registered investment 

adviser was made pursuant to the 

exercise of investment discretion by the 

reporting institution. If so, the account 

is deemed to be a managed account by 

the reporting institution. Otherwise, the 

account would be a non-managed 

account for purposes of Schedule RC–T. 

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: January 22, 2009. 

Stuart E. Feldstein, 

Assistant Director, Legislative and Regulatory 

Activities Division, Office of the Comptroller 

of the Currency. 

Board of Governors of the Federal Reserve 

System, January 22, 2009. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, this 22nd day of 

January, 2009. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. E9–1734 Filed 1–27–09; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P 


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