[Federal Register Volume 73, Number 220 (Thursday, November 13, 2008)]
[Notices]
[Pages 67159-67173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-26916]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Proposed Agency Information Collection Activities; Comment
Request
AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY:
Background
On June 15, 1984, the Office of Management and Budget (OMB)
delegated to the Board of Governors of the Federal Reserve System
(Board) its approval authority under the Paperwork Reduction Act (PRA),
as per 5 CFR 1320.16, to approve of and assign OMB control numbers to
collection of information requests and requirements conducted or
sponsored by the Board under conditions set forth in 5 CFR 1320
Appendix A.1. Board-approved collections of information are
incorporated into the official OMB inventory of currently approved
collections of information. Copies of the Paperwork Reduction Act
Submission, supporting statements and approved collection of
information instruments are placed into OMB's public docket files. The
Federal Reserve may not conduct or sponsor, and the respondent is not
required to respond to, an information collection that has been
extended, revised, or implemented on or after October 1, 1995, unless
it displays a currently valid OMB control number.
Request for Comment on Information Collection Proposals
The following information collections, which are being handled
under this delegated authority, have received initial Board approval
and are hereby published for comment. At the end of the comment period,
the proposed information collections, along with an analysis of
comments and recommendations received, will be submitted to the Board
for final approval under OMB delegated authority. Comments are invited
on the following:
a. Whether the proposed collection of information is necessary for
the proper performance of the Federal Reserve's functions; including
whether the information has practical utility;
b. The accuracy of the Federal Reserve's estimate of the burden of
the proposed information collection, including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected; and
d. Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
DATES: Comments must be submitted on or before January 12, 2009.
ADDRESSES: You may submit comments, identified by FR Y-9C, FR Y-9SP, FR
Y-11, FR 2314, FR Y-7N, FR 2886b, and FR Y-8, by any of the following
methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. 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 http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form 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.
[[Page 67160]]
Additionally, commenters should send a copy of their comments to
the OMB Desk Officer 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: A copy of the PRA OMB submission
including, the proposed reporting form and instructions, supporting
statement, and other documentation will be placed into OMB's public
docket files, once approved. These documents will also be made
available on the Federal Reserve Board's public Web site at: http://www.federalreserve.gov/boarddocs/reportforms/review.cfm or may be
requested from the agency clearance officer, whose name appears below.
Michelle Shore, Federal Reserve Board Clearance Officer (202-452-
3829), Division of Research and Statistics, Board of Governors of the
Federal Reserve System, Washington, DC 20551. Telecommunications Device
for the Deaf (TDD) users may contact (202-263-4869), Board of Governors
of the Federal Reserve System, Washington, DC 20551.
Proposal To Approve Under OMB Delegated Authority the Revision, Without
Extension, of the Following Reports
1. Report title: Consolidated Financial Statements for Bank Holding
Companies, Parent Company Only Financial Statements for Small Bank
Holding Companies.
Agency form number: FR Y-9C, FR Y-9SP.
OMB control number: 7100-0128.
Frequency: FR Y-9C: quarterly; FR Y-9SP: semi-annually.
Reporters: Bank holding companies.
Annual reporting hours: FR Y-9C: 162,602; FR Y-9SP: 48,254.
Estimated average hours per response: FR Y-9C: 41.65; FR Y-9SP:
5.40.
Number of respondents: FR Y-9C: 976; FR Y-9SP: 4,468.
General description of report: This information collection is
mandatory (12 U.S.C. 1844(c)). Confidential treatment is not routinely
given to the data in these reports. However, confidential treatment for
the reporting information, in whole or in part, can be requested in
accordance with the instructions to the form, pursuant to sections
(b)(4), (b)(6) and (b)(8) of the Freedom of Information Act (5 U.S.C.
552(b)(4), (b)(6) and (b)(8)).
Abstract: The FR Y-9C and FR Y-9SP are standardized financial
statements for the consolidated bank holding company (BHC) and its
parent. The FR Y-9 family of reports historically has been, and
continues to be, the primary source of financial information on BHCs
between on-site inspections. Financial information from these reports
is used to detect emerging financial problems, to review performance
and conduct pre-inspection analysis, to monitor and evaluate capital
adequacy, to evaluate BHC mergers and acquisitions, and to analyze a
BHC's overall financial condition to ensure safe and sound operations.
The FR Y-9C consists of standardized financial statements similar
to the Federal Financial Institutions Examination Council (FFIEC)
Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031
& 041; OMB No. 7100-0036) filed by commercial banks. The FR Y-9C
collects consolidated data from BHCs. The FR Y-9C is filed by top-tier
BHCs with total consolidated assets of $500 million or more. (Under
certain circumstances defined in the General Instructions, BHCs under
$500 million may be required to file the FR Y-9C.)
The FR Y-9SP is a parent company only financial statement filed by
smaller BHCs. Respondents include BHCs with total consolidated assets
of less than $500 million. This form is a simplified or abbreviated
version of the more extensive parent company only financial statement
for large BHCs (FR Y-9LP). This report is designed to obtain basic
balance sheet and income information for the parent company,
information on intangible assets, and information on intercompany
transactions.
Current Actions: The Federal Reserve proposes to implement a number
of changes to the FR Y-9C and FR Y-9SP reporting requirements to better
support the surveillance and supervision of individual BHCs and enhance
the monitoring of the industry's condition and performance. The
proposed revisions reflect a thorough and careful review of data needs
in a variety of areas as BHCs encounter the most turbulent environment
in more than a decade. Thus, the revisions include new data items
focusing on areas in which the banking industry is facing heightened
risk due to market turmoil and illiquidity and weakening economic and
credit conditions. Also, the Federal Reserve proposes certain revisions
due to changes in accounting standards and amendments to regulatory
capital requirements. To minimize reporting burden, where possible, the
Federal Reserve has sought to establish reporting thresholds for
proposed new data items.
The Federal Reserve proposes the following revisions to the FR Y-9C
effective March 31, 2009: (1) New data items and revisions to existing
data items on trading assets and liabilities, (2) new data items
associated with the U.S. Department of the Treasury (Treasury) Capital
Purchase Program (CPP), (3) new data items and revisions to existing
data items on regulatory capital requirements, (4) new data items
providing information on held-for-investment loans and leases acquired
in business combinations, (5) new data items and revisions to several
data items applicable to noncontrolling (minority) interests in
consolidated subsidiaries, (6) clarification of the definition of loans
secured by real estate, (7) clarification of the instructions for
reporting unused commitments, (8) exemptions from reporting certain
existing data items for BHCs with less than $1 billion in total assets,
and (9) instructional guidance on quantifying misstatements.
The Federal Reserve proposes the following revisions to the FR Y-9C
effective June 30, 2009: (1) New data items for real estate
construction and development loans (for BHCs with construction and
development loan concentrations), (2) new data items and deletion of
existing items for holdings of collateralized debt obligations and
other structured financial products, (3) new data items and revisions
to existing data items for holdings of commercial mortgage-backed
securities, (4) new data items and revisions to existing data items for
unused commitments with an original maturity of one year or less to
asset-backed commercial paper conduits, (5) new data items and
revisions to existing data items for fair value measurements by level
for asset and liability categories reported at fair value on a
recurring basis, (6) new data items for pledged loans and pledged
trading assets, (7) new data items for collateral held against over-
the-counter (OTC) derivative exposures (for BHCs with $10 billion or
more in total assets), (8) new data items and revisions and deletions
of existing data items for investments in real estate ventures, (9) new
data items and revisions to existing data items for past due and
nonaccrual trading assets, and (10) new data items and revisions to
existing data items for credit derivatives.
The Federal Reserve proposes to modify the FR Y-9SP to also collect
new data items associated with the Treasury's Capital Purchase Program
(CPP). The proposed changes would be effective as of June 30, 2009.
[[Page 67161]]
Proposed Revisions--FR Y-9C
A. Proposed Revisions Not Related to Call Report Revisions
The Federal Reserve proposes to make the following revisions to the
FR Y-9C effective as of March 31, 2009, which are unrelated to the
revisions proposed to the Call Report.
A.1 Revisions to Information Collected on Schedule HC-D, Trading Assets
and Liabilities
BHCs report the fair value of liabilities resulting from sales of
assets that the BHC does not own (short selling or short positions) in
Schedule HC-D, data item 13.a, Liability for short positions. Since
2000, the total liability for short positions reported by FR Y-9C
respondents has increased approximately 123 percent to over $325
billion as of March 31, 2008. This data item also comprises over half
of total trading liabilities reported on the FR Y-9C. To appropriately
assess the safety and soundness of BHCs that participate in short
selling activity and to better monitor the specific risk exposures
associated with the type of assets that are sold short, the Federal
Reserve proposes to break out data item 13.a into three new categories:
13.a.(1) Equity securities; 13.a.(2) Debt securities; and 13.a.(3) All
other assets.
Since 2000, the aggregate amount of Other trading assets in
domestic offices reported in Schedule HC-D, data item 9, has increased
approximately 108 percent to over $120 billion as of March 31, 2008.
The Federal Reserve believes that a significant component of this
amount is commodity contracts and physical commodities held for
trading. The gross positive fair value of commodity and other contracts
(other than interest rate, foreign exchange and equity derivative
contracts) held for trading has grown from less than $14 billion as of
year-end 2001 to over $85 billion as of March 31, 2008. Furthermore,
BHCs have recently been given regulatory approval to engage in the
trading of physical commodities held in inventory. Because of the
volatility of the assets underlying these commodity contracts and the
risk associated with the trading of these types of assets, the Federal
Reserve proposes to add new memorandum item 9.a.(1), Gross fair value
of commodity contracts, and new memorandum item 9.a.(2), Gross fair
value of physical commodities held in inventory. These memoranda items
would be completed by BHCs that reported average trading assets of $1
billion or more in any of the four preceding quarters.
Current memoranda items 9.a, 9.b, and 9.c, providing a description
of and the fair value of any type of trading asset that is greater than
$25,000 and exceeds 25 percent of the amount reported in Schedule HC-D,
data item 9, Other trading assets would be renumbered as 9.b.(1),
9.b.(2), and 9.b.(3). In addition, the Federal Reserve proposes to
exclude the reporting of the fair value of commodities from renumbered
memorandum item 9.b. The Federal Reserve also proposes to modify the
reporting criteria for renumbered memorandum item 9.b to provide a
description of and the fair value of any type of trading asset that is
greater than $25,000 and exceeds 25 percent of Schedule HC-D, data item
9, less Schedule HC-D, new memorandum item 9.a.
A.2 Proposed Revisions to Schedule HC-M, Memoranda
On October 14, 2008, the Secretary of the Treasury announced a
program to provide capital to eligible financial institutions,
including BHCs. Under the CPP, the Treasury will provide capital to
participating BHCs by purchasing newly issued senior perpetual
preferred stock of the bank holding company. This perpetual preferred
stock will be senior to the BHCs common stock and on par with the
issuer's existing preferred shares. All such senior perpetual preferred
stock issued by BHCs will provide for cumulative dividends.\1\ The
senior perpetual preferred stock may be included without limit in the
tier 1 capital of BHCs. In conjunction with the purchase of senior
perpetual preferred stock, the Treasury will receive warrants to
purchase common stock with an aggregate market price equal to 15
percent of the senior preferred investment.
---------------------------------------------------------------------------
\1\ For a discussion of the terms and conditions of the CPP, see
the Board's press release dated October 16, 2008, and the attachment
to this press release.
---------------------------------------------------------------------------
In order to monitor the scope of the CPP, including associated
warrants issued, and to ascertain the impact on BHCs tier 1 capital,
the Federal Reserve proposes to add two data items to Schedule HC-M,
Memoranda. The Federal Reserve proposes to add new data item 24 with
the heading ``Issuances associated with the U.S. Department of Treasury
Capital Purchase Program:'' with a breakout for data item 24.a,
``Senior perpetual preferred stock or similar items,'' and 24.b,
``Warrants to purchase common stock or similar items.'' BHCs would
report the carrying amount of these instruments in data items 24.a and
24.b. The Federal Reserve proposes to add the phrase ``or similar
items'' to each of these data items in order to provide greater
flexibility to collect information related to this program as details
of the program develop further.
A.3 Proposed Revisions to Schedule HC-R, Regulatory Capital
On March 10, 2005, the Federal Reserve amended its risk-based
capital standards for BHC's to allow the continued inclusion of
outstanding and prospective issuances of trust preferred securities in
the tier 1 capital of BHCs (subject to stricter quantitative limits and
qualitative standards). The Federal Reserve also revised the
quantitative limits applied to the aggregate amount of qualifying
cumulative perpetual preferred stock, qualifying trust preferred
securities, and Class B \2\ and Class C \3\ minority interest
(collectively, qualifying restricted core capital elements) included in
the tier 1 capital of BHCs. These new quantitative limits become
effective on March 31, 2009.
---------------------------------------------------------------------------
\2\ Class B minority interest is related to qualifying
cumulative perpetual preferred stock directly issued by a
consolidated U.S. depository institution or foreign bank subsidiary.
\3\ Class C minority interest is related to qualifying common
stockholders' equity or perpetual preferred stock issued by a
consolidated subsidiary that is neither a U.S. depository
institution nor a foreign bank.
---------------------------------------------------------------------------
The aggregate amount of restricted core capital elements that may
be included in the tier 1 capital of a BHC must not exceed 25 percent
of the sum of all core capital elements (qualifying common
stockholders' equity, qualifying noncumulative perpetual preferred
stock including related surplus, Class A minority interest,\4\ and
restricted core capital elements), less goodwill net of any associated
deferred tax liability.\5\ Stated differently, the aggregate amount of
restricted core capital elements is limited to one-third of the sum of
unrestricted core capital elements (for example, common stockholders'
equity, noncumulative perpetual preferred stock, and Class A minority
interest), less goodwill net of any associated deferred tax liability.
In addition, the aggregate amount of restricted core capital elements
(other than qualifying mandatory convertible preferred securities \6\)
that may be
[[Page 67162]]
included in the tier 1 capital of an internationally active BHC \7\
must not exceed 15 percent of the sum of all core capital elements,
including restricted core capital elements, net of goodwill less any
associated deferred tax liability. Amounts of restricted core capital
elements in excess of these limits generally may be included in tier 2
capital. The excess amounts of restricted core capital elements that
are in the form of Class C minority interest and qualifying trust
preferred securities are subject to further limitation within tier 2
capital, as discussed below.
---------------------------------------------------------------------------
\4\ Class A minority interest is defined as common stockholders'
equity of a consolidated subsidiary that is a U.S. depository
institution or a foreign bank.
\5\ Algebraically this may be expressed as A-(B-C) where A
represents all core capital elements, B represents goodwill, and C
represents any deferred tax liability associated with goodwill.
\6\ Qualifying mandatory convertible preferred securities
generally consist of the joint issuance by a BHC to investors of
trust preferred securities and a forward purchase contract, which
the investors fully collateralize with the securities, that
obligates the investors to purchase a fixed amount of the BHC's
stock, generally within three years.
\7\ For this purpose, an internationally active BHC is a BHC
that (1) as of its most recent year-end FR Y-9C, reports total
consolidated assets equal to $250 billion or more or (2) on a
consolidated basis, reports total on-balance-sheet foreign exposure
of $10 billion or more on its most recent year-end FFIEC 009 Country
Exposure Report.
---------------------------------------------------------------------------
In the last five years before the maturity of the junior
subordinated note held by the trust, the outstanding amount of the
associated trust preferred securities is excluded from tier 1 capital
and included in tier 2 capital, where the trust preferred securities
are subject to certain amortization provisions and quantitative
restrictions as if the trust preferred securities were limited-life
preferred stock. As a limited-life capital instrument approaches
maturity, it begins to take on characteristics of a short-term
obligation. For this reason, the outstanding amount of term
subordinated debt and limited-life preferred stock eligible for
inclusion in tier 2 capital is reduced, or discounted, as these
instruments approach maturity: One-fifth of the outstanding amount is
excluded each year during the instrument's last five years before
maturity. When remaining maturity is less than one year, the instrument
is excluded from tier 2 capital.
The aggregate amount of term subordinated debt and limited-life
preferred stock as well as, beginning March 31, 2009, qualifying trust
preferred securities and Class C minority interest in excess of the
amounts includable in tier 1 capital (previously described) may be
included in tier 2 capital up to an aggregate amount of 50 percent of
tier 1 capital. Amounts of these instruments in excess of this limit,
although not included in tier 2 capital, will be taken into account by
the Federal Reserve in its overall assessment of a BHC's funding and
financial condition.
Currently some components of qualifying restricted core capital
elements (numerator to the ratio calculated to compare to the limit)
and of qualifying core capital elements (denominator to the ratio
calculated to compare to the limit) cannot be separately identified in
data items reported on the FR Y-9C. For example, mandatorily
convertible preferred securities are not separately reported but are
includible in the tier 1 of internationally active BHCs above the 15
percent limit up to the generally applicable 25 percent limit, while
they are included in the 25 percent limit (both numerator and
denominator) for other BHCs. Furthermore, Class A, B, and C minority
interest are not separately reported on the current FR Y-9C report.
However, in computing compliance with the March 31, 2009, standard,
Class A minority interest is an unrestricted core capital element,
while Class B and C minority interest are restricted core capital
elements. Finally, the amount of goodwill deducted in computing
applicable limits under the tier 1 components rule is reduced by the
amount of any associated deferred tax liability, while goodwill
reported on the FR Y-9C is not net of such deferred tax liability.
Therefore, the Federal Reserve proposes to revise certain data items in
Schedule HC-R, Regulatory Capital, collected for the calculation of
tier 1 and tier 2 capital and to collect new data items to identify the
components of restricted core capital included in tier 1 capital that
would allow for the determination of a BHC's compliance with the tier 1
limits placed on restricted core capital elements:
Change data item 6.a, Qualifying minority interests in
consolidated subsidiaries and similar items, to Qualifying Class A non-
controlling (minority) interests in consolidated subsidiaries.
Change data item 6.b, Qualifying trust preferred
securities, to Qualifying restricted core capital elements (other than
cumulative perpetual preferred).
Add new data item 6.c, Qualifying mandatory convertible
preferred securities of internationally active bank holding companies.
Change data item 8, Subtotal (sum of items 1, 6.a. and
6.b., less items 2, 3, 4, 5, 7.a. and 7.b.) to Subtotal (sum of items
1, 6.a., 6.b., and 6.c., less items 2, 3, 4, 5, 7.a., and 7.b.).
Change data item 12, Qualifying subordinated debt and
redeemable preferred stock, to Qualifying subordinated debt, redeemable
preferred stock, and restricted core capital elements not includible in
item 6.b. or 6.c.
Change data item 13, Cumulative perpetual preferred stock
includible in Tier 2 capital, to Cumulative perpetual preferred stock
not included in item 5 and Class B noncontrolling (minority) interest
not included in item 6.b., but includible in Tier 2 capital.
Add a new memoranda item 8, Restricted core capital
elements included in Tier 1 capital, with separate reporting of the
following new data items:
[cir] 8.a, Qualifying Class B non-controlling (minority) interest
(included in Schedule HC, item 27.b).
[cir] 8.b, Qualifying Class C non-controlling (minority) interest
(included in Schedule HC, item 27.b).
[cir] 8.c, Qualifying cumulative perpetual preferred stock
(included in Schedule HC, item 27.a).
[cir] 8.d, Qualifying trust preferred securities (included in
Schedule HC, item 19.b).
Delete current memoranda item 3.b, Preferred stock
(including related surplus) eligible for inclusion in Tier 1 capital:
Cumulative perpetual preferred stock (included and reported in Total
equity capital on Schedule HC).
Add new memoranda item 9, Goodwill net of any associated
deferred tax liability.
Add new memoranda item 10, Ratio of qualifying restricted
core capital elements to total core capital elements less (goodwill net
of any associated deferred tax liability). (This data item would be
reported as a percentage.)
Also, other Schedule HC-R instructions and examples found at the
end of the instructions to Schedule HC-R would be modified to reflect
the aforementioned changes.
B. Proposed Revisions Related to Call Report Revisions
The Federal Reserve proposes to make the following revisions to the
FR Y-9C, segregated into two groups, proposed for March 2009 and
proposed for June 2009, to parallel proposed changes to the Call
Report. BHCs have commented that changes should be made to the FR Y-9C
in a manner consistent with changes to the Call Report, and implemented
at the same time, to reduce reporting burden.
B.1 Revisions Proposed for March 2009
B.1.1 Loans and Leases Acquired in Business Combinations
BHCs 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
[[Page 67163]]
on or after December 15, 2008. Thus, for BHCs with calendar year fiscal
years, FAS 141(R) will apply to business combinations with acquisition
dates on or after January 1, 2009. Under FAS 141(R), all business
combinations are to be accounted for by applying the acquisition
method.
Under current generally accepted accounting principles, loans to be
held for investment that are acquired in a business combination
accounted for using the purchase method generally are recorded at
``present values of amounts to be received determined at appropriate
current interest rates, less allowances'' for loan and lease losses
(ALLL).\8\ Thus, in practice, an acquired entity's ALLL generally is
carried over to the acquiring BHC's (consolidated) balance sheet. In
contrast, under FAS 141(R), a BHC acquiring loans to be held for
investment in a business combination accounted for using the
acquisition method must record these loans at fair value. The fair
value of these loans incorporates assumptions regarding credit risk. As
a result, FAS 141(R) does not permit an acquiring BHC to carry over the
acquired entity's ALLL.
---------------------------------------------------------------------------
\8\ See Statement of Financial Accounting Standards No. 141,
Business Combinations (FAS 141), paragraph 57(b). This accounting
treatment does not apply to those acquired loans within the scope of
American Institute of Certified Public Accountants Statement of
Position 03-3, Accounting for Certain Loans or Debt Securities
Acquired in a Transfer (SOP 03-3).
---------------------------------------------------------------------------
Because of this significant change in the accounting for acquired
loans, paragraph 68(h) of FAS 141(R) requires the following disclosures
about the loans (not subject to SOP 03-3) and leases that were acquired
in each business combination that occurred during the reporting period:
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.
These disclosures are intended to assist users of financial
statements in understanding the credit quality and collectibility of
the acquired loans and leases at the time of their acquisition.
Accordingly, and in recognition of this significant change in
accounting practice for business combinations, the Federal Reserve
proposes to add new data items to the FR Y-9C that would encompass the
three disclosures related to the date of acquisition as required by FAS
141(R) cited above for the following categories of acquired held-for-
investment loans (not subject to SOP 03-3) and leases:
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 data items would be completed by BHCs that have engaged
in business combinations that must be accounted for in accordance with
FAS 141(R) for transactions for which the acquisition date is on or
after January 1, 2009. A BHC that has completed one or more business
combinations during the current calendar year would report these data
as they relate to the date of acquisition (as aggregate totals if
multiple business combinations have occurred) in each FR Y-9C report
submission after the acquisition date during that year.
The Federal Reserve is also considering whether BHCs that have
engaged in FAS 141(R) business combinations should provide additional
information in the FR Y-9C about the acquired held-for-investment loans
(not subject to SOP 03-3) and leases and the loss allowances
established for them in periods after their acquisition. The Federal
Reserve is considering requiring BHCs to report the outstanding balance
of these acquired loans and leases, their carrying amount, and the
amount of the allowance for post-acquisition losses on these loans and
leases. Such reporting would be consistent with the information that
BHCs currently report in the FR Y-9C about purchased impaired loans
accounted for in accordance with SOP 03-3. Since these purchased loans
will be recorded at fair value at acquisition, this information would
help the Federal Reserve and other users of the FR Y-9C to track
management's judgments regarding the collectibility of the acquired
loans and leases in periods after the acquisition date and evaluate
fluctuations in the level of the overall ALLL as a percentage of the
held-for-investment loan and lease portfolio in periods after a
business combination. However, the Federal Reserve recognizes that
information about acquired loans and leases and related allowances will
become less useful from an analytical standpoint with the passage of
time after a business combination.
The Federal Reserve asks for comment on the merits and availability
of the post-acquisition loan and lease data described above that are
being considered for possible addition to the FR Y-9C and the period of
time after a business combination this information should be reported
(e.g., through the end of the calendar year of the acquisition, through
the end of the calendar year after the year of the acquisition, for a
longer period, or for some other period such as the first four calendar
quarters after the acquisition).
B.1.2 Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the Financial Accounting Standards Board (FASB)
issued Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements (FAS 160). FAS 160 defines a noncontrolling
interest, also called a minority interest, as the portion of equity in
a BHC's subsidiary not attributable, directly or indirectly, to the
parent BHC. FAS 160 requires a BHC to clearly present in its
consolidated financial statements the equity ownership interest in and
the financial statement results of its subsidiaries that are
attributable to the noncontrolling ownership interests in these
subsidiaries. Under FAS 160, the ownership interests in subsidiaries
held by the noncontrolling interests must be clearly identified,
labeled, and presented in the consolidated balance sheet within equity
capital, but separate from the parent BHC's equity capital. FAS 160
also requires that the amount of consolidated net income attributable
to the BHC and to the noncontrolling interests in the BHC's
subsidiaries be clearly identified and presented on the face of the
consolidated income statement. In this regard, the consolidated income
statement will reflect the amount of the BHC's consolidated net income,
with separate data items then indicating the portions of the
consolidated net income attributable to the noncontrolling interests
and to the parent BHC.
The Federal Reserve proposes to make several changes to conform the
FR Y-9C to the presentation requirements of FAS 160. The Federal
Reserve proposes to amend Schedule HC, Balance Sheet, by replacing data
item 22, Minority interest in consolidated subsidiaries, which is
currently reported outside the Equity Capital section, with new data
item 27.b in the Equity Capital section for Noncontrolling (minority)
interests in consolidated subsidiaries. The Federal Reserve also
proposes to renumber and rename Schedule HC, data items 26 through 29
in the following manner:
Data Item 26.a, Retained earnings;
Data Item 26.b, Accumulated other comprehensive income;
Data Item 26.c, Other equity capital components;
Data Item 27.a, Total bank holding company equity capital
(sum of items 23 through 26.c);
[[Page 67164]]
Data Item 27.b, Noncontrolling (minority) interests in
consolidated subsidiaries;
Data Item 28, Total equity capital (sum of items 27.a and
27.b); and
Data Item 29, Total liabilities and equity capital (sum of
items 21 and 28).
The Federal Reserve also proposes to adjust certain captions in
Schedule HC-R, Regulatory Capital, to reflect these changes to the
Equity Capital section of the balance sheet and to conform to FAS 160.
Schedule HC-R, data item 1, Total equity capital (from Schedule HC,
item 28), would be renamed Total bank holding company equity capital
(from Schedule HC, item 27.a). Schedule HC-R, data item 6, Qualifying
minority interest in consolidated subsidiaries, would be renamed
Qualifying Class A noncontrolling (minority) interest in consolidated
subsidiaries.
Further, the Federal Reserve proposes to amend Schedule HI, Income
Statement, and Schedule HI-A, Changes in Equity Capital, to add or
revise data items to conform to FAS 160. Schedule HI, data item 10,
Minority interest, would be deleted and Schedule HI, data item 11,
Income (loss) before extraordinary items and other adjustments, would
be renumbered as data item 10. Schedule HI, data item 12, Extraordinary
items, net of applicable taxes and minority interest, would be
renumbered as data item 11, and renamed Extraordinary items and other
adjustments, net of income taxes. New data items 12, Net income (loss)
attributable to bank holding company and noncontrolling (minority)
interests (sum of items 10 and 11), and 13, Less: Net income (loss)
attributable to noncontrolling (minority) interests, would be added to
identify the entity's consolidated net income and segregate net income
attributable to noncontrolling interests. Current Schedule HI, data
item 13, Net income (loss) (sum of items 11 and 12), would be
renumbered as data item 14 and renamed Net income (loss) attributable
to bank holding company (item 12 minus item 13).
Schedule HI-A would be retitled Changes in Bank Holding Company
Equity Capital. In Schedule HI-A, the following changes would be made:
Current data item 1, Equity capital most recently reported
for the end of previous calendar year (that is, after adjustments from
amended Reports of Income), would be renamed Total bank holding company
equity capital most recently reported for the end of the previous
calendar year (i.e., after adjustments from amended Reports of Income);
Current data item 4, Net income (loss) (must equal
Schedule HI, item 13), would be renamed Net income (loss) attributable
to bank holding company (must equal Schedule HI, item 14); and
Current data item 15, Total equity capital end of current
period (sum of items 3, 4, 5, 6, 7, 9, 12, 13, and 14, less items 8,
10, and 11) (must equal item 28 on Schedule HC, Balance Sheet), would
be renamed Total bank holding company equity capital end of current
period (sum of items 3, 4, 5, 6, 7, 9, 12, 13, and 14, less items 8,
10, and 11) (must equal Schedule HC, item 27.a).
The instructions to Schedule HI-A, item 5, Sale of perpetual
preferred stock (excluding treasury stock transactions), and data item
6, Sale of common stock, would be amended to state that changes in BHC
equity capital resulting from changes in a BHC's ownership interest in
a subsidiary, while it retains its controlling financial interest in
the subsidiary, should be reported in these data items.
B.1.3 Clarification of the Definition of Loan Secured by Real Estate
The Federal Reserve has found that the definition of a loan secured
by real estate in the Glossary section of the FR Y-9C reporting
instructions has been interpreted differently by FR Y-9C report
preparers and users. This has led to inconsistent reporting of loans
collateralized by real estate in the loan schedule (Schedule HC-C) and
other schedules of the FR Y-9C report that collect loan data. As a
result, the Federal Reserve proposes 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. BHCs would apply this clarified definition prospectively and
they need not reevaluate nor recategorize loans that they currently
report as loans secured by real estate into other loan categories on
the loan schedule. See Attachment 2 for the revised definition of a
loan secured by real estate.
B.1.4 Clarification of Instructions for Unused Commitments
BHCs report unused commitments in Schedule HC-L, data item 1. The
instructions for this data item identify various arrangements that
should be reported as unused commitments, including but not limited to
commitments for which the BHC has charged a commitment fee or other
consideration, commitments that are legally binding, loan proceeds that
the BHC is obligated to advance, commitments to issue a commitment, and
revolving underwriting facilities. However, the Federal Reserve has
found that some BHCs 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 Federal
Reserve considers these arrangements to be within the scope of the
existing instructions for reporting commitments in Schedule HC-L, the
Federal Reserve believes that these instructions may not be
sufficiently clear. Therefore, the Federal Reserve proposes to revise
the instructions for Schedule HC-L, data item 1, Unused commitments.
See Attachment 2 for the revised instruction for Unused commitments.
B.1.5 Exemptions From Reporting for Certain Existing Data Items
The Federal Reserve has identified certain data items for which the
reported data are of lesser usefulness for BHCs with less than $1
billion in total assets. Accordingly, the Federal Reserve proposes to
exempt BHCs with less than $1 billion in total assets from completing
the following data items effective as of March 31, 2009 (these
exemptions are also being proposed to corresponding items on the Call
Report):
Schedule HI, Memorandum item 12.a, Income from the sale
and servicing of mutual funds and annuities (in domestic offices);
Schedule HC-L, data item 2.a, Amount of financial standby
letters of credit conveyed to others; and
Schedule HC-L, data item 3.a, Amount of performance
standby letters of credit conveyed to others.
B.1.6 Quantifying Misstatements
The General Instructions section of the FR Y-9C reporting
instructions discusses the filing of amended FR Y-9C reports. In this
regard, the instructions state that when the Federal Reserve's
interpretation of how GAAP or these instructions should be applied to a
specified event or transaction (or series of related events or
transactions) differs from the reporting bank holding company's
interpretation, the Federal Reserve may require the bank holding
company to reflect the event(s) or transaction(s) in its FR Y-9C report
in accordance with the Federal Reserve's interpretation and to amend
previously submitted reports. The Federal Reserve will consider the
materiality of such event(s) or transaction(s) in making a
determination about requiring the bank holding company to apply the
Federal Reserve's interpretation and to amend previously submitted
reports.
[[Page 67165]]
Materiality is a qualitative characteristic of accounting information
that is defined in Financial Accounting Standards Board (FASB) Concepts
Statement No. 2 as ``the magnitude of an omission or misstatement of
accounting information that, in the light of surrounding circumstances,
makes it probable that the judgment of a reasonable person relying on
the information would have been changed or influenced by the omission
or misstatement.''
FASB Statement No. 154, Accounting Changes and Error Corrections
(FAS 154), provides guidance for reporting the correction of an error
or misstatement in previously issued financial statements. An error or
misstatement can result from mathematical mistakes, mistakes in the
application of generally accepted accounting principles, or oversight
or misuse of facts that existed at the time the financial statements
were prepared, and includes a change from an accounting principle that
is not generally accepted to one that is generally accepted. The
Glossary entry for Accounting Changes in the FR Y-9C reporting
instructions includes a section on Corrections of Accounting Errors
that provides guidance on reporting such corrections that is consistent
with FAS 154. However, neither FAS 154 nor the Glossary entry for
Accounting Changes specifies the appropriate method to quantify an
error or misstatement for purposes of evaluating materiality.
In September 2006, the Securities and Exchange Commission (SEC)
noted in Staff Accounting Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108),\9\ that in describing the concept of
materiality, FASB Concepts Statement No. 2, Qualitative Characteristics
of Accounting Information, indicates that materiality determinations
are based on whether ``it is probable that the judgment of a reasonable
person relying upon the report would have been changed or influenced by
the inclusion or correction of the item'' (emphasis added). The staff
believes registrants must quantify the impact of correcting all
misstatements, including both the carryover and reversing effects of
prior year misstatements, on the current year financial statements.
---------------------------------------------------------------------------
\9\ SAB 108 can be accessed at http://www.sec.gov/interps/account/sab108.pdf. SAB 108 has been codified as Topic 1.N. in the
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------
SAB 108 describes two approaches, generally referred to as
``rollover'' and ``iron curtain,'' that have been commonly used to
accumulate and quantify misstatements. The rollover approach
``quantifies a misstatement based on the amount of the error
originating in the current year income statement,'' which ``ignores the
`carryover effects' of prior year misstatements.'' In contrast, the
``iron curtain approach quantifies a misstatement based on the effects
of correcting the misstatement existing in the balance sheet at the end
of the current year, irrespective of the misstatement's year(s) of
origination.'' Because each of these approaches has its weaknesses, SAB
108 advises that the impact of correcting all misstatements on current
year financial statements should be accomplished by quantifying an
error under both the rollover and iron curtain approaches and by
evaluating the error measured under each approach. When either approach
results in a misstatement that is material, after considering all
relevant quantitative and qualitative factors, an adjustment to the
financial statements would be required. Guidance on the consideration
of all relevant factors when assessing the materiality of misstatements
is provided in the SEC's Staff Accounting Bulletin No. 99, Materiality
(SAB 99).\10\ 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.
---------------------------------------------------------------------------
\10\ SAB 99 can be accessed at http://www.sec.gov/interps/account/sab99.htm. SAB 99 has been codified as Topic 1.M. in the
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------
The Federal Reserve has advised BHCs that, for FR Y-9C reporting
purposes, a BHC that is a public company or a subsidiary of a public
company should apply the guidance from SAB 108 and SAB 99 when
quantifying the impact of correcting misstatements, including both the
carryover and reversing effects of prior year misstatements, on their
current year FR Y-9C reports.\11\ The Federal Reserve believes that the
guidance in SAB 108 and SAB 99 represents sound accounting practices
that all BHCs, including those that are not public companies, should
follow for purposes of quantifying misstatements and considering all
relevant factors when assessing the materiality of misstatements in
their FR Y-9C reports. Accordingly, the Federal Reserve proposes to
incorporate the guidance in these two Staff Accounting Bulletins into
the section of the Accounting Changes Glossary entry on error
corrections, thereby establishing a single approach for quantifying
misstatements in the FR Y-9C that would be applicable to all BHCs. The
Glossary entry would explain that the impact of correcting all
misstatements on current year FR Y-9C reports should be accomplished by
quantifying an error under both the rollover and iron curtain
approaches and by evaluating the error measured under each approach.
When either approach results in a misstatement that is material, after
considering all relevant quantitative and qualitative factors,
appropriate adjustments to FR Y-9C reports would be required.
---------------------------------------------------------------------------
\11\ For example, see the FR Y-9 report Supplemental
Instructions for June 2007 at http://www.federalreserve.gov/reportforms/supplemental/SI_FRY9_200706.pdf.
---------------------------------------------------------------------------
B.2 Revisions Proposed for June 2009
B.2.1 Construction and Development Loans With Interest Reserves
In December 2006, the Federal Reserve 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).\12\ 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.
---------------------------------------------------------------------------
\12\ 71 FR 74580, December 12, 2006.
---------------------------------------------------------------------------
In issuing the CRE Guidance, the Federal Reserve 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 Federal Reserve 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
[[Page 67166]]
construction, land development, and other land loans is approaching or
exceeds 100 percent or more of the institution's total risk-based
capital may be identified for further supervisory analysis of the level
and nature of its CRE concentration risk. As of March 31, 2008,
approximately 51 percent of all FR Y-9C respondents 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
Federal Reserve's examiners are encountering C&D loans on projects that
are troubled, but where interest has been capitalized inappropriately,
resulting in overstated income and understated volumes of past due and
nonaccrual C&D loans. Therefore, to assist the Federal Reserve in
monitoring C&D lending activities at those BHCs 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 Federal Reserve proposes to add two new data items. First,
BHCs with such a concentration would report the amount of C&D loans (in
domestic offices) included in the loan schedule (Schedule HC-C) on
which the use of interest reserves is provided for in the loan
agreement. Second, these BHCs 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 BHCs currently
report on the amount of past due and nonaccrual C&D loans, would assist
in identifying BHCs with C&D loan concentrations that may be engaging
in questionable interest capitalization practices for supervisory
follow-up.
B.2.2 Structured Financial Products Carried in Securities and Trading
Portfolios
Structured financial products such as collateralized debt
obligations (CDOs) have become increasingly more complex and the volume
of these financial products has increased substantially in recent
years. Structured financial products generally convert a large pool of
assets and other exposures (such as derivatives and third-party
guarantees) into tradable capital market debt instruments. Some of the
more complex financial product structures mix asset classes in an
attempt to create investment products that diversify risk. In recent
years, increasingly complex structured financial products have become
more widely held as investments and trading assets, allowing investors
and traders to acquire positions in a pool of assets with varying risks
and rewards depending on the underlying collateral or reference assets.
Some of these products are synthetic structured financial products that
use credit derivatives and a reference pool of assets. Hybrid products,
which are a combination of cash and synthetic structured financial
products, were also created. Further, complex products known as CDOs
``squared'', which are CDOs backed primarily by the tranches of other
CDOs, have contributed to the opacity and inability of investors to
understand the performance of these highly complex products. Some
holders of structured financial products have sustained financial
losses due to defaults and losses on the underlying assets and other
exposures. In addition, reduced market liquidity has contributed to
significant fair value declines and lack of price transparency for
other structured financial products. These recent market events have
demonstrated the need to collect more comprehensive information on
investment products with significant market, credit, liquidity, and
valuation risks in order to identify and monitor BHCs with exposures to
these products and to track such exposures for the industry as a whole.
Currently, BHCs separately report their holdings of regular
mortgage-backed securities (MBS) (such as mortgage-backed pass-through
securities, collateralized mortgage obligations, and real estate
mortgage investment conduits) in the securities schedule (Schedule HC-
B) or trading schedule (Schedule HC-D), as appropriate. All BHCs
separately report their holdings of held-to-maturity and available-for-
sale asset-backed securities (ABS) in the securities schedule. Those
BHCs with large trading portfolios separately report their held-for-
trading ABS in the trading schedule. BHCs' holdings of all other debt
securities not issued by governmental entities in the U.S. are reported
as Other debt securities in either the securities or trading schedule,
as appropriate. However, the more complex structured financial products
discussed above are not separately reported in Schedules HC-B and HC-D,
but are currently reported in other data items within these two
schedules.
Therefore, the Federal Reserve proposes to separately collect
certain structured financial product data in both the securities and
trading schedules of the FR Y-9C. First, the Federal Reserve would add
data items to collect information on certain structured financial
products by type of structure (cash, synthetic, and hybrid). Each of
these three new data items would cover CDOs, collateralized loan
obligations (CLOs), collateralized bond obligations (CBOs), CDOs
squared and cubed, and similar structured financial products.\13\
---------------------------------------------------------------------------
\13\ These new line items would not include mortgage-backed and
asset-backed commercial paper, which would continue to be reported
as MBS and ABS, respectively, in Schedules HC-B and HC-D.
---------------------------------------------------------------------------
These new data items would be added to the body of the securities
schedule and the trading schedule. In Schedule HC-B, the amortized cost
and fair value of these three types of structures would be reported
using the current four-column format that distinguishes between held-
to-maturity and available-for-sale securities. In Schedule HC-D, the
fair value of these three types of structures would be reported. Since
the new data items on structured financial products would include CDOs,
the Federal Reserve would delete existing Memoranda items 5.a and 5.b
from the trading schedule (Schedule HC-D).
Second, the Federal Reserve would collect information on these
complex structured financial products by the predominant type of
collateral supporting the structures in new memoranda items in both
Schedule HC-B and Schedule HC-D. The collateral
[[Page 67167]]
supporting these products has distinct risk characteristics and the new
information would provide greater insight into the risks associated
with the various collateralized structured financial products. The
structured financial products would be reported according to the
following types of collateral:
Trust preferred securities issued by financial
institutions;
Trust preferred securities issued by real estate
investment trusts;
Corporate and similar loans; \14\
---------------------------------------------------------------------------
\14\ Securities backed by commercial and industrial loans that
are commonly regarded as ABS rather than CLOs in the marketplace
would continue to be reported as ABS in Schedules HC-B and HC-D.
---------------------------------------------------------------------------
1-4 family residential MBS issued or guaranteed by U.S.
government-sponsored enterprises (GSEs);
1-4 family residential MBS not issued or guaranteed by
GSEs;
Diversified (mixed) pools of structured financial products
such as CDOs squared and cubed (also known as pools of pools); and
Other collateral.
In Schedule HC-B, amortized cost and fair value would be reported
by the predominant type of collateral supporting the structure based on
whether the products are classified as held-to-maturity or available-
for-sale. In Schedule HC-D, the fair value of these products would be
reported by predominant type of collateral supporting the structure.
B.2.3 Holdings of Commercial Mortgage-Backed Securities
At present, all BHCs report information on their holdings of held-
to-maturity and available-for-sale MBS in Schedule HC-B, Securities,
without distinguishing between residential and commercial MBS. BHCs
with average trading assets of $2 million or more in any of the four
preceding calendar quarters provide information on MBS held for trading
in Schedule HC-D, but only those with average trading assets of $1
billion or more disclose the amount of their residential and commercial
MBS.
Differences in residential mortgages and commercial mortgages carry
through to MBS backed by these two types of mortgages. In contrast to
residential mortgage loans, commercial mortgage loans are normally
without recourse, which means that if the borrower defaults, the
creditor cannot seize any other assets of the borrower. As a
consequence, the ability of the underlying commercial real estate to
produce income and the value of the property are key factors when
assessing the credit risk of commercial MBS. In addition, the
prepayment risk of commercial MBS is lower than on residential MBS
because commercial mortgages normally place restrictions on prepayment
that typically are not present on residential mortgages. Furthermore,
the residential real estate market often performs differently than the
commercial real estate market.
Given the differences between residential and commercial MBS, the
Federal Reserve proposes to revise the reporting of MBS in Schedule HC-
B, Securities, and Schedule HC-D, Trading Assets and Liabilities, in
order to separately identify and track BHC holdings of commercial MBS.
In Schedule HC-B, data items 4.a, Pass-through securities, and 4.b,
Other mortgage-backed securities, would be revised to cover only
residential MBS. New data items 4.c.(1) and (2) would be added for
Commercial pass-through securities and Other commercial mortgage-backed
securities. Similarly, in Schedule HC-D, data items 4.a through 4.c
would cover only residential MBS and a new data item 4.d would collect
data on Commercial mortgage-backed securities. These new and revised
data items would replace Memoranda items 4.a, Residential mortgage-
backed securities, and 4.b, Commercial mortgage-backed securities, in
Schedule HC-D, which are currently completed only by BHCs with average
trading assets of $1 billion or more in any of the four preceding
calendar quarters.
B.2.4 Unused Eligible Liquidity Facilities for Asset-Backed Commercial
Paper (ABCP) Conduits With an Original Maturity of One Year or Less
Under the Federal Reserve's risk-based capital guidelines, BHCs are
required to hold capital against the unused portions of eligible
liquidity facilities that provide support to ABCP programs. The capital
guidelines apply different risk-based capital requirements to eligible
liquidity facilities based on the original maturity of the facilities.
BHCs are currently required to hold less capital against eligible
liquidity facilities with original maturities of one year or less than
against liquidity facilities with original maturities in excess of one
year. However, because of the current structure of Schedule HC-R,
Regulatory Capital, the instructions for the schedule direct BHCs to
report the credit equivalent amount of both types of eligible liquidity
facilities in data item 53, Unused commitments with an original
maturity exceeding one year. The reporting of both types of eligible
liquidity facilities in a single data item has been accomplished by
having BHCs adjust the credit equivalent amount of eligible liquidity
facilities with original maturities of one year or less to produce the
effect of the lower capital charge applicable to such liquidity
facilities. This approach does not promote transparency with respect to
the actual credit equivalent amount of eligible liquidity facilities
with original maturities of one year or less and does not allow for
verification of the accuracy of the credit converting and risk-
weighting of these exposures.
To address these concerns, the Federal Reserve proposes to renumber
Schedule HC-R, data item 53 as data item 53.a and add a new data item
53.b, Unused commitments with an original maturity of one year or less
to asset-backed commercial paper conduits, to Schedule HC-R. The credit
conversion factor applied to amounts reported in data item 53.b, column
A, would be 10 percent.
B.2.5 Fair Value Measurements
Effective for the March 31, 2007, report date, the Federal Reserve
began collecting information on certain assets and liabilities measured
at fair value on Schedule HC-Q, Financial Assets and Liabilities
Measured at Fair Value. Currently, this schedule is completed by BHCs
with a significant level of trading activity or that use a fair value
option. The information collected on Schedule HC-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
Federal Reserve's ongoing review of industry reporting and disclosure
practices since the inception of this standard, and the reporting of
data items at fair value on Schedule HC, Balance Sheet, the Federal
Reserve proposes to expand the data collected on Schedule HC-Q in two
material respects.
First, to improve the consistency of data collected on Schedule HC-
Q with the FAS 157 disclosure requirements and industry disclosure
practices, the Federal Reserve proposes to expand the detail of the
collected data. The Federal Reserve proposes to expand the detail on
Schedule HC-Q to collect fair value information on all assets and
liabilities reported at fair value on a recurring basis in a manner
consistent with the asset and liability breakdowns on Schedule HC.
Thus, the Federal Reserve proposes to add data items to collect fair
value information on:
Available-for-sale securities;
Federal funds sold and securities purchased under
agreements to resell;
[[Page 67168]]
Federal funds purchased and securities sold under
agreements to repurchase;
Other borrowed money, and subordinated notes and
debentures.
The Federal Reserve also proposes to modify the existing collection
of loan and lease data and trading asset and liability data to collect
data separately for:
Loans and leases held for sale;
Loans and leases held for investment;
Trading derivative assets;
Other trading assets;
Trading derivative liabilities; and
Other trading liabilities.
The Federal Reserve would also add data items to capture total
assets and total liabilities for those data items reported on the
schedule. In addition, the Federal Reserve proposes to modify the
existing data items for other financial assets and servicing assets and
other financial liabilities and servicing liabilities to collect
information on other assets and other liabilities reported at fair
value on a recurring basis, including nontrading derivatives.
Components of other assets and other liabilities would be separately
reported if they are greater than $25,000 and exceed 25 percent of the
total fair value of other assets and other liabilities, respectively.
In conjunction with this change, the existing reporting for loan
commitments accounted for under a fair value option would be revised to
include these instruments, based on whether their fair values are
positive or negative, in the data items for other assets and other
liabilities reported at fair value on a recurring basis, with separate
disclosure of these commitments if significant.
Second, the Federal Reserve proposes to modify the reporting
criteria for Schedule HC-Q. The current instructions require all BHCs
that have adopted FAS 157 and (1) have elected to account for financial
instruments or servicing assets and liabilities at fair value under a
fair value option or (2) are required to complete Schedule HC-D,
Trading Assets and Liabilities, to complete Schedule HC-Q. The Federal
Reserve proposes to modify the reporting criteria for Schedule HC-Q to
require BHCs to report all financial or servicing assets and
liabilities that are measured at fair value, regardless of whether they
have elected to apply a fair value option to financial or servicing
assets and liabilities.
The Federal Reserve has determined that the proposed information is
necessary to more accurately assess the impact of fair value accounting
and fair value measurements for safety and soundness purposes. The
collection of the information on Schedule HC-Q, as proposed, would
facilitate and enhance the Federal Reserve's ability to monitor the
extent of fair value accounting in BHCs' consolidated FR Y-9C reports,
including the elective use of fair value accounting and the nature of
the inputs used in the valuation process, pursuant to the disclosure
requirements of FAS 157. The information collected on Schedule HC-Q is
consistent with the disclosures required by FAS 157 and consistent with
industry practice for reporting fair value measurements and should,
therefore, not impose significant incremental burden on BHCs.
B.2.6 Pledged Loans in Loan and Trading Portfolios and Pledged Trading
Securities
BHCs have been pledging loans for many years and the volume of
these pledges has grown considerably in recent years. The pledging of
loans is the act of setting aside certain loans to secure or
collateralize BHC transactions with the BHC continuing to own the loans
unless the BHC defaults on the transaction. Pledging is used for
securing public deposits, repurchase agreements, and other BHC
borrowings. Pledging affects a BHC's liquidity and other asset and
liability management programs. Today there are a number of alternative
funding structures used by BHCs that require BHCs to pledge loans. Some
of these funding structures include pledging on-balance sheet loans to
finance and support securitization structures held by the BHC that do
not meet sales treatment, pledging loans to secure borrowings from a
Federal Home Loan Bank, and packaging of on-balance sheet loans to
collateralize bonds sold by BHCs. Currently, the FR Y-9C report does
not provide information on the volume of pledged loans. Therefore, the
Federal Reserve proposes to collect the total amount of held-for-sale
and held-for-investment loans and leases reported in Schedule HC-C,
Loans and Lease Financing Receivables, that are pledged and the total
amount of pledged loans that are carried in the trading portfolio and
reported in Schedule HC-D, Trading Assets and Liabilities.
In addition, although the Federal Reserve has long collected data
on total amount of held-to-maturity and available-for-sale securities
reported in Schedule HC-B, Securities, that are pledged, BHCs have not
been required to report the amount of securities carried in the trading
portfolio that are pledged. Therefore, for reasons similar to those for
collecting data on pledged loans, the Federal Reserve proposes to add a
data item to Schedule HC-D to capture the amount of pledged trading
securities.
B.2.7 Collateral for OTC Derivative Exposures and Distribution of
Credit Exposures
The growth in BHCs OTC derivatives and the related counterparty
credit exposures has been significant in recent years. For some major
dealer BHCs, the counterparty credit risk from OTC derivatives rivals
or exceeds their commercial and industrial loans outstanding. Despite
the magnitude of these derivative exposures, there is virtually no
information on OTC counterparty credit exposures and associated risk
mitigation in the FR Y-9C report.
Given the size of OTC derivative counterparty credit exposures, and
the important risk mitigation provided by collateral held to offset or
mitigate such exposures, information on the distribution of each would
assist the Federal Reserve in their oversight and supervision of BHCs
engaging in OTC derivative activities. Therefore, the Federal Reserve
proposes to collect data in Schedule HC-L, Derivatives and Off-Balance
Sheet Items, that would provide a breakdown of the fair value of
collateral posted for OTC derivative exposures by type of collateral
and type of derivative counterparty and a separate breakdown of the
current credit exposure on OTC derivatives by type of counterparty.
This information would give the Federal Reserve important insights into
the extent to which collateral is used as part of the credit risk
management practices associated with derivatives credit exposures to
different types of counterparties and changes over time in the nature
and extent of the collateral protection.
Since a majority of OTC derivative transactions are conducted in
larger BHCs, only BHCs with total assets of $10 billion or more would
be required to report the proposed new data. These BHCs would report,
using a matrix, the collateral's fair value allocated by type of
counterparty and type of collateral as well as the current credit
exposure associated with each type of counterparty. The proposed types
of collateral for which the fair value would be reported are:
Cash--U.S. dollar;
Cash--Other currencies;
U.S. Treasury securities;
U.S. Government agency and U.S. Government-sponsored
agency debt securities;
Corporate bonds;
Equity securities; and
All other collateral.
[[Page 67169]]
The fair value of the collateral would be reported according to the
following types of counterparties:
Banks and securities firms;
Monoline financial guarantors;
Hedge funds;
Sovereign governments; and
Corporations and all other counterparties.
The current credit exposure (after considering the effect of master
netting agreements with OTC derivative counterparties) would also be
reported for these five types of counterparties. The total current
credit exposure from OTC derivative exposures that would be reported
for these counterparties in Schedule HC-L would not necessarily equal
the current credit exposure in the FR Y-9C regulatory capital schedule
(Schedule HC-R) because the amount reported in Schedule HC-R excludes
derivatives not covered by the risk-based capital standards.
B.2.8 Investments in Real Estate Ventures
At present, a BHC with investments in real estate ventures reports
real estate (other than BHC premises) owned or controlled by the BHC
and its consolidated subsidiaries that is held for investment purposes
as a component of Other real estate owned in Schedule HC-M, data item
13.b, and in Schedule HC-M, data item 6, Investments in real estate. If
a BHC has investments in real estate ventures in the form of
investments in subsidiaries that have not been consolidated; associated
companies; and corporate joint ventures, unincorporated joint ventures,
general partnerships, and limited partnerships over which the BHC
exercises significant influence that are engaged in the holding of real
estate for investment purposes, these investments are reported as a
component of Investments in unconsolidated subsidiaries and associated
companies in Schedule HC, data item 8.
To better distinguish a BHC's investments in real estate ventures
from these other categories of assets, particularly because Other real
estate owned also includes real estate acquired either through
foreclosure or in any other manner for debts previously contracted,
which presents different supervisory considerations than real estate
investments, the Federal Reserve proposes to add a new data item to the
balance sheet (Schedule HC) for investments in real estate ventures.
This new data item would include those investments in real estate
ventures that are currently reported as part of Other real estate
owned, Investments in real estate, and Investments in unconsolidated
subsidiaries and associated companies. By making this change, the
Federal Reserve would be able to eliminate data items 6, 13.b, and 13.c
from Schedule HC-M. Also, to conform the FR Y-9C report to comparable
concepts reported on the Call Report, the Federal Reserve proposes to
modify the caption of Schedule HC-M, data item 13.a, Real estate
acquired in satisfaction of debts previously contracted, as Other real
estate owned and renumber as data item 13.
B.2.9 Trading Assets That Are Past Due or in Nonaccrual Status
The Federal Reserve has observed that BHCs are holding assets in
trading for longer periods of time due to market and other factors.
Some of these assets are exhibiting delinquency patterns similar to
assets held outside of the trading account. Currently, past due and
nonaccrual trading assets are not distinguished from other assets on
Schedule HC-N, Past Due and Nonaccrual Loans, Leases, and Other Assets.
The Federal Reserve proposes to replace Schedule HC-N, data item 9, for
Debt securities and other assets that are past due 30 days or more or
in nonaccrual status with two separate data items: 9.a, Trading assets,
and 9.b, All other assets (including available-for-sale and held-to-
maturity securities). These data items would follow the existing three-
column breakdown on Schedule HC-N that BHCs 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. Data item 9.a would
include all assets held for trading purposes, including loans held for
trading. Collection of this information would allow the Federal Reserve
to better assess the quality of assets held for trading purposes and
generally enhance surveillance and examination planning efforts.
Also, the Federal Reserve proposes to expand the scope of Schedule
HC-D, Trading Assets, Memorandum item 3, Loans measured at fair value
that are past due 90 days or more, to include loans held for trading
and measured at fair value that are in nonaccrual status. This change
would provide for more consistent treatment with the information that
would be collected on Schedule HC-N and with the disclosure
requirements in FASB Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities.
B.2.10 Enhanced Information on Credit Derivatives
Effective for the March 2006 FR Y-9C report, the Federal Reserve
revised the information collected on credit derivatives in Schedules
HC-L, Derivatives and Off-Balance Sheet Items, and HC-R, Regulatory
Capital, to gain a better understanding of the nature and trends of
BHCs' credit derivative activities. Since that time, the volume of
credit derivative activity at BHCs, as measured by the notional amount
of these contracts, has increased steadily, rising to an aggregate
notional amount of $17.1 trillion as of March 31, 2008. This credit
derivative activity is highly concentrated in BHCs with total assets in
excess of $10 billion. For these BHCs, 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 Federal Reserve's safety and soundness efforts continue to
place emphasis on the role of credit derivatives in BHC risk management
practices. In addition, the Federal Reserve's monitoring of credit
derivative activities at certain BHCs has identified differences in
interpretation as to how credit derivatives are treated under the
Federal Reserve's risk-based capital standards. To further the Federal
Reserve's safety and soundness efforts concerning credit derivatives
and to improve transparency in the treatment of credit derivatives for
regulatory capital purposes, the Federal Reserve proposes to revise the
information pertaining to credit derivatives that is collected on
Schedules HC-L, HC-N (Past Due and Nonaccrual Loans, Leases, and Other
Assets), and HC-R.
In Schedule HC-L, data item 7, Credit derivatives, the Federal
Reserve proposes 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 Federal Reserve also proposes to add a new
data item 7.c to Schedule HC-L to collect information on the notional
amount of credit derivatives by regulatory capital treatment. For
credit derivatives that are subject to the Federal Reserve's market
risk capital standards, the Federal Reserve proposes to collect the
notional amount of sold protection and the amount of purchased
protection. For all other credit derivatives, the Federal Reserve
proposes to collect the notional amount
[[Page 67170]]
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 Federal Reserve
also proposes to add a new data item 7.d to Schedule HC-L to collect
information on the notional amount of credit derivatives by credit
rating and remaining maturity. This data 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 HC-N, the Federal Reserve proposes to change the scope
of memorandum item 6, Past due interest rate, foreign exchange rate,
and other commodity and equity contracts, to include credit
derivatives. The fair value of credit derivatives where the BHC has
purchased protection increased significantly to over $518 billion as of
March 31, 2008, as compared to a negative $13.5 billion as of March 31,
2007. Thus, the performance of credit derivative counterparties has
increased in importance. The expanded scope of memorandum item 6 on
Schedule HC-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 HC-R, the Federal Reserve proposes to change the scope
of the information collected in memoranda 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 Federal Reserve also proposes to add new
memoranda items 3.a and 3.b to Schedule HC-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
Federal Reserve proposes 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. Current memoranda items 3, 4, 5 and 6
would be renumbered as 4, 5, 6 and 7, respectively.
Proposed Revisions--FR Y-9SP
The Federal Reserve proposes to make the following revisions to the
FR Y-9SP effective as of June 30, 2009. These proposed revisions are
not related to the revisions proposed to the Call Report.
Proposed Revisions to Schedule SC-M, Memoranda
As described previously under proposed changes to the FR Y-9C
report, under the CPP the Treasury will provide capital to
participating BHCs by purchasing newly issued senior perpetual
preferred stock of the bank holding company. In conjunction with the
purchase of this senior perpetual preferred stock, the Treasury will
receive warrants to purchase common stock with an aggregate market
price equal to 15 percent of the senior preferred investment.
In order to monitor the scope of the CPP, including associated
warrants issued, the Federal Reserve proposes to add two data items to
Schedule SC-M, Memoranda. The Federal Reserve proposes to add new data
item 23 with the heading ``Issuances associated with the U.S.
Department of Treasury Capital Purchase Program:'' with a breakout for
data item 23.a, ``Senior perpetual preferred stock or similar items,''
and 23.b, ``Warrants to purchase common stock or similar items.'' BHCs
would report the carrying amount of these instruments in data items
23.a and 23.b. The Federal Reserve proposes to add the phrase ``or
similar items'' to each of these data items in order to provide greater
flexibility to collect information related to this program as details
of the program develop.
2. Report title: Financial Statements of Nonbank Subsidiaries of
U.S. Bank Holding Companies.
Agency form number: FR Y-11.
OMB control number: 7100-0244.
Frequency: Quarterly and annually.
Reporters: Bank holding companies.
Annual reporting hours: FR Y-11 (quarterly): 11,424; FR Y-11
(annual): 1,489.
Estimated average hours per response: FR Y-11 (quarterly): 6.80; FR
Y-11 (annual): 6.80.
Number of respondents: FR Y-11 (quarterly): 420; FR Y-11 (annual):
219.
General description of report: This information collection is
mandatory (12 U.S.C. 1844(c)). Confidential treatment is not routinely
given to the data in these reports. However, confidential treatment for
the reporting information, in whole or in part, can be requested in
accordance with the instructions to the form, pursuant to sections
(b)(4), (b)(6)and (b)(8) of the Freedom of Information Act [5 U.S.C.
552(b)(4), (b)(6) and (b)(8)].
Abstract: The FR Y-11 reports collect financial information for
individual non-functionally regulated U.S. nonbank subsidiaries of
domestic bank holding companies (BHCs). BHCs file the FR Y-11 on a
quarterly or annual basis according to filing criteria. The FR Y-11
data are used with other BHC data to assess the condition of BHCs that
are heavily engaged in nonbanking activities and to monitor the volume,
nature, and condition of their nonbanking operations.
Current Actions: As of March 2008, 51 nonbank subsidiaries reported
trading assets of $122 billion on the FR Y-11, representing
approximately 16 percent of their total assets. Since March 2004,
trading assets reported on the FR Y-11 have increased over 100 percent.
To enhance the data reported by nonbank subsidiaries on assets held in
trading accounts and to make the data on the FR Y-11 consistent with
the information currently reported on the FR 2314, the Federal Reserve
proposes to revise Schedule BS-M-Memoranda, to collect the following
data on trading assets by type of asset: (1) Securities of U.S.
government and its agencies, (2) securities of all foreign governments
and official institutions, (3) equity securities, (4) corporate bonds,
notes and debentures, (5) revaluation gains on interest rate, foreign
exchange rate, and other commodity and equity contracts, and (6) other
(including commercial paper).
Effective with the March 31, 2008, FR Y-9C, BHCs were permitted to
report loans held for sale as trading assets if the BHC applies fair
value accounting and manages these assets as trading positions, subject
to the controls and applicable regulatory guidance related to trading
activities. In addition, new items were added to Schedule HC-D, Trading
Assets and Liabilities, of the FR
[[Page 67171]]
Y-9C to capture detail for the types of loans reported as trading
assets and the dollar amount of loans held for trading that are past
due or in nonaccrual status. The FR Y-11 reporting instructions
indicate that this report is to be filed on a consistent basis with the
FR Y-9C report. Therefore, nonbank subsidiaries may also report loans
held for sale as trading assets if they meet the above criteria.
However, loans treated as trading assets and the amount of loans held
for trading that are past due or in nonaccrual status are not
separately disclosed on the FR Y-11.
The Federal Reserve proposes to revise Schedule BS-M-Memoranda, to
also capture 1) the fair value of loans held for trading, 2) the fair
value of loans held for trading that are past due 90 days or more or in
nonaccrual status, and 3) the unpaid principal balance of these loans
that are past due or in nonaccrual status. Collection of these data
would allow the Federal Reserve to better monitor the specific risk
exposures associated with and the delinquency patterns exhibited by
such trading assets.
This family of reports also contains the Abbreviated Financial
Statements of U.S. Nonbank Subsidiaries of U.S. Bank Holding Companies
(FR Y-11S), which is not being revised.
3. Report title: Financial Statements of Foreign Subsidiaries of
U.S. Banking Organizations.
Agency form number: FR 2314.
OMB control number: 7100-0073.
Frequency: Quarterly and annually.
Reporters: Foreign subsidiaries of U.S. state member banks, bank
holding companies, and Edge or agreement corporations.
Annual reporting hours: FR 2314 (quarterly): 5,755; FR 2314
(annual): 1,109.
Estimated average hours per response: FR 2314 (quarterly): 6.60; FR
2314 (annual): 6.60.
Number of respondents: FR 2314 (quarterly): 218; FR 2314 (annual):
168.
General description of report: This information collection is
mandatory (12 U.S.C. 324, 602, 625, and 1844(c)). Confidential
treatment is not routinely given to the data in these reports. However,
confidential treatment for the reporting information, in whole or in
part, can be requested in accordance with the instructions to the form,
pursuant to sections (b)(4), (b)(6) and (b)(8) of the Freedom of
Information Act [5 U.S.C. Sec. Sec. 552(b)(4)(b)(6) and (b)(8)].
Abstract: The FR 2314 reports collect financial information for
non-functionally regulated direct or indirect foreign subsidiaries of
U.S. state member banks (SMBs), Edge and agreement corporations, and
BHCs. Parent organizations (SMBs, Edge and agreement corporations, or
BHCs) file the FR 2314 on a quarterly or annual basis according to
filing criteria. The FR 2314 data are used to identify current and
potential problems at the foreign subsidiaries of U.S. parent
companies, to monitor the activities of U.S. banking organizations in
specific countries, and to develop a better understanding of activities
within the industry, in general, and of individual institutions, in
particular.
Current Actions: Effective with the March 31, 2008, FR Y-9C, BHCs
were permitted to report loans held for sale as trading assets if the
BHC applies fair value accounting and manages these assets as trading
positions, subject to the controls and applicable regulatory guidance
related to trading activities. In addition, new items were added to
Schedule HC-D, Trading Assets and Liabilities, of the FR Y-9C to
capture detail for the types of loans reported as trading assets and
the dollar amount of loans held for trading that are past due or in
nonaccrual status. The FR 2314 reporting instructions indicate that
this report is to be filed on a consistent basis with the FR Y-9C
report. Therefore, nonbank subsidiaries may also report loans held for
sale as trading assets if they meet the above criteria. However, loans
treated as trading assets and the amount of loans held for trading that
are past due or in nonaccrual status are not separately disclosed on
the FR 2314.
The Federal Reserve proposes to revise the FR 2314, Schedule BS-M-
Memoranda, to also capture 1) the fair value of loans held for trading,
2) the fair value of loans held for trading that are past due 90 days
or more or in nonaccrual status, and 3) the unpaid principal balance of
these loans that are past due or in nonaccrual status. Collection of
these data would allow the Federal Reserve to better monitor the
specific risk exposures associated with and the delinquency patterns
exhibited by such trading assets.
This family of reports also contains the Abbreviated Financial
Statements of Foreign Subsidiaries of U.S. Banking Organizations (FR
2314S), which is not being revised.
4. Report title: Financial Statements of U.S. Nonbank Subsidiaries
Held by Foreign Banking Organizations.
Agency form number: FR Y-7N.
OMB control number: 7100-0125.
Frequency: Quarterly and annually.
Reporters: Foreign banking organizations (FBOs).
Annual reporting hours: FR Y-7N (quarterly): 5,277; FR Y-7N
(annual): 1,149.
Estimated average hours per response: FR Y-7N (quarterly): 6.8; FR
Y-7N (annual): 6.8.
Number of respondents: FR Y-7N (quarterly): 194; FR Y-7N (annual):
169.
General description of report: This information collection is
mandatory (12 U.S.C. 1844(c), 3106(c), and 3108). Confidential
treatment is not routinely given to the data in these reports. However,
confidential treatment for information, in whole or in part, on any of
the reporting forms can be requested in accordance with the
instructions to the form, pursuant to sections (b)(4) and (b)(6) of the
Freedom of Information Act [5 U.S.C. Sec. Sec. 522(b)(4) and (b)(6)].
Abstract: The FR Y-7N collects financial information for non-
functionally regulated U.S. nonbank subsidiaries held by FBOs other
than through a U.S. bank holding company, U.S. financial holding
company, or U.S. bank. FBOs file the FR Y-7N on a quarterly or annual
basis based on size thresholds.
Current Actions: As of March 2008, 57 nonbank subsidiaries
submitted data for trading assets of $137 billion on the FR Y-7N,
representing approximately 27 percent of their total assets. Since
March 2004, trading assets reported on the FR Y-7N have increased over
52 percent. To enhance the data reported by nonbank subsidiaries on
assets held in trading accounts and to make the data on the FR Y-7N
consistent with the information reported on the FR Y-11 and FR 2314,
the Federal Reserve proposes to revise Schedule BS-M-Memoranda, to
collect the following data on trading assets by type of asset: (1)
Securities of U.S. government and its agencies, (2) securities of all
foreign governments and official institutions, (3) equity securities,
(4) corporate bonds, notes and debentures, (5) revaluation gains on
interest rate, foreign exchange rate, and other commodity and equity
contracts, and (6) other (including commercial paper).
Effective with the March 31, 2008, FR Y-9C report, BHCs were
permitted to report loans held for sale as trading assets if the BHC
applies fair value accounting and manages these assets as trading
positions, subject to the controls and applicable regulatory guidance
related to trading activities. In addition, new items were added to
Schedule HC-D, Trading Assets and Liabilities, of the FR Y-9C to
capture detail for the types of loans reported as trading assets, and
the dollar amount of loans held for trading that are past due or in
nonaccrual status. The FR Y-7N reporting instructions indicate that
this report is to be filed on a consistent basis with the FR Y-9C
report. Therefore
[[Page 67172]]
nonbank subsidiaries may also report loans held for sale as trading
assets if they meet the above criteria. However, loans treated as
trading assets and the amount of loans held for trading that are past
due or in nonaccrual status are not separately disclosed on the FR Y-
7N.
The Federal Reserve proposes to revise Schedule BS-M-Memoranda to
also capture (1) the fair value of loans held for trading, (2) the fair
value of loans held for trading that are past due 90 days or more or in
nonaccrual status, and (3) the unpaid principal balance of these loans
that are past due or in nonaccrual status. Collection of these data
would allow the Federal Reserve to better monitor the specific risk
exposures associated with and the delinquency patterns exhibited by
such trading assets.
On November 15, 2007, the Securities and Exchange Commission (SEC)
approved amendments to its rules that would allow foreign private
issuers to file financial statements prepared using International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board without a reconciliation to U.S. generally
accepted accounting principles (GAAP). The Federal Reserve is
evaluating the potential use of IFRS on the FR Y-7N/NS reports.
This family of reports also contains the Abbreviated Financial
Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking
Organizations (FR Y-7NS) and the Capital and Asset Report for Foreign
Banking Organizations (FR Y-7Q), which are not being revised.
5. Report title: Consolidated Report of Condition and Income for
Edge and Agreement Corporations.
Agency form number: FR 2886b.
OMB control number: 7100-0086.
Frequency: Quarterly.
Reporters: Edge and agreement corporations.
Annual reporting hours: 2,288.
Estimated average hours per response: 15.15 banking corporations,
9.60 investment corporations.
Number of respondents: 15 banking corporations, 50 investment
corporations.
General description of report: This information collection is
mandatory (12 U.S.C. 602 and 625). Schedules RC-M (except data item 3)
and RC-V are held as confidential pursuant to section (b)(4) of the
Freedom of Information Act (5 U.S.C. 552(b)(4)).
Abstract: The mandatory FR 2886b comprises a balance sheet, income
statement, 2 schedules reconciling changes in capital and reserve
accounts, and 10 supporting schedules, and it parallels the Call Report
that commercial banks file. The Federal Reserve uses the data collected
on the FR 2886b to supervise Edge corporations, identify present and
potential problems, and monitor and develop a better understanding of
activities within the industry.
Current Actions: The Federal Reserve proposes to make the following
revisions to the FR 2886b to: (1) Reduce the reporting frequency to
annual for Edge and agreement corporations with total assets of $50
million or less; (2) collect a new Schedule RC-D, Trading Assets and
Liabilities, comparable to, but less detailed than, Schedule HC-D,
Trading Assets and Liabilities, on the FR Y-9C report; and (3) collect
additional information on option contracts and other swaps (other than
interest rate swaps and foreign exchange swaps). The proposed changes
would be effective as of March 31, 2009.
Proposed Reporting Threshold
The FR 2886b data are currently submitted quarterly by all Edge and
agreement corporations. In accord with risk-focused supervision and in
an effort to reduce reporting burden, the Federal Reserve proposes to
establish that Edge and agreement corporations with total consolidated
assets of $50 million or less would submit the FR 2886b data annually
as of December 31.\15\ All Edge and agreement corporations with
consolidated assets of more than $50 million would continue to file the
FR 2886b quarterly. Of the current respondent panel, 14 investment
corporations and 3 banking corporations would qualify for annual
reporting.
---------------------------------------------------------------------------
\15\ Edge and agreement corporations meeting the asset size
criteria of $50 million or less would no longer file the March, June
and September reports and would file annually as of December 31,
beginning with the December 31, 2009, reporting date.
---------------------------------------------------------------------------
New Schedule for Trading Assets and Liabilities
Since the Federal Reserve is solely responsible for authorizing,
supervising, and assigning ratings to Edge and agreement corporations,
it is critical to receive sufficient information to understand the risk
profiles of Edge and agreement corporations and not to rely on
information provided at the consolidated level by the parent bank or
BHC. A number of large banking organizations conduct substantial
trading and structured finance activities through their subsidiary Edge
and agreement corporations, an activity that carries potentially very
high risk.
Total trading assets data reported by FR 2886b respondents has
increased approximately 310 percent to $225 billion or nearly 18
percent of total assets between March 31, 2000, and March 31, 2008.
This activity is concentrated at 9 investment Edge and agreement
corporations, 8 of which have trading assets of over $2 million and 5
of which have trading assets of over $1 billion. To better assess the
risk associated with this trading activity, the Federal Reserve
proposes to collect a separate schedule for trading assets and
liabilities, comparable to proposed FR Y-9C Schedule HC-D, Trading
Assets and Liabilities, with somewhat less detail. The proposed new
Schedule RC-D, Trading Assets and Liabilities, would include the
following data items reported on a consolidated basis by Edge and
agreement corporations:
1. U.S. Treasury securities.
2. U.S. government agency obligations (exclude mortgage-backed
securities).
3. Securities issued by states and political subdivisions in the
U.S.
4.a. Residential mortgage backed securities.
4.b. Commercial mortgage backed securities.
5. Other debt securities.
6. Loans.
7. Other trading assets.
8. Derivatives with a positive fair value.
9. Total trading assets.
10. Liability for short positions:
a. Equity securities.
b. Debt securities.
c. All other assets.
11. All other trading liabilities.
12. Derivatives with a negative fair value.
13. Total trading liabilities.
Memoranda:
1. Asset-backed securities:
a. Credit card receivables.
b. Home equity lines.
c. Automobile loans.
d. Other consumer loans.
e. Commercial and industrial loans.
f. Other.
2. Structured financial products:
a. Cash.
b. Synthetic.
c. Hybrid.
3. Retained beneficial interests in securitizations (first-loss or
equity tranches).
4. Equity securities:
a. Readily determinable fair values.
b. Other.
5. Loans pending securitization.
6.a. Gross fair value of commodity contracts.
6.b. Gross fair value of physical commodities held in inventory.
Proposed data items 1 through 13 would be reported by Edge and
agreement corporations that reported trading assets of $2 million or
more in
[[Page 67173]]
Schedule RC, data item 5. Proposed memoranda items 1 through 6.b would
be reported by Edge and agreement corporations that reported trading
assets of $1 billion or more in Schedule RC, data item 5. These
thresholds are consistent with the thresholds for filing, and all data
items on this schedule would be defined as reported, on FR Y-9C
Schedule HC-D.
The consolidated FR Y-9C incorporates data from subsidiary Edge and
agreement corporations. As mentioned previously, this reporting form
collects the same trading asset and liability data items that are being
proposed on the FR 2886b. Therefore, FR 2886b respondents should not
realize a significant increase in reporting burden with the creation of
Schedule RC-D as such information is already collected (or soon will
be) for reporting on the FR Y-9C.
Revisions to Information Collected on Option Contracts and Swaps
Respondents currently report the notional value of option contracts
in Schedule RC-L, Derivatives and Off-Balance-Sheet Items, in data item
10, with a breakout between written and purchased option contracts.
Information by type of option contract is not currently collected.
Written option contracts data reported by FR 2886b respondents have
increased 308 percent to $1,120 billion between March 31, 2000 and
March 31, 2008. Purchased option contracts have increased 294 percent
to $1,079 billion over this same time period. To better assess the risk
associated with each type of option contract, the Federal Reserve
proposes to collect the following breakouts for written options and
purchased options: Interest rate contracts, foreign exchange contracts,
equity derivative contracts, and commodity and other contracts.
Respondents also currently report the notional value of swaps in
Schedule RC-L, data item 11, with a breakout between interest rate
swaps, foreign exchange swaps, and other swaps. Other swaps data
reported by FR 2886b respondents has increased by 229 percent to $186
billion between March 31, 2000, and March 31, 2008. To better assess
the risk associated with the growing use of these types of swap
contracts included in the other category, the Federal Reserve proposes
to split this data item into equity derivative swap contracts, and
commodity and other swap contracts.
The consolidated FR Y-9C report incorporates data from subsidiary
Edge and agreement corporations. This report collects the categories of
option contracts and swap contracts that are being proposed. Therefore,
FR 2886b respondents should not realize a significant increase in
reporting burden with these proposed revisions to Schedule RC-L as such
information is already collected for reporting on the FR Y-9C.
Proposal To Approve Under OMB Delegated Authority the Extension for
Three Years, With Revision, of the Following Report
6. Report title: Bank Holding Company Report of Insured Depository
Institutions' Section 23A Transactions with Affiliates.
Agency form number: FR Y-8.
OMB control number: 7100-0126.
Frequency: Quarterly.
Reporters: Top-tier bank holding companies (BHCs), including
financial holding companies (FHCs), for all insured depository
institutions that are owned by the BHC and by foreign banking
organizations (FBOs) that directly own a U.S. subsidiary bank
Annual reporting hours: 52,010.
Estimated average hours per response: Institutions with covered
transactions: 7.8; Institutions without covered transactions: 1.0.
Number of respondents: Institutions with covered transactions:
1,013; Institutions without covered transactions: 5,101.
General description of report: This information collection is
mandatory (section 5(c) of the Bank Holding Company Act (12 U.S.C.
1844(c)) and section 225.5(b) of Regulation Y (12 CFR 225.5(b)) and is
given confidential treatment (5 U.S.C. 552(b)(4)).
Abstract: This reporting form collects information on transactions
between an insured depository institution and its affiliates that are
subject to section 23A of the Federal Reserve Act. The primary purpose
of the data is to enhance the Federal Reserve's ability to monitor bank
exposures to affiliates and to ensure banks' compliance with section
23A of the Federal Reserve Act. Section 23A of the Federal Reserve Act
is one of the most important statutes on limiting exposures to
individual institutions and protecting against the expansion of the
federal safety net.
Current Actions: The Federal Reserve proposes to require that all
respondents electronically submit all FR Y-8 reports effective with the
June 30, 2009, report date. The Federal Reserve proposes the electronic
submission requirement to increase the quality and timeliness of the
data.
Board of Governors of the Federal Reserve System, November 7,
2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-26916 Filed 11-12-08; 8:45 am]
BILLING CODE 6210-01-P