[Federal Register Volume 63, Number 190 (Thursday, October 1, 1998)]
[Notices]
[Pages 52794-52798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26225]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
Proposed Agency Information Collection Activities; Comment
Request
AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;
Board of Governors of the Federal Reserve System (Board); and Federal
Deposit Insurance Corporation (FDIC).
ACTION: Notice and request for comment.
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SUMMARY: In accordance with the requirements of the Paperwork Reduction
Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC
(the ``agencies'') may not conduct or sponsor, and the respondent is
not required to respond to, an information collection that has been
extended, revised, or implemented on or after October 1, 1995, unless
it displays a currently valid Office of Management and Budget (OMB)
control number. The Federal Financial Institutions Examination Council
(FFIEC), of which the agencies are members, has approved the agencies'
publication for public comment of proposed revisions to the
Consolidated Reports of Condition and Income (Call Report), which are
currently approved collections of information. At the end of the
comment period, the comments and recommendations received will be
analyzed to determine the extent to which the FFIEC should modify the
proposed revisions prior to giving its final approval. The agencies
will then submit the revisions to OMB for review and approval.
DATES: Comments must be submitted on or before November 30, 1998.
ADDRESSES: Interested parties are invited to submit written comments to
any or all of the agencies. All comments, which should refer to the OMB
control number(s), will be shared among the others.
OCC: Written comments should be submitted to the Communications
Divisions, Office of the Comptroller of the Currency, 250 E Street,
S.W., Third Floor, Washington, D.C. 20219; Attention: Paperwork Docket
No. 1557-0081 [FAX number (202) 874-5274; Internet address:
regs.comments@occ.treas.gov]. Comments will be available for inspection
and photocopying at that address.
Board: Written comments should be addressed to Jennifer J. Johnson,
Secretary, Board of Governors of the Federal Reserve System, 20th and C
Streets, N.W., Washington, D.C. 20051, or delivered to the Board's mail
room between 8:45 a.m. and 5:15 p.m., and to the security control room
outside of those hours. Both the mail room and the security control
room are accessible from the courtyard entrance on 20th Street between
Constitution Avenue and C Street, N.W. Comments received may be
inspected in room M-P-500 between 9:00 a.m. and 5:00 p.m., except as
provided in Sec. 261.12 of the Board's Rules Regarding Availability of
Information, 12 CFR 261.12(a)
FDIC: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments
may be hand delivered to the guard station at the rear of the 550 17th
Street Building (located on F Street), on business days between 7:00
a.m. and 5:00 p.m. (Fax number: (202) 898-3838; Internet address:
comments@fdic.gov). Comments may be inspected and photocopied in the
FDIC Public Information Center, Room 100, 801 17th Street, N.W.,
Washington, D.C., between 9:00 a.m. and 4:30 p.m. on business days
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: Alexander T. Hunt, Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, room 3208, Washington, D.C. 20503.
FOR FURTHER INFORMATION CONTACT:
A copy of the proposed revisions to the collections of information may
be requested from any of the agency clearance officers whose names
appear below
OCC: Jessie Gates, OCC Clearance Officer, or Camille Dixon, (202)
874-5090, Office of the Comptroller of the Currency, 20 E Street, S.W.,
Washington, D.C. 20219.
Board: Mary M. McLaughlin, Chief, Financial Reports Section, (202)
452-3829, Division of Research and Statistics, Board of Governors of
the Federal Reserve System, 20th and C Streets, N.W., Washington, D.C.
20551. Telecommunications Device for the Deaf (TDD) users may contact
Diane Jenkins, (202) 452-3544, Board of Governors of the Federal
Reserve System, 20th and C Streets, N.W., Washington, D.C. 20551.
FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907,
Office of the
[[Page 52795]]
Executive Secretary, Federal Deposit Insurance Corporation, 550 17th
Street N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION: Proposal to revise the following currently
approved collections of information:
Report Title: Consolidated Reports of Condition and Income.
Form Number: FFIEC 031, 032, 033, 034.\1\
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\1\ The FFIEC 031 report form is filed by banks with domestic
and foreign offices. The FFIEC 032 report form is filed by banks
with domestic offices only and total assets of $300 million or more.
The FFIEC 033 report form is filed by banks with domestic offices
only and total assets of $100 million or more but less than $300
million. The FFIEC 034 report form is filed by banks with domestic
offices only and total assets of less than $100 million.
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Frequency of Response: Quarterly.
Affected Public: Business or other for-profit.
For OCC
OMB Number: 1557-0081.
Estimated Number of Respondents: 2,650 national banks.
Estimated Time per Response: 39.92 burden hours.
Estimated Total Annual Burden: 423,205 burden hours.
For Board
OMB Number: 7100-0036.
Estimated Number of Respondents: 994 state member banks.
Estimated Time per Response: 45.80 burden hours.
Estimated Total Annual Burden: 182,101 burden hours.
For FDIC
OMB Number: 3064-0052.
Estimated Number of Respondents: 5,985 insured state nonmember
banks.
Estimated Time per Response: 29.67 burden hours.
Estimated Total Annual Burden: 710,300 burden hours.
The estimated time per response is an average which varies by
agency because of differences in the composition of the banks under
each agency's supervision (e.g., size distribution of banks, types of
activities in which they are engaged, and number of banks with foreign
offices). The time per response for a bank is estimated to range from
15 to 400 hours, depending on individual circumstances.
General Description of Report
This information collection is mandatory: 12 U.S.C. 161 (for
national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C.
1817 (for insured state nonmember commercial and savings banks). Except
for select sensitive items, this information collection is not given
confidential treatment. Small businesses (i.e., small banks) are
affected.
Abstract
Banks file Consolidated Reports of Condition and Income with the
agencies each quarter for the agencies' use in monitoring the condition
and performance of reporting banks and the industry as a whole. In
addition, Call Reports provide the most current statistical data
available for evaluating bank corporate applications such as mergers,
for identifying areas of focus for both on-site and off-site
examinations, and for monetary and other public policy purposes. Call
Reports are also used to calculate all banks' deposit insurance and
Financing Corporation assessments and national banks' semiannual
assessment fees.
Current Actions
The agencies are proposing to delete the existing items for the
amortized cost and fair value of high-risk mortgage securities and for
losses deferred pursuant to 12 U.S.C. 1823(j). The deferred loss items
appear only on the FFIEC 034 report forms. New Items would be added for
accumulated gains (losses) associated with cash flow hedges and for the
year-to-date changes in this new component of equity capital. A new or
revised item would distinguish nonmortgage servicing assets from other
intangible assets. A number of instructional changes would be made,
primarily to incorporate recent changes in accounting standards, to
further conform with generally accepted accounting principles in other
areas, and to improve the reporting of certain regulatory capital
information.
Type of Review: Revision of a currently approved correction.
The proposed revisions to the Consolidated Reports of Condition and
Income (Call Report) have been approved for publication by the FFIEC.
Unless otherwise indicated, the agencies would implement these proposed
Call Report changes as of the March 31, 1999, report date and the
revisions would apply to all four sets of report forms (FFIEC 031, 032,
033, and 034). Nonetheless, as is customary for Call Report changes,
banks are advised that, for the March 31, 1999, report date, reasonable
estimates may be provided for any new or revised item for which the
requested information is not readily available. The specific wording of
the captions for the new Call Report items should be regarded as
preliminary.
Reductions in Detail
The agencies are proposing to eliminate two items applicable to all
banks and two items on the report forms for smaller banks, as follows:
(1) Schedule RC-B--Securities: Banks report the amortized cost and
fair value of ``High-risk mortgage securities'' in Memorandum items 8.a
and 8.b, respectively. The definition of high-risk mortgage securities
was taken from the Supervisory Policy Statement on Securities
Activities, which the FFIEC approved and the agencies adopted in
December 1991, effective February 10, 1992 (57 FR 4029, February 3,
1992). In April 1998, the FFIEC and the agencies rescinded this policy
statement and approved in its place a Supervisory Policy Statement on
Investment Securities and End-User Derivatives Activities, effective
May 26, 1998 (63 FR 20191, April 23, 1998). In adopting the new policy
statement, the agencies removed the previous policy statement's
specific constraints concerning investments in high-risk mortgage
securities, including its ``high risk'' tests, and substituted broader
guidance covering all investment securities, including the
establishment by each institution of appropriate risk limits.
Accordingly, the agencies are proposing to eliminate the two memorandum
items for high-risk mortgage securities.
(2) Schedule RC--Balance Sheet: The balance sheet on the FFIEC 034
report forms includes two items in which banks participating in the
agencies' agricultural loan loss deferral programs, which were mandated
by 12 U.S.C. 1823(j) in 1987, have reported the unamortized amount of
their deferred agricultural loan losses. Under these programs, all
deferred losses must be fully amortized by December 31, 1998. Because
participating banks will no longer have any deferred losses to report
after 1998, items 12.b, 12.c, 28.b, and 28.c will be deleted from the
balance sheet of the Call Report for small banks.
Accumulated Gains (Losses) Associated With Cash Flow Hedges
The Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities
(FAS 133), on June 16, 1998. This statement takes effect for fiscal
years beginning after June 15, 1999, with earlier application
encouraged. Banks must adopt FAS 133 for Call Report purposes upon its
effective date based on their fiscal year, with earlier application
permitted as described in the standard. Most banks have calendar year
fiscal years and, therefore, will not need this accounting
[[Page 52796]]
standard until January 1, 2000. However, some banks, primarily FDIC-
supervised savings banks, have fiscal years that will require them to
begin applying FAS 133 during 1999, e.g., beginning on July 1, 1999.
Furthermore, the earliest date as of which an institution can choose to
adopt this new accounting standard is July 1, 1998.
Under FAS 133, all derivatives must be reported as either assets or
liabilities on the balance sheet and must be carried at fair value. If
certain conditions are met, a derivative may be specifically designated
as a ``cash flow hedge.'' In a cash flow hedge, to the extent the hedge
is effective, the gain or loss on the derivative is initially reported
outside of earnings in a component of equity capital. The gain or loss
will subsequently go through earnings in the period or periods when the
transaction being hedged affects earnings. The ineffective portion of
the hedge is reported in earnings immediately.\2\
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\2\ If certain other conditions are met, a derivative may be
specifically designated as a ``fair value hedge'' or as a hedge of
the foreign currency exposure of a net investment in a foreign
operation. In these situations, the gain or loss on the derivative
is reported in a different manner than the gain or loss on a cash
flow hedge. If a derivative is not designated as a hedging
instrument, the gain or loss on the derivative is recognized in
current earnings.
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As part of the disclosure requirements of FAS 133, an entity must
disclose the accumulated gains (losses) associated with cash flow
hedges that are included in equity capital as of the balance sheet
date. An entity also must disclose the related net change associated
with cash flow hedging transactions during the reporting period and the
net amount of any reclassification of these gains (losses) into
earnings. Accordingly, the agencies are proposing to add two new items.
Banks would report the accumulated gains (losses) associated with cash
flow hedges, as of the report date, in a new item in the equity capital
section of the balance sheet (Schedule RC, item 26.c). Banks also would
report the year-to-date change in these accumulated gains (losses)
(i.e., net of any reclassification adjustment) in the changes in equity
capital schedule (Schedule RI-A, item 11.b). Existing item 11 on
Schedule RI-A would be remembered as item 11.a.
After a bank adopts FAS 133, derivatives held for purposes other
than trading must be reported as fair value on the balance sheet
(Schedule RC) in item 11, ``Other assets,'' or item 20, ``Other
liabilities,'' as appropriate. Derivatives held for trading will
continue to be reported at fair value on the balance sheet in Item 5,
``Trading assets,'' or item 15.b, ``Trading liabilities,'' as
appropriate.
The agencies request comment on whether banks will be adopting FAS
133 in 1998 or 1999, either earlier than required or because of the
beginning date of their fiscal year.
Nonmortgage Servicing Assets
On August 10, 1998, the agencies published a final rule amending
their regulatory capital treatment of servicing assets (63 FR 42668).
Under this amendment, nonmortgage servicing assets (NMSAs) will be
recognized (rather than deducted) for regulatory capital purposes.
However, these servicing assets are subject to the 25 percent of Tier 1
capital sublimit that previously applied only to purchased credit card
relationships (PCCRs). To date, banks have reported their NMSAs as part
of ``All other identifiable intangible assets,'' in item 6.b.(2) of
Call Report Schedule RC-M. This is because these intangibles generally
have been deducted in full from Tier 1 capital and from assets in
regulatory capital calculations. As a result of the revised regulatory
capital treatment of NMSAs, these assets need to be distinguished from
``All other identifiable intangible assets.'' This change is needed to
enable the agencies to verity the regulatory capital amounts that banks
report in the Call Report and to calculate their regulatory capital
ratios.
Therefore, the agencies are considering two reporting alternatives
to respond to this change in regulatory capital standards. One
alternative is to add a new item 6.b.(2) for ``Nonmortgage servicing
assets'' to Schedule RC-M and to renumber existing item 6.b.(2), ``All
other identifiable intangible assets,'' as item 6.b.(3). Another
alternative is to revise Schedule RC-M, item 6.b.(1). ``Purchased
credit card relationships,'' to include NMSAs because these two types
of intangibles are subject to the same Tier 1 capital sublimit. The
proposed caption for this item is ``Purchased credit card relationships
and nonmortgage servicing assets.'' Comments are requested on these two
alternatives.
Instructional Changes
Computer Software Costs
In March 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 provides guidance on whether costs of internal-use
software should be capitalized (and then amortized) or expensed as
incurred. Internal-use software has the following characteristics: (a)
the software is acquired, internally developed, or modified solely to
meet the entity's internal needs, and (b) during the software's
development or modification, no substantive plan exists or is being
developed to market the software externally. This SOP is effective for
financial statements for fiscal years beginning after December 15,
1998. The SOP encourages earlier application in fiscal years for which
annual financial statements have not been issued. For Call Report
purposes, banks must adopt this SOP upon its effective date based on
their fiscal year. Early application is permitted in the Call Report in
accordance with the transition guidance in the SOP's. The Call Report
instructions will be revised to conform with SOP 98-1, including
replacing the current Glossary entry for ``Internally Developed
Computer Software'' with a new entry on computer software costs that
summarizes SOP 98-1 and other relevant accounting standards.
Costs of Start-Up Activities
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires costs of start-up activities,
including organization costs, to be expensed as incurred. SOP 98-5
defines start-up activities broadly as ``those one-time activities
related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business
with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing some new operation.'' This SOP
is effective for financial statements for fiscal years beginning after
December 15, 1998. The SOP encourages earlier application in fiscal
years for which annual financial statements have not been issued. For
Call Report purposes, banks must adopt this SOP upon its effective date
based on their fiscal year. Early application is permitted in the Call
Report in accordance with the transition guidance in the SOP. The Call
Report instructions will be revised to conform with SOP 98-5, including
replacing the current Glossary entry for ``Organization Costs'' with a
new entry on the costs of start-up activities that summarizes SOP 98-5.
Unsuitable Investment Practices
As mentioned above, the FFIEC and the agencies rescinded the
Supervisory Policy Statement on Securities Activities in April 1998 and
approved
[[Page 52797]]
in its place a Supervisory Policy Statement on Securities on Investment
Securities and End-User Derivatives Activities. The latter policy
statement does not retain the section of the former policy statement
addressing the reporting of securities activities, including a
description of practices considered unsuitable when conducted in a
institution's investment portfolio. In their Federal Register notice
publishing the Supervisory Policy Statement on Investment Securities
and End-User Derivatives Activities (63 FR 20191), the agencies stated
their intent to separately issue supervisory guidance on the reporting
of investment securities. The agencies are proposing to add guidance on
this reporting matter to the Glossary section of the Call Report
instructions. This approach will make guidance more readily accessible
to banks as they prepare their Call Reports.
Re-Booking Charged-Off Loans
When a bank makes a full or partial direct write-down of a loan or
lease that is uncollectible, the bank establishes a new cost basis for
the asset. Some banks have later attempted to reverse the previous
write-down and ``re-book'' the charged-off loan or lease after
concluding that the prospects for recovering the charge-off have
improved. Re-booking a charged-off loan is not an acceptable practice
under generally accepted accounting principles, and therefore, is not
acceptable for Call Report purposes. The Glossary entry for ``allowance
for loan and lease losses'' will be revised to indicate that once a new
cost basis has been established for a loan or lease through a direct
write-down of the asset, this cost basis may not be ``written up'' at
later date.
Goodwill Transactions
Under generally accepted accounting principles, goodwill and
similar intangible assets ordinarily cannot be disposed of apart from
an enterprise as a whole. However, an exception is made when a large
segment or separable group of assets of an acquired company or an
entire acquired company is sold or otherwise liquidated. In that case,
some or all of the unamortized goodwill recognized in the acquisition
should be included in the cost of the assets sold. GAAP further
provides that an intangible asset such as goodwill should not be
written off in the period of acquisition. Instead, an intangible asset
should be amortized over its estimated life. Some banks have attempted
to remove goodwill from their balance sheets by ``selling'' or
``dividending'' this asset to their parent hold company or by charging
it off in the year of acquisition. Because these transactions are not
appropriate under generally accepted accounting principles, the
agencies will revise the Glossary entry for ``business combinations''
and the instructions for Schedule RC-M, item 6.c, ``Goodwill,'' to
explain that these transactions are not acceptable for Call Report
purposes.
Reporting of Net Risk-Weighted Assets by Banks Subject to the Market
Risk Capital Guidelines
Banks that are subject to the market risk capital guidelines must
report the amount of their ``Market risk equivalent assets'' in
Schedule RC-R, item 3.d.(2). These banks report their ``Net risk-
weighted assets'' in item 3.d.(1) of this schedule, but the
instructions for this item specifically tell banks to exclude market
risk equivalent assets. The sum of the amounts reported in items
3.d.(1) and 3.d.(2) is the denominator of the bank's total risk-based
capital ratio.
In the Board's FR Y-9C bank holding company report, bank holding
companies that are subject to the market risk capital guidelines must
also report their ``market risk equivalent assets'' and their ``Net
risk-weighted assets.'' However, in contrast to the Call Report
instructions, the FR Y-9C instructions for reporting net risk-weighted
assets direct bank holding companies to include market risk equivalent
assets. This means that, for bank holding companies, the amount
reported for net risk-weighted assets is the denominator of the holding
company's total risk-based capital ratio.
In order to achieve greater consistency between the two reports,
the Call Report instructions for reporting ``Net risk-weighted assets''
will be revised to include market risk equivalent assets. The caption
for item 3.d.(2) of Schedule RC-R will be modified to read ``Market
risk equivalent assets included in net risk-weighted assets above.''
Because fewer than 20 banks are subject to the market risk capital
guidelines, this change will not affect the remaining 9,800 banks that
are not covered by these guidelines.
Calculating the Allowable Amount of the Allowance for Credit Losses for
a Bank With Low Level Recourse Transactions
The instructions for reporting low level recourse transactions in
Schedule RC-R--Regulatory Capital were revised in the first quarter of
1998 to give banks the option of using either the ``gross-up method''
or the ``direct reduction method.'' However, when this revision was
made, the instructions did not clearly explain how banks choosing the
``direct reduction method'' should calculate the amount of the
allowance for credit losses that can be included in Tier 2 capital. In
order to provide the necessary guidance on this calculation, the
instructions for Schedule RC-R will be revised. These instructions will
indicate that, for purposes of determining the Tier 2 capital limit on
the allowance for credit losses, a bank using the ``direct reduction
method'' for reporting its low level recourse transactions should
multiply its ``maximum contractual dollar amount of recourse exposure''
(as defined in the instructions) by 12.5 and include this product in
its gross risk-weighted assets. This gross risk-weighted-assets figure
multiplied by 1.25 percent would be the bank's Tier 2 limit on the
allowance for credit losses. The limit on the allowance would be fixed
at this amount and would not be changed after the bank calculates its
institution-specific add-on factor for low level recourse under the
``direct reduction method.'' Thus, a bank would measure its Tier 2
capital and its total risk-based capital prior to its application of
the ``direct reduction method'' and would not recalculate these two
amounts once the add-on factor was known.
Request for Comment
Comments submitted in response to this Notice will be shared among
the agencies and will be summarized or included in the agencies'
requests for OMB approval. All comments will become a matter of public
record. Written comments should address the accuracy of the burden
estimates and ways to minimize burden as well as other relevant aspects
of the information collection request. Comments are invited on:
Whether the proposed revisions to the Call Report collections of
information are necessary for the proper performance of the agencies'
functions including whether the information has practical utility;
The accuracy of the agencies' estimate of the burden of the
information collections as they are proposed to be revised, including
the validity of the methodology and assumptions used; Ways to enhance
the quality, utility, and clarity of the information to be collected;
Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance,
[[Page 52798]]
and purchase of service to provide information.
Dated: September 23, 1998.
Karen Solomon,
Director, Legislative and Regulatory Activities Division, Office of the
Comptroller of the Currency.
Board of Governors of the Federal Reserve System, September 24,
1998.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington, D.C., this 25th day of September, 1998.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 98-26225 Filed 9-30-98; 8:45 am]
BILLING CODES 4810-33-M, 6210-01-M, 6714-01-M
