[Federal Register Volume 66, Number 202 (Thursday, October 18, 2001)]
[Notices]
[Pages 52973-52980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26284]


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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 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 December 17, 2001.

ADDRESSES: Interested parties are invited to submit written comments to 
any or all of the agencies. All comments, which should refer to the OMB 
control number(s), will be shared among the agencies.
    OCC: Written comments should be submitted to the Communications 
Division, Office of the Comptroller of the Currency, 250 E Street, SW., 
Public Information Room, Mailstop 1-5, Attention: 1557-0081, 
Washington, DC 20219. In addition, comments may be sent by facsimile 
transmission to (202) 874-4448, or by electronic mail to 
[email protected]. Comments will be available for inspection 
and photocopying at the OCC's Public Information Room, 250 E Street, 
SW., Washington, DC 20219. Appointments for inspection of comments may 
be made by calling (202) 874-5043.
    Board: Written comments should be addressed to Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System, 20th and C 
Streets, NW., Washington, DC 20551, submitted by electronic mail to 
[email protected], 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, NW. Comments received may be 
inspected in room M-P-500 between 9 a.m. and 5 p.m., except as provided 
in section 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, NW., Washington, DC 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 a.m. 
and 5 p.m. [Fax number: (202) 898-3838; Internet address: 
[email protected]]. Comments may be inspected and photocopied in the 
FDIC Public Information Center, Room 100, 801 17th Street, NW., 
Washington, DC, between 9 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, DC 20503.

FOR FURTHER INFORMATION CONTACT: Draft copies of the proposed revisions 
to the Call Report forms may be requested from any of the agency 
clearance officers whose names appear below.
    OCC: Jessie Dunaway, OCC Clearance Officer, or Camille Dixon, (202) 
874-5090, Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Mary M. West, Chief, Financial Reports Section, (202) 452-
3829, Division of Research and Statistics, Board of Governors of the 
Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. 
Telecommunications Device for the Deaf (TDD) users may contact Diane 
Jenkins, (202) 452-3544, Board of Governors of the Federal Reserve 
System, 20th and C Streets, NW., Washington, DC 20551.
    FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907, 
Office of the Executive Secretary, Federal Deposit Insurance 
Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Proposal to revise the following currently 
approved collections of information:
    Report Title: Consolidated Reports of Condition and Income.
    Form Numbers: FFIEC 031 (for banks with domestic and foreign 
offices) and FFIEC 041 (for banks with domestic offices only).
    Frequency of Response: Quarterly.
    Affected Public: Business or other for-profit.

For OCC:

    OMB Number: 1557-0081.
    Estimated Number of Respondents: 2,200 national banks.
    Estimated Time per Response: 42.02 burden hours.
    Estimated Total Annual Burden: 369,786 burden hours.

For Board:

    OMB Number: 7100-0036.
    Estimated Number of Respondents: 978 state member banks.
    Estimated Time per Response: 48.00 burden hours.
    Estimated Total Annual Burden: 187,776 burden hours.

For FDIC:

    OMB Number: 3064-0052.
    Estimated Number of Respondents: 5,640 insured state nonmember 
banks.
    Estimated Time per Response: 32.63 burden hours.
    Estimated Total Annual Burden: 736,053 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

[[Page 52974]]

offices). The time per response for a bank is estimated to range from 
15 to 550 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 selected items, this information collection is not given 
confidential treatment. Small businesses (i.e., small banks) are 
affected.

Abstract

    Banks file Call Reports with the agencies each quarter for the 
agencies' use in monitoring the condition, performance, and risk 
profile 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

I. Overview

    The agencies are requesting comment on several proposed revisions 
to the Call Report that will significantly enhance the usefulness of 
the report to the agencies, particularly from a supervisory 
perspective, and on certain revisions that should help simplify the 
completion of the report. Although the agencies implemented a 
substantial number of revisions to the Call Report in 2001, the 
agencies' ongoing review of their data needs for safety and soundness 
and other public purposes and other developments have indicated that 
further refinements to the information collected in the Call Report 
should be made in 2002. The proposed revisions include:
     Separating the existing balance sheet (Schedule RC) items 
for federal funds sold and securities resale agreements and for federal 
funds purchased and securities repurchase agreements into two asset and 
two liability items and adding a new item to Schedule RC-M, Memoranda, 
for the amount of overnight Federal Home Loan Bank advances included in 
federal funds purchased;
     Adding new items for:
     The fair value of credit derivatives to Schedule RC-L, 
Derivatives and Off-Balance Sheet Items;
     Year-to-date merchant credit card sales volume for 
acquiring banks and for agent banks with risk to Schedule RC-L; and
     Loans and leases held for sale that are past due 30-89 
days, past due 90 days or more, and in nonaccrual status to the past 
due and nonaccrual schedule (Schedule RC-N);
     Breaking down the existing items for past due and 
nonaccrual closed-end 1-4 family residential mortgages in Schedule RC-N 
and for the charge-offs and recoveries of such mortgages in Schedule 
RI-B, part I, into separate items for first lien and junior lien 
mortgages;
     Revising the manner in which banks report on the estimated 
amount of their uninsured deposits in the deposit insurance assessments 
schedule (Schedule RC-O) and, for banks with foreign offices, modifying 
the scope of the existing items for the number and amount of deposit 
accounts in domestic offices to include accounts in insured branches in 
Puerto Rico and U.S. territories and possessions;
     Inserting a subtotal in the Tier 1 capital computation in 
Schedule RC-R, Regulatory Capital, to facilitate the calculation of 
certain disallowed assets and adding a new item to the schedule in 
which banks with financial subsidiaries would report the adjustment 
they must make to Tier 1 capital for their investment in these 
subsidiaries;
     Splitting the existing income statement (Schedule RI) item 
for intangible asset amortization expense into separate items for 
impairment losses on goodwill and for the amortization expense and 
impairment losses on other intangible assets on account of a new 
accounting standard; and
     Simplifying the disclosure of write-downs arising from 
transfers of loans to the held-for-sale account in the changes in 
allowance for loan and lease losses schedule (Schedule RI-B, part II).
    Type of Review: Revision of a currently approved collection.
    The proposed revisions to the Call Report have been approved for 
publication by the FFIEC. The agencies would implement these proposed 
Call Report changes as of the March 31, 2002, report date. Nonetheless, 
as is customary for Call Report changes, banks are advised that, for 
the March 31, 2002, report date only, 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 and revised Call Report items and the numbering of 
these items in the report forms should be regarded as preliminary.

II. Discussion of Proposed Revisions

A. Federal Funds Transactions and Resale/Repurchase Agreements
    On the Call Report balance sheet (Schedule RC), the agencies are 
proposing to separate the reporting of federal funds sold from 
securities purchased under agreements to resell (current item 3) and 
Federal funds purchased from securities sold under agreements to 
repurchase (current item 14). The revised balance sheet would have 
separate asset and liability items for federal funds transactions 
(items 3.a and 14.a) and for other securities resale/repurchase 
agreements (items 3.b. and 14.b).\1\ In addition, the agencies would 
add a new item to Schedule RC-M--Memoranda, in which banks would report 
the amount of overnight Federal Home Loan Bank (FHLB) advances (i.e., 
maturing in one business day) included in federal funds purchased on 
the balance sheet. All reporting of these transactions on the Call 
Report balance sheet would continue to be on a gross basis (i.e., 
without netting), except to the extent permitted under FASB 
Interpretation No. 41.
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    \1\ Federal funds transactions include securities resale/
repurchase agreements involving the receipt of immediately available 
funds that mature in one business day or roll over under a 
continuing contract.
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    From 1988 until March 31, 1997, banks reported their Federal funds 
transactions separately from their resale/repurchase agreements on the 
Call Report balance sheet. These items were combined in 1997 in 
conjunction with the agencies' adoption of generally accepted 
accounting principles (GAAP) as the reporting basis for recognition and 
measurement purposes in the Call Report. The combining took place 
because Federal funds sold/purchased and securities resale/repurchase 
agreements are shown as single asset/liability categories on the 
illustrative consolidated financial statements in the Audit and 
Accounting Guide--Banks and Savings Institutions, published by the 
American Institute of Certified Public Accountants (AICPA), and on the 
Securities and Exchange Commission's bank holding company balance sheet 
format in Article 9 of Regulation S-X (17 CFR 210.9-03). However, the 
agencies have reconsidered the current method of presentation for these 
assets and liabilities in the Call Report balance sheet and, for the 
reasons discussed

[[Page 52975]]

below, have concluded that they should return to the pre-1997 method.
    As banks have increased their reliance on nondeposit funding 
sources, the importance of liquidity and collateral management--and the 
potential for serious liquidity stress--has increased. Federal funds 
purchased and securities repurchase agreements frequently make up a 
large portion of banks' nondeposit funding sources and these short-term 
instruments often play a critical role in a bank's asset-liability 
management strategies and its response to liquidity pressures. Many 
federal funds transactions are unsecured, whereas all resale/repurchase 
agreements and overnight FHLB advances are secured; moreover, the terms 
for resale/repurchase agreements are longer than those for federal 
funds transactions.
    Currently, nearly 90 percent of all commercial banks report that 
they have ``Federal funds sold and securities purchased under 
agreements to resell'' and approximately one third of all commercial 
banks report that they have ``Federal funds purchased and securities 
sold under agreements to repurchase.'' Current Call Reports also show 
that one quarter of all commercial banks have both these assets and 
liabilities. Frequently, resale and repurchase agreements are linked, 
meaning that a bank has purchased securities under agreements to resell 
and at the same time has sold the same securities under agreements to 
repurchase. Thus, separate reporting of federal funds transactions and 
resale/repurchase agreements, combined with information about overnight 
FHLB advances, will allow the agencies to more effectively monitor and 
understand individual bank funding sources, asset-liability management, 
and liquidity risk. Under the proposed new reporting, the agencies will 
also improve their ability to identify banks that have significant 
changes to their asset-liability management strategies or liquidity 
risk positions between examinations.
    In addition, because repurchase agreements and FHLB advances are 
always secured, receiverships must use the collateral to satisfy these 
claims prior to meeting the FDIC's claims when banks fail. A large 
volume of secured claims can materially increase the FDIC's loss rate. 
Therefore, the addition of these liability items will improve the 
FDIC's estimates of its potential loss exposure, both for individual 
troubled institutions \2\ and in the aggregate. More accurate loss 
estimates for individual failing banks could produce better-informed 
decisions in selecting winning bidders at resolution and more accurate 
loss estimates on the insurance funds' financial statements. More 
accurate data at the aggregate level could improve the FDIC's analysis 
of its overall risk exposure and more informed analysis of potential 
changes to its deposit insurance pricing or risk abatement strategies.
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    \2\ These items would not yield improvements for individual 
institution estimates where the FDIC has access to timely data on 
secured credits directly from the institution.
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    Currently, overnight FHLB advances are reported only as part of 
``Federal funds purchased and securities sold under agreements to 
repurchase'' on the Call Report balance sheet (item 14). Under the 
proposed revision described above, these overnight advances will 
continue to be reported as part of federal funds purchased in balance 
sheet item 14.a. All other FHLB advances are reported on the balance 
sheet as part of ``Other borrowed money'' (item 16), with a breakdown 
on these advances by remaining maturity reported in Schedule RC-M, 
items 5.a.(1) through 5.a.(3). However, the agencies understand that 
the amount of overnight FHLB borrowings is a substantial portion of the 
total FHLB advances made to all banks, but the amount of these advances 
cannot at present be determined from the Call Report. The proposed new 
Schedule RC-M item will enable the agencies to determine the total 
amount of FHLB borrowings at each institution, thereby improving their 
ability to monitor and understand individual bank funding sources, 
asset-liability management, and liquidity.
B. Fair Value of Credit Derivatives
    The notional amounts of credit derivatives have been reported on 
the Call Report since 1997. These amounts are reported separately for 
contracts where the reporting bank is the guarantor (Schedule RC-L, 
item 7.a) and for contracts where the bank is the beneficiary (Schedule 
RC-L, item 7.b). However, there are no disclosures on the Call Report 
for the fair value of these contracts. In contrast, banks disclose both 
the notional amounts and fair values of four other types of derivatives 
in Schedule RC-L: interest rate contracts, foreign exchange contracts, 
equity derivative contracts, and commodity and other contracts. Gross 
positive and gross negative fair values are reported for each of these 
four types of derivatives, with separate values provided for contracts 
held for trading and for contracts held for purposes other than 
trading.
    The notional amount outstanding of credit derivatives at banks has 
increased more than sixfold since 1997 (from $55 billion to $352 
billion). This growth is largely the result of the use of credit 
derivatives as a risk management tool. In this regard, notional amounts 
are useful as an overall indicator of volume of derivative markets. 
However, notional amounts do not reveal the credit or market risk to 
which banks are exposed from derivative contracts. Therefore, the 
agencies propose to add four new items to Schedule RC-L, Derivatives 
and Off-Balance Sheet Items, to capture the gross positive and gross 
negative fair values of credit derivatives where the bank is the 
guarantor (items 7.a.(1) and (2)) and where the bank is the beneficiary 
(items 7.b.(1) and (2)).
    The addition of these items should result in minimal additional 
reporting burden for the small number of banks with credit derivatives 
because the Financial Accounting Standards Board (FASB) requires the 
fair value of credit derivatives to be reported or disclosed in 
financial statements. FASB Statement No. 133, Accounting for Derivative 
Instruments and Hedging Activities, requires certain credit derivatives 
to be reported as assets or liabilities on the balance sheet at their 
fair value. The remaining credit derivatives are financial instruments, 
the fair value of which must be disclosed in accordance with FASB 
Statement No. 107, Disclosures About Fair Value of Financial 
Instruments, in financial statements prepared in accordance with GAAP.
    The two new proposed Schedule RC-L items would enable the agencies 
to better determine the risk of credit derivatives at each institution, 
thereby improving their ability to monitor and understand individual 
trading and hedging strategies. In addition, these items will increase 
transparency in financial reporting and further align the Call Report 
with GAAP and financial statement disclosures.
C. Merchant Credit Card Sales Volume
    The agencies are proposing to add two items to Schedule RC-L, 
Derivatives and Off-Balance Sheet Items, in which data on year-to-date 
merchant credit card sales volume would be collected. One item would be 
applicable to acquiring banks, i.e., banks that contract with merchants 
for the settlement of credit card transactions. Acquiring banks can 
contract directly with a merchant or indirectly through an agent bank 
or another third-party organization to process a merchant's credit card 
transactions. The other item would be completed by agent banks with 
risk, i.e., banks that arrange for an acquiring bank to process a 
merchant's credit card

[[Page 52976]]

transactions and, in effect, guarantee that merchant's transactions.
    In general, merchant processing activities involve the gathering of 
sales information from merchants, obtaining authorization for sales 
transactions, collecting funds from the card-issuing banks, and 
crediting the merchants' accounts for their sales. The off-balance 
sheet risk associated with merchant processing can be significant as 
evidenced by a recent bank failure resulting from poor risk management 
of merchant processing activity. For an acquiring bank and an agent 
bank with risk, the primary risks associated with the merchant acquirer 
business are credit risk and transaction risk, although liquidity and 
reputation risks are also present. With respect to credit risk, an 
acquiring bank and an agent bank with risk both rely on the 
creditworthiness of the merchant to pay chargebacks. Chargebacks can 
result, for example, from a customer's dispute of a transaction (e.g., 
the customer never received the merchandise) or from an invalid 
transaction (i.e., a transaction with an improper authorization). 
Chargebacks are a recurring element in the merchant processing 
business, and a merchant must be financially capable to pay for them. 
However, when the merchant is unable or unwilling to pay, merchant 
chargebacks become a credit exposure to the acquiring bank. If a 
merchant's transactions have been guaranteed by an agent bank with risk 
or another third party, the acquiring bank will look to this guarantor 
for reimbursement. If a merchant does not honor its chargebacks, the 
acquiring bank or the agent bank with risk, if one is associated with 
the merchant, will incur losses.
    Because sales volume is a risk indicator, the proposed new items 
for sales volume represent information that acquiring banks and agent 
banks with risk should be monitoring internally as part of their risk 
management process. Institutions that are required to report sales data 
to the credit card associations of which they are members should 
measure sales volume in the same manner for Call Report purposes. These 
new items will enable the agencies to identify and monitor institutions 
that are involved in the credit card merchant acquirer business, the 
volume of sales transactions being processed or guaranteed, 
particularly in relation to an institution's capital, significant 
changes in sales volume at individual institutions, and new entrants to 
the business. The agencies' examiners will use this information during 
their pre-examination planning process as they seek to identify 
potential high risk areas within a bank and to determine appropriate 
examination staffing. It is estimated that there are approximately 
2,000 banks with off-balance sheet credit exposure from merchant sales 
transactions.
D. Past Due and Nonaccrual Information on Loans and Leases Held for 
Sale
    Currently the category-by-category breakdown of a bank's loans and 
leases that are past due or in nonaccrual status in Call Report 
Schedule RC-N includes loans and leases held for sale together with 
loans and leases that the bank has the intent and ability to hold for 
the foreseeable future or until maturity or payoff (loans held for 
investment). The agencies propose to add new Memorandum item 5, ``Loans 
and leases held for sale (included in Schedule RC-N, items 1 through 8, 
above),'' to specifically break out such loans and leases that are past 
due 30 through 89 days and still accruing, past due 90 days or more and 
still accruing, or in nonaccrual status. Existing Memorandum item 5 on 
past due derivative contracts would be renumbered as Memorandum item 6.
    Selling loans, in whole or in part, has become an increasingly 
important portfolio risk management tool for institutions seeking to 
manage concentrations, change risk profiles, improve returns, and 
generate liquidity. In 1991, the agencies began collecting information 
on the carrying value of all loans and leases that are held for sale, 
currently reported on Schedule RC, Balance Sheet, item 4.a. Since 1996, 
the aggregate amount of banks' loans and leases held for sale has 
increased nearly 250 percent (from $44 billion to $153 billion). 
Separately disclosing the repayment performance of held-for-sale loans 
will enable the agencies to better understand the quality of loans in 
banks' held-for-sale portfolios and held-for-investment portfolios. It 
will also give an indication of banks' held-for-sale strategies over 
time. In addition, because loans held for sale are carried on the 
balance sheet at the lower of cost or fair value and loan loss 
allowances are not established for these loans, the proposed Memorandum 
items will ensure that the relationship between banks' loan loss 
allowances for loans held for investment and the volume of such loans 
that are in past due or nonaccrual status can be readily ascertained.
E. First and Junior Lien 1-4 Family Residential Mortgages: Past Due and 
Nonaccrual Loans, Charge-offs, and Recoveries
    The agencies are proposing to revise Schedule RC-N, Past Due and 
Nonaccrual Loans, Leases, and Other Assets, to collect the amount of 
closed-end loans secured by first mortgages on 1-4 family residential 
properties (in domestic offices) that are past due 30 days or more or 
in nonaccrual status separately from past due and nonaccrual closed-end 
loans secured by junior liens on such properties (in domestic offices). 
A similar change would be made to the reporting of first and junior 
lien 1-4 family residential mortgages (in domestic offices) in Schedule 
RI-B, part I, Charge-offs and Recoveries on Loans and Leases. 
Currently, these two types of residential mortgage loans are combined 
for purposes of reporting past due and nonaccrual loan data as well as 
year-to-date charge-offs and recoveries. The revised reporting 
structure for residential mortgage loans in Schedule RC-N, item 
1.c.(2), and Schedule RI-B, part I, item 1.c.(2), will then parallel 
the reporting for these types of loans (in domestic offices) in 
Schedule RC-C, part I--Loans and Leases, item 1.c.(2)(a) and (b).
    Over the past several years, there has been an enormous growth in 
home equity lending, which includes closed-end loans secured by junior 
liens on 1-4 family residential properties as well as open-end loans 
secured by 1-4 family residential properties (home equity lines of 
credit), which are generally junior liens. From March 1996 to March 
2001, closed-end junior liens at commercial banks grew by over 70 
percent to $106 billion while open-end loans increased by nearly 66 
percent to $130 billion. Both types of home equity lending grew by 
around one third over the past two years. Currently, over 80 percent of 
all commercial banks have closed-end junior liens in their loan 
portfolios and almost 60 percent have open-end loans under home equity 
lines of credit. The percentage of closed-end 1-4 family residential 
mortgages (junior liens and first liens combined) that are 30 days or 
more past due or in nonaccrual status has increased 18 percent from 
March 1999 to March 2001. However, because closed-end first and junior 
lien residential mortgage loans are reported on a combined basis in 
Schedules RC-N and RI-B, part I, differences in the delinquency and 
loss rates for these two different types of closed-end residential 
mortgages cannot be discerned at present. Therefore, this proposed 
change will permit the agencies to

[[Page 52977]]

monitor the performance of home equity lending in the form of closed-
end junior lien 1-4 family residential loans in the same manner as they 
currently do for revolving, open-end 1-4 family residential loans.
F. Reporting Uninsured Deposits
    The FDIC relies on Call Report information to estimate the amount 
of insured and uninsured deposits in banks. The FDIC uses estimates of 
insured deposits to determine the reserve ratios of the deposit 
insurance funds. The reserve ratios are measured against the funds' 
``designated reserve ratio,'' as defined in the Federal Deposit 
Insurance Act (FDI Act), in determining assessment rates to be paid by 
insured institutions. Thus, having accurate information on insured 
deposits is critical to managing the insurance funds and assessing 
deposit insurance premiums. In this regard, Section 7(a)(9) of the FDI 
Act, which was originally added by Section 141 of the FDIC Improvement 
Act of 1991, directs the FDIC to

take such action as may be necessary to insure that--(A) each 
insured depository institution maintains; and (B) the Corporation 
receives on a regular basis from such institution, information on 
the total amount of all insured deposits, preferred deposits, and 
uninsured deposits at the institution. In prescribing reporting and 
other requirements for the collection of actual and accurate 
information * * *, the Corporation shall minimize the regulatory 
reporting burden imposed upon insured depository institutions that 
are well capitalized * * * while taking into account the benefit of 
the information to the Corporation, including the use of the 
information to enable the Corporation to more accurately determine 
the total amount of insured deposits in each insured depository 
institution.

    In order to improve compliance with this statutory requirement 
while also considering its guidance on reporting burden, the agencies 
are proposing to revise Schedule RC-O, Memorandum item 2, ``Estimated 
amount of uninsured deposits of the bank.'' As revised, Memorandum item 
2 would no longer ask whether the reporting bank, in essence, can 
estimate its uninsured deposits and, if so, to report this estimate. 
Instead, each bank would be required to report the estimated uninsured 
portion of its deposits, subject to certain criteria that are discussed 
below. In this regard, the following paragraphs first explain the 
reasons for proposing this revision, the intent of which is to take 
advantage of banks' automated systems to the extent that they are in 
place.
    The FDIC's initial approach for implementing Section 7(a)(9) of the 
FDI Act was through the addition of Memorandum items 2.a and 2.b to 
Schedule RC-O in March 1993. In Memorandum item 2.a, each bank is asked 
whether it has ``a method or procedure for determining a better 
estimate of uninsured deposits than'' the so-called ``simple estimate'' 
of uninsured deposits (in domestic offices). The simple estimate of 
uninsured deposits is derived by multiplying the number of deposit 
accounts of more than $100,000 (reported in Schedule RC-O, Memorandum 
item 1.b.(2)) by $100,000 and subtracting the result from the amount of 
deposit accounts of more than $100,000 (reported in Schedule RC-O, 
Memorandum item 1.b.(1)). If a bank answers Memorandum item 2.a 
affirmatively, thereby reporting that it has a method or procedure for 
better estimating uninsured deposits, the bank is directed to report 
this estimate in Schedule RC-O, Memorandum item 2.b. The estimate of 
insured deposits is then the difference between total deposits (in 
domestic offices) and estimated uninsured deposits.
    In the year-end 2000 Call Report, only 157 of the nearly 8,600 
banks reported that they have a ``better estimate'' of uninsured 
deposits. With such a small percentage of institutions reporting a 
better estimate, this has raised concerns about the accuracy of the 
aggregate insured deposit estimate for banks that the FDIC has had to 
derive primarily from simple estimates.
    The simple estimate overstates a bank's insured deposits (in 
domestic offices) when a single depositor holds multiple accounts in 
the same capacity at the bank and these accounts in the aggregate 
exceed $100,000. In contrast, the simple estimate understates a bank's 
insured deposits when multiple parties participate in the ownership of 
a single account of more than $100,000 or when there is ``pass-
through'' coverage on an account of more than $100,000 that is owned by 
multiple depositors. Consequently, the ``simple estimate'' may either 
overstate or understate the amount of a bank's insured deposits (in 
domestic offices).
    Furthermore, on the FFIEC 031 report form for banks with foreign 
offices, the Schedule RC-O Memorandum items for the number and amount 
of deposit accounts and the better estimate of uninsured deposits cover 
only domestic offices. However, domestic offices exclude insured 
branches in Puerto Rico and U.S. territories and possessions, which are 
considered foreign offices for Call Report purposes. As a result, even 
the simple estimate of uninsured deposits does not consider the 
deposits in these insured branches, an omission that biases the simple 
estimate toward understatement.
    Brokered deposits are another area of concern with respect to the 
accuracy of the simple estimate of uninsured deposits. In this regard, 
the number of banks with brokered deposits is increasing and the amount 
of brokered deposits is also increasing. From year-end 1998 through 
March 31, 2001, the volume of brokered deposits at banks more than 
tripled to over $217 billion while the number of banks reporting 
brokered deposits grew from more than 1,200 to over 1,450. Brokered 
deposits issued in amounts over $100,000 and participated out by the 
broker in shares of $100,000 or less, which receive the benefit of 
``pass-through'' deposit insurance coverage and which banks are 
currently required to report in Schedule RC-E, Memorandum item 1.c.(2), 
are not always captured in the ``simple estimate'' of insured deposits. 
A number of banks with a significant amount of these insured brokered 
deposits do not report the ``better estimate.'' Thus, insured deposits 
may be significantly underestimated for these banks. Furthermore, other 
banks with large amounts of brokered deposits have reported the 
``better estimate'' of uninsured deposits in some quarters but not in 
others. This inconsistent reporting can result in volatile estimates of 
insured deposits.
    The FDIC's regulations on deposit insurance coverage (12 CFR part 
330) explain that, in general, in determining the amount of deposit 
insurance available to a depositor, there is a presumption that 
deposited funds are actually owned in the manner indicated on an 
institution's ``deposit account records.'' Furthermore, in order for 
the FDIC to recognize a claim for insurance coverage based on a 
fiduciary relationship, including one that provides a basis for 
additional insurance coverage on a ``pass-through'' basis, either the 
relationship must be expressly disclosed in the institution's ``deposit 
account records'' or the titling of the deposit account (together with 
the underlying records) must indicate the existence of the fiduciary 
relationship. Such relationships include, but are not limited to, 
relationships involving a trustee, agent, nominee, guardian, executor, 
or custodian.
    In addition, the FDIC's deposit insurance regulations state that 
deposits of an employee benefit plan or of any eligible deferred 
compensation plan are insured on a ``pass-through'' basis, in the 
amount of up to $100,000 for the non-contingent interest of each plan 
participant, provided, in general, that

[[Page 52978]]

the institution meets each applicable regulatory capital standard at 
the time the deposit is accepted. In this regard, these regulations 
require each institution, upon request, to provide a written notice to 
any depositor of employee benefit plan funds that discloses the 
institution's capital ratios and its prompt corrective action capital 
category and whether, in the institution's judgment, employee benefit 
plan deposits made at the time the information is requested would be 
eligible for ``pass-through'' insurance coverage. Furthermore, whenever 
an account comprised of employee benefit plan funds is opened, an 
institution must provide a similar written notice to the depositor. In 
addition, whenever employee benefit plan deposits at an institution 
would no longer be eligible for ``pass-through'' insurance coverage, 
the institution must notify all existing depositors of employee benefit 
plan funds in writing that new, rolled-over or renewed deposits of 
employee benefit plan funds will not be eligible for such coverage. For 
both fiduciary accounts and employee benefit plan deposits with 
balances over $100,000 that would be eligible for ``pass-through'' 
coverage, the simple estimate tends to overstate the amount of 
uninsured deposits.
    A number of banks offer benefit-responsive ``depository institution 
investment contracts,'' which are reported as deposit liabilities on 
the Call Report balance sheet but, in accordance with Section 11(a)(8) 
of the FDI Act (12 U.S.C. 1821(a)(8)), are not eligible for deposit 
insurance. Banks with such investment contracts outstanding must report 
the amount of these contracts in Schedule RC-O, item 10. However, for 
banks that do not report their ``better estimate'' of uninsured 
deposits, the ``simple estimate'' of their uninsured deposits would 
improperly treat at least a portion of these investment contracts as 
insured.
    Because of the concerns discussed above, the agencies are proposing 
to revise Schedule RC-O, Memorandum item 2, ``Estimated amount of 
uninsured deposits of the bank,'' in order to improve compliance with 
Section 7(a)(9) of the FDI Act while taking its reporting burden 
provision into account. Rather than asking whether each bank can 
determine a ``better estimate'' of uninsured deposits and, if so, to 
report its ``better estimate,'' Memorandum item 2 would be recaptioned 
``Uninsured deposits'' and revised to require each bank to report the 
estimated uninsured portion of its deposits. The intent of this 
proposed revision is to take advantage of banks' in-place automated 
systems. However, the agencies also recognize that most banks will not 
have, in automated form, the key information needed to fully identify 
all deposits that are at least in part uninsured. As a consequence, the 
reporting of ``Uninsured deposits'' in revised Memorandum item 2 would 
be subject to the following criteria.
    First, because a bank with brokered deposits currently reports both 
the total amount of such deposits and the amount that is fully insured 
in Schedule RC-E, each bank with brokered deposits would be required to 
use the information already developed for completing the Schedule RC-E 
brokered deposit items to determine its best estimate of the uninsured 
portion of its brokered deposits. Second, if a bank has deposits of 
$100,000 or more whose existence is based on a fiduciary relationship, 
a relationship that must be evident from the deposit account titles or 
records in order for additional insurance coverage to be available on a 
``pass-through'' basis, the bank would be required to diligently use 
available data to make its best estimate of the uninsured portion of 
these deposits. Similarly, when a bank has deposits of an employee 
benefit plan or an eligible deferred compensation plan that are insured 
on a ``pass-through'' basis, the eligibility (and discontinuance of 
eligibility) for which is subject to written notification requirements, 
the bank would also be required to diligently use available data to 
make its best estimate of the uninsured portion of these deposits.
    Next, for a bank whose deposits include benefit-responsive 
``depository institution investment contracts,'' the amount of which 
the bank must already disclose in Schedule RC-O, the bank must ensure 
that it includes the entire amount of these contracts in its estimated 
amount of uninsured deposits. Finally, for all other deposits, each 
bank should make a reasonable estimate of the portion that is uninsured 
using the data available from its information systems. This reasonable 
estimate should include deposits in excess of the deposit insurance 
limit that the bank has collateralized by pledging assets, such as 
deposits of states and political subdivisions in the U.S. (sometimes 
referred to as municipal deposits). Furthermore, if the bank has 
automated systems in place that can identify jointly owned accounts and 
estimate the insurance coverage of these deposits, then the reasonable 
estimate reported in revised Memorandum item 2 should reflect the 
higher level of insurance afforded such accounts. Similarly, if the 
bank's systems can classify accounts by deposit owner and ownership 
capacity and aggregate a depositor's multiple accounts to determine the 
extent of insurance coverage, the amount of uninsured deposits the bank 
reports should incorporate this information.
    In addition, on the FFIEC 031 report form for banks with foreign 
offices, the scope of the Schedule RC-O Memorandum items for the number 
and amount of deposit accounts (Memorandum items 1.a.(1), 1.a.(2), 
1.b.(1), and 1.b.(2)) and revised Memorandum item 2 on estimated 
uninsured deposits would be expanded to cover both ``domestic offices'' 
and insured branches in Puerto Rico and U.S. territories and 
possessions. This would mean that, as revised, the sum of Schedule RC-
O, Memorandum items 1.a.(1) and 1.b.(1), must equal Schedule RC, item 
13.a, ``Deposits in domestic offices,'' plus the amount of deposits in 
insured branches reported in Schedule RC-O, items 5.a and 5.b.
    This proposed revision to the reporting of uninsured deposits 
should limit reporting burden by focusing on those types of deposits 
for which the underlying data is currently compiled for Call Report or 
other purposes. To the extent that an institution uses automated 
systems to comply with the FDIC's existing rules on, or notice 
requirements associated with, ``pass-through'' insurance coverage, that 
information should be used in the estimate. An institution would also 
be expected to take advantage of automated information it possesses 
about common ownership and ownership capacities of deposit accounts to 
develop a reasonable estimate of the uninsured portion of its deposits.
    While it is anticipated that most institutions will rely on 
automated systems to produce most or all of the data needed to complete 
revised Schedule RC-O, Memorandum item 2, some institutions may also 
choose to use non-automated information such as paper files or less 
formal knowledge of their depositors to provide reasonable estimates of 
appropriate portions of their uninsured deposits. An institution's use 
of such non-automated sources of information is considered appropriate 
unless errors associated with their use contribute significantly to an 
overall error in the FDIC's estimate of the amount of insured deposits 
in the banking system. The agencies also recognize that the 
capabilities of institutions' information systems to provide an 
estimate of their uninsured deposits will differ at any point in time 
and may improve over time.

[[Page 52979]]

G. Regulatory Capital Calculations
    In items 1 through 11 of Schedule RC-R, Regulatory Capital, banks 
report their computation of Tier 1 capital. Items 8 and 9 are used to 
disclose any disallowed servicing assets and purchased credit card 
relationships and any disallowed deferred tax assets, respectively. 
These disallowed amounts are calculated, in part, by reference to a 
subtotal of Tier 1 capital components. The instructions for Schedule 
RC-R explain how this subtotal should be derived by adding and 
subtracting, as appropriate, amounts reported in items 1 through 7 of 
Schedule RC-R, but the amount of the subtotal is not directly reported 
in the schedule itself. To help ensure that banks are using the proper 
subtotal when determining whether they have any disallowed amounts, 
existing items 8 and 9 will be renumbered as items 9.a and 9.b and item 
8 will become the subtotal of items 1 through 7 (i.e., the sum of items 
1 and 6, less items 2, 3, 4, 5, and 7). For banks using commercially 
available Call Report software to complete their reports, the software 
should automatically calculate the correct subtotal and include it in 
new item 8.
    Under the Gramm-Leach-Bliley Act of 1999, banks that have financial 
subsidiaries must deconsolidate these subsidiaries and deduct their 
aggregate outstanding equity investment in them from capital and assets 
when calculating their regulatory capital ratios. Banks with financial 
subsidiaries currently use items 28 through 30 of Schedule RC-R to 
report the amount of their adjustments to total risk-based capital, 
risk-weighted assets, and average total assets. These adjustments enter 
into the calculation of the three capital ratios reported in items 31 
through 33: the Tier 1 leverage ratio, the Tier 1 risk-based capital 
ratio, and the total risk-based capital ratio. However, although two of 
these ratios use Tier 1 capital in the numerator, banks with financial 
subsidiaries do not report the adjustment that must be made to Tier 1 
capital for these subsidiaries. In particular, if a bank's financial 
subsidiaries have been consolidated for accounting and reporting 
purposes (including the Call Report balance sheet), the computation of 
Tier 1 capital in items 1 through 11 of Schedule RC-R may include 
amounts attributable to financial subsidiaries. For example, item 7 
could include goodwill on the books of financial subsidiaries. Thus, 
banks with financial subsidiaries would complete proposed new item 28.a 
to report the amount by which the Tier 1 capital figure reported in 
item 11 of Schedule RC-R must be adjusted to eliminate those amounts 
included in Tier 1 capital that are associated with the financial 
subsidiaries. Existing item 28, ``Adjustment to total risk-based 
capital'' would be renumbered as item 28.b.
H. Goodwill and Other Intangible Assets
    On July 20, 2001, the FASB issued Statement No. 142, Goodwill and 
Other Intangible Assets, which, in general, is effective for fiscal 
years beginning after December 15, 2001. Under this standard, goodwill 
will no longer be amortized, but will be tested for impairment on an 
annual basis and between annual tests in certain circumstances. Other 
intangible assets will be tested for impairment in accordance with the 
standard and some of these intangibles must be amortized. Statement No. 
142 also states that ``goodwill impairment losses shall be presented as 
a separate line item in the income statement before the subtotal income 
from continuing operations (or similar caption) unless a goodwill 
impairment loss is associated with a discontinued operation.''
    Banks must adopt Statement No. 142 for Call Report purposes upon 
its effective date based on their fiscal year. At present, banks report 
the amortization expense of intangible assets, including goodwill 
amortization, in item 7.c of the Call Report income statement (Schedule 
RI). In response to the accounting and reporting changes mandated by 
Statement No. 142, the agencies are proposing to replace existing item 
7.c with two items: item 7.c.(1), ``Goodwill impairment losses,'' \3\ 
and item 7.c.(2), ``Amortization expense and impairment losses for 
other intangible assets.'' Along with appropriate revisions to the Call 
Report instructions (e.g., goodwill should not be amortized), this 
change will conform the reporting of amortization expense and 
impairment losses for intangibles in the Call Report to the provisions 
of Statement No. 142.
---------------------------------------------------------------------------

    \3\ A goodwill impairment loss associated with a discontinued 
operation would be included (on a net-of-tax basis) in Schedule RI, 
item 11, ``Extraordinary items and other adjustments, net of income 
taxes.''
---------------------------------------------------------------------------

    Statement No. 142 will not apply to goodwill and intangible assets 
acquired in combinations between two or more institutions with a mutual 
form ownership until the FASB issues interpretive guidance related to 
the application of the purchase method to such transactions. Until this 
interpretive guidance is issued and takes effect, goodwill and 
intangible assets acquired in combinations of mutual institutions will 
continue to be accounted for in accordance with existing accounting 
standards. However, for income statement presentation purposes, mutual 
institutions should report goodwill amortization expense and any 
impairment losses in new item 7.c.(1) and the amortization expense and 
any impairment losses on other intangible assets in new item 7.c.(2).
I. Write-Downs on Loans Transferred to the Held-for-Sale Account
    On March 26, 2001, the agencies issued Interagency Guidance on 
Certain Loans Held for Sale to provide instruction about the 
appropriate accounting and reporting treatment for certain loans that 
are sold directly from the loan portfolio or transferred to a held-for-
sale (HFS) account. The guidance applies when:
     An institution decides to sell loans that were not 
originated or otherwise acquired with the intent to sell, and
     The fair value of those loans has declined for any reason 
other than a change in the general market level of interest or foreign 
exchange rates.
    One element of the guidance reminds institutions to appropriately 
report reductions in the value of loans transferred to held for sale 
through a write-down of the recorded investment to fair value upon 
transfer. The guidance explains that this write-down should be reported 
as a charge-off in Schedule RI-B, part I, Charge-offs and Recoveries on 
Loans and Leases. In Schedule RI-B, part II, Changes in Allowance for 
Loan and Lease Losses, the corresponding reduction in the allowance 
should be reported as an ``Adjustment'' to the allowance in item 5. 
Because each type of ``Adjustment'' reported in part II, item 5, must 
be disclosed and described in item 6 of Schedule RI-E, Explanations, 
the guidance also states that write-downs included in part II, item 5, 
should be disclosed in Schedule RI-E and described as ``Write-downs 
arising from transfers of loans to HFS.'' A preprinted caption to that 
effect was inserted in Schedule RI-E, item 6.a, in the June 30, 2001, 
Call Report forms.
    To simplify the reporting of these write-downs, the agencies are 
proposing to move the disclosure now made in Schedule RI-E, item 6.a, 
directly into Schedule RI-B, part II, item 5, ``Adjustments.'' This 
item would be modified by creating item 5.a, ``LESS: Write-downs 
arising from transfers of loans to the held-for-sale account,'' and 
item 5.b, ``Other adjustments.'' As a result, going forward, only those 
amounts included in item 5.b, ``Other adjustments,'' would need to be

[[Page 52980]]

disclosed and described in Schedule RI-E, item 6.

III. Other Issues

    The AICPA is currently finalizing a Statement of Position (SOP), 
Accounting for Certain Purchased Loans or Debt Securities, following 
the FASB's nonobjection to its issuance subject to certain changes 
being made. The agencies understand that the provisions of this SOP 
would be effective for loans acquired in fiscal years beginning after 
June 15, 2002, with early application permitted. The SOP will change 
the accounting for loans purchased with credit quality concerns and 
will prohibit an institution from carrying over allowances for loan 
losses associated with purchased loans. The agencies invite comments on 
(i) how the reporting of information in the Call Report about loans and 
the loan loss allowance, e.g., loan delinquencies and charge-offs, 
should be revised and (ii) what types of new information should be 
collected in response to the expected issuance of this SOP.

IV. Request for Comment

    The agencies request comment on all aspects of the proposed 
revisions discussed above. In addition, comments are invited on:
    (a) Whether the proposed revisions to the Call Report collections 
of information are necessary for the proper performance of the 
agencies' functions, including whether the information has practical 
utility;
    (b) The accuracy of the agencies' estimates of the burden of the 
information collections as they are proposed to be revised, including 
the validity of the methodology and assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Comments submitted in response to this 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.

    Dated: October 9, 2001.
Mark J. Tenhundfeld,
Assistant Director, Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency.

    Board of Governors of the Federal Reserve System, October 10, 
2001.


Jennifer J. Johnson,
Secretary of the Board.

    Dated at Washington, DC, this 9th day of October, 2001.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 01-26284 Filed 10-17-01; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P