[Federal Register Volume 67, Number 247 (Tuesday, December 24, 2002)]
[Notices]
[Pages 78467-78473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32275]


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FEDERAL RESERVE SYSTEM


Agency Information Collection Activities: Proposed Collection; 
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, 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 OMB 83-I's and 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 Ccomment on Information Collection Proposal.
    The following information collection, which is being handled under 
this delegated authority, has received initial Board approval and is 
hereby published for comment. At the end of the comment period, the 
proposed information collection, 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 February 24, 2003.

ADDRESSES: Comments may be mailed to Ms. Jennifer J. Johnson, 
Secretary, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue, N.W., Washington, DC 20551. However, 
because paper mail in the Washington area and at the Board of Governors 
is subject to delay, please consider submitting your comments by e-mail 
to [email protected], or

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faxing them to the Office of the Secretary at 202-452-3819 or 202-452-
3102. Comments addressed to Ms. Johnson may also be delivered to the 
Board's mail facility in the West Courtyard between 8:45 a.m. and 5:15 
p.m., located on 21st Street between Constitution Avenue and C Street, 
N.W. Members of the public may inspect comments in Room MP-500 between 
9:00 a.m. and 5:00 p.m. on weekdays pursuant to 261.12, except as 
provided in 261.14, of the Board's Rules Regarding Availability of 
Information, 12 CFR 261.12 and 261.14.
    A copy of the comments may also be submitted to the OMB desk 
officer for the Board: Joseph Lackey, Office of Information and 
Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10235, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: A copy of the proposed form and 
instructions, the Paperwork Reduction Act Submission (OMB 83-I), 
supporting statement, and other documents that will be placed into 
OMB's public docket files once approved may be requested from the 
agency clearance officer, whose name appears below. Cindy Ayouch, 
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.

SUPPLEMENTARY INFORMATION:
Proposals to approve under OMB delegated authority the extension for 
three years, with revision, of the following reports:
    1. Report title: The Weekly Report of Eurodollar Liabilities Held 
by Selected U.S. Addressees at Foreign Offices of U.S. Banks.
    Agency form number: FR 2050.
    OMB control number: 7100-0068.
    Frequency: Weekly.
    Reporters: Foreign branches and banking subsidiaries of U.S. 
depository institutions.
    Annual reporting hours: 1,872 burden hours.
    Estimated average hours per response: 1.0 hour.
    Number of respondents: 36.
    Small businesses are not affected.
    General description of report: This information collection is 
voluntary (12 U.S.C.Sec. Sec. 248(a)(2), 353 et seq., 461, 602, and 
625). Individual respondent's data are confidential under section 
(b)(4) of the Freedom of Information Act (5 U.S.C. 552(b)(4)).
    Abstract: The report collects data on Eurodollar deposits payable 
to nonbank U.S. addressees from foreign branches and subsidiaries of 
U.S. commercial banks and Edge and agreement corporations. The data are 
used for the construction of the Eurodollar component of the monetary 
aggregates and for analysis of banks' liability management practices.
    Current Actions: The Federal Reserve proposes that the reporting 
cutoff be raised from a weekly average of $500 million to $550 million 
in Eurodollar liabilities.
    2. Report title: The Quarterly Report of Assets and Liabilities of 
Large Foreign Offices of U.S. Banks.
    Agency form number: FR 2502q.
    OMB control number: 7100-0079.
    Frequency: Quarterly.
    Reporters: Large foreign branches and banking subsidiaries of U.S. 
depository institutions.
    Annual reporting hours: 32,662 hours.
    Estimated average hours per response: 3.5 hours.
    Number of respondents: 2,333.
    Small businesses are not affected.
    General description of report: This information collection is 
required (12 U.S.C.Sec. Sec. 248(a)(2), 353 et seq., 461, 602, and 625) 
and is given confidential treatment (5 U.S.C. 552(b)(4)).
    Abstract: The report collects gross assets and liability positions 
from foreign branches and subsidiaries of U.S. commercial banks and 
Edge and agreement corporations vis-a-vis individual countries. A 
separate schedule collects information on Eurodollar liabilities 
payable to certain U.S. addressees.
    Current Actions: The Federal Reserve proposes to revise the country 
list in the body of the reporting form to conform to the Department of 
State's official country list. Claims and liabilities that are not 
allocated by country of customer would be further broken out into that 
portion that is attributable to the fair value of derivatives 
contracts. Claims on and liabilities to other non-U.S. offices of the 
parent bank would be further broken out into that portion that is 
attributable to unallocated claims and liabilities. In addition, the 
instructions would be clarified with respect to the year-end panel 
review process and the definition of unallocated claims. Finally, the 
single data item collected on Schedule A would be reported as a seven-
day average (one number) instead of daily (five numbers).
Proposal to approve under OMB delegated authority the revision, without 
extension, of the following reports:
    Report title: Financial Statements for Bank Holding Companies
    Agency form numbers: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9CS, and FR 
Y-9ES
    OMB control number: 7100-0128.
    Frequency: Quarterly, semiannually, and annually
    Reporters: Bank holding companies (BHCs).
    Annual reporting hours: 349,800.
    Estimated average hours per response: FR Y-9C: 34.95 hours, FR Y-
9LP: 4.85 hours, FR Y-9SP: 4.19 hours, FR Y-9CS: 30 minutes, FR Y-9ES: 
30 minutes
    Number of respondents: FR Y-9C: 1,959, FR Y-9LP: 2,320, FR Y-9SP: 
3,541, FR Y-9CS: 600; FR Y-9ES: 100.
    Small businesses are affected.
    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.
    Abstract: The FR Y-9C consists of standardized consolidated 
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). The FR Y-9C 
is filed quarterly by top-tier BHCs that have total assets of $150 
million or more and by lower-tier BHCs that have total consolidated 
assets of $1 billion or more. In addition, multibank holding companies 
with total consolidated assets of less than $150 million with debt 
outstanding to the general public or engaged in certain nonbank 
activities must file the FR Y-9C.
    The FR Y-9LP includes standardized financial statements filed 
quarterly on a parent company only basis from each BHC that files the 
FR Y-9C. In addition, for tiered BHCs, a separate FR Y-9LP must be 
filed for each lower tier BHC.
    The FR Y-9SP is a parent company only financial statement filed 
semiannually by one-bank holding companies with total consolidated 
assets of less than $150 million, and multibank holding companies with 
total consolidated assets of less than $150 million that meet certain 
other criteria. This report, an abbreviated version of the more 
extensive FR Y-9LP, is designed to obtain basic balance sheet and 
income statement information for the parent company, information on 
intangible assets, and information on intercompany transactions.
    The FR Y-9CS is a free form supplement that may be utilized to

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collect any additional information deemed to be critical and needed in 
an expedited manner. It is intended to supplement the FR Y-9C and FR Y-
9SP reports.
    The FR Y-9ES, effective for December 31, 2002, is filed annually by 
BHCs that are Employee Stock Ownership Plans (ESOPs). These BHCs 
previously filed either the FR Y-9LP or the FR Y-9SP reports.
    Current Actions: Many of the proposed reporting revisions that 
pertain to the FR Y-9 reports are being requested to parallel revisions 
to the Federal Financial Institutions Examination Council (FFIEC) 
Commercial bank Consolidated Reports of Condition and Income (Call 
Reports) (FFIEC 031 & 041; OMB No.7100-0036). However, there are other 
revisions not directly related to the Call Report. A detailed 
description of the proposed changes follows.
FR Y-9C
    Revisions to parallel proposed changes to the Call Report
    Charge-offs of Accrued Fees and Finance Charges on Credit Card 
Accounts
    The Federal Reserve proposes to add the following items related to 
charge-offs of accrued fees and finance charges on credit card 
accounts.
    (1) Add to Schedule HI-B, Part I, a new Memorandum item 3, 
``Uncollectable credit card fees and finance charges reversed against 
income (i.e., not included in charge-offs against the allowance for 
loan and lease losses)'' to collect the amount of credit card fees and 
finance charges that the BHC reversed against either interest and fee 
income or a separate contra- asset account during the calendar year-to-
date. This item would exclude credit card fees and finance charges 
reported as charge-offs against the allowance for loan and lease losses 
reported in Schedule HI-B, Part I, item 5.a, column A.
    (2) Add to Schedule HI-B, Part II, a new Memorandum item 1, 
``Separate valuation allowance for uncollectable credit card fees and 
finance charges'' to collect the amount of any valuation allowance or 
contra-asset account that the BHC maintains separate from the allowance 
for loan and lease losses to account for uncollectable credit card fees 
and finance charges. Because this amount is separate from the amount 
included in Schedule HC, item 4.c, and Schedule HI-B, Part II, item 7, 
this Memorandum item is only applicable for those BHCs that maintain an 
allowance or contra-asset account separate from the allowance for loan 
and lease losses.
    (3) Add to Schedule HI-B, Part II, a new Memorandum item 2, 
``Amount of allowance for loan and lease losses attributable to credit 
card fees and finance charges,'' to collect the amount of the allowance 
for loan and lease losses that is attributable to outstanding credit 
card fees and finance charges. This amount is included in the amount 
reported in Schedule HC, item 4.c, and Schedule HI-B, Part II, item 7.
    (4) Add to Schedule HC-C a new Memorandum item 4, ``Outstanding 
credit card fees and finance charges,'' to collect the amount of fees 
and finance charges included in the amount of credit card receivables 
reported in Schedule HC-C, item 6.a.
    (5) Add to Schedule HC-S, a new Memorandum item 4, ``Outstanding 
credit card fees and finance charges,'' to collect the amount of fees 
and finance charges included in the credit card receivables that the 
BHC has reported as securitized and sold in Schedule HC-S, item 1, 
column C.
    Many institutions engaged in credit card lending have adopted the 
practice of ``purifying'' charge-offs for financial reporting purposes. 
``Purification'' refers to the practice of reversing uncollectable 
accrued fees and finance charges against earnings rather than 
accounting for them as charge-offs against the allowance for loan and 
lease losses. This practice obscures charge-off ratios (i.e., charge-
offs divided by loan balances) because the charged-off amount does not 
include the accrued fees and finance charges while the aggregate loan 
balance does include them. Thus, the transparency of financial reports 
is diminished.
    Further, the effect of this practice on credit card lending 
institutions' financial statements has become more material as the 
level of accrued but uncollected finance charges and fees have become 
more significant during the past several years. Most if not all of the 
accrued fees and finance charges reversed under the purification 
practice are included in credit card loan balances, or in other words, 
have been capitalized into the credit card loan balances.
    The proposed additional items would collect information on 
reversals of credit card fees and finance charges that are not reported 
as charge-offs against the loan loss allowance. The proposed additions 
would also collect information on the outstanding amount of fees and 
finance charges included in credit card receivables and the related 
allowance, whether it is a component of the allowance for loan and 
lease losses or a separate contra-asset account. These new items would 
cover both bank holding company-owned portfolios and securitized 
portfolios of credit cards. Additionally, these proposed changes would 
include clarifications to the instructions for three items: Schedule 
HC-S, items 1, 5.a, and 8, column C, as discussed below.
    The proposed changes would improve financial reporting transparency 
for losses on credit card accounts and permit users of FR Y-9C data to 
calculate loss rates for credit card loan receivables that are 
comparable across credit card lending institutions. Users of FR Y-9C 
data would have more complete loss information relating to credit card 
fees and finance charges that are written off as uncollectable. 
Furthermore, the changes would provide better information regarding the 
composition of and level of credit risk in credit card loan receivables 
that the institution manages both for its own account and in 
securitizations. The items regarding outstanding credit card fees and 
finance charges would provide useful information to facilitate the 
agencies' supervision of credit card lending activities.
    The proposed new items would be completed only by those BHCs that: 
(1) either individually or on a combined basis with their affiliated 
depository institutions report outstanding credit card receivables that 
exceed, in the aggregate, $500 million as of the report date. 
Outstanding credit card receivables will be measured as the sum of 
Schedule HC-C, Part I, item 6.a; Schedule HC-S, item 1, column C; and 
Schedule HC-S, item 6.a, column C.
OR
    (2) are BHCs that on a consolidated basis are considered credit 
card specialty holding companies, defined as those that exceed 50 
percent for the following two criteria:
    (a) credit card loans (HC-C, Part I, item 6.a) plus securitized and 
sold credit card loans (HCS, item 1, column C) divided by total loans 
(HC-C, item 12, column A) plus securitized and sold credit card loans;
    (b) total loans plus securitized and sold credit card loans divided 
by total assets (HC, item 12) plus securitized and sold credit card 
loans.
    Breakdown of Seller-provided Credit Enhancements to the Bank's 
Securitization Structures
    The Federal Reserve proposes to revise Schedule HC-S as follows.
    (1) Revise item 2.b, ``Maximum amount of credit exposure arising 
from recourse or other seller provided credit enhancements provided to 
structures reported in item 1 in the form of standby letters of credit, 
subordinated securities, and other enhancements,'' to

[[Page 78470]]

collect the carrying value of ``Subordinated securities and other 
residual interests'' carried as on- balance-sheet assets that have been 
retained in connection with the securitization structures reported in 
Schedule HC-S, item 1, ``Outstanding principal balance of assets sold 
and securitized with servicing retained or with recourse or other 
seller-provided credit enhancements.''
    (2) Add a new item 2.c, ``Standby letters of credit and other 
enhancements,'' to collect the unused portion of standby letters of 
credit and the maximum contractual amount of recourse or other credit 
exposure not in the form of an on-balance-sheet asset that have been 
provided or retained in connection with the securitization structures 
reported in Schedule HC-S, item 1.
    (3) Clarify item 2.a, ``Retained interest-only strips,'' by 
changing the item description to ``Credit enhancing interest-only 
strips.''
    These proposed revisions would distinguish between the amount of a 
BHC's seller-provided credit enhancements that are on-balance-sheet 
assets (other than credit-enhancing interest-only strips) and those 
that are not, and to better understand the types of credit support that 
BHCs are providing to their securitizations, including which types are 
typically used for different types of securitized loans. BHCs currently 
report the maximum amount of credit exposure from seller provided 
credit enhancements to securitization structures (other than credit-
enhancing interest-only strips, which are reported separately) in 
Schedule HC-S, item 2.b. These credit enhancements include both on-
balance-sheet assets (such as subordinated securities, spread accounts, 
and cash collateral accounts) and enhancements that are not assets 
(such as recourse liabilities and standby letters of credit). When 
credit enhancements are in the form of assets, credit losses on the 
securitized loans result in reduced cash inflows to the asset holder. 
In contrast, when seller-provided credit enhancements take some other 
form, cash outflows from the seller are required to cover credit losses 
on the securitized loans. In addition, under the risk-based capital 
standards that were revised as of January 1, 2002, seller-provided 
credit enhancements that are on-balance-sheet assets are ``residual 
interests'' subject to a dollar-for-dollar capital charge unless they 
qualify for the ratings-based approach. The capital charge for 
enhancements that are not assets generally is capped at 8 percent of 
the assets enhanced.
    Income from Insurance Activities
    The Federal Reserve proposes to split Schedule HI, item 5.h, 
``Insurance commissions and fees'', into two new items, ``Insurance and 
reinsurance underwriting income'' and ``Income from other insurance and 
reinsurance activities.'' In new item 5.h.(1), ``Insurance and 
reinsurance underwriting income,'' BHCs would report all income from 
insurance and reinsurance underwriting, including the amount of 
premiums earned by property-casualty insurers and the amount of 
premiums written by life and health insurers. This item would also 
include the BHC's proportionate share of the income or loss before 
extraordinary items and other adjustments from its investments in 
equity method investees that are principally engaged in insurance and 
reinsurance underwriting. In new item 5.h.(2), ``Income from other 
insurance and reinsurance activities,'' BHCs would report income from 
insurance agency and brokerage operations (including sales of annuities 
and supplemental contracts); service charges, commissions, and fees 
from the sale of insurance (including credit life insurance), 
reinsurance, and annuities; and management fees from separate accounts, 
deferred annuities, and universal life products. This item would also 
include the BHC's proportionate share of the income or loss before 
extraordinary items and other adjustments from its investments in 
equity method investees that are principally engaged insurance 
activities other than insurance underwriting.
    The risks arising from insurance underwriting are significantly 
different from those arising from other insurance activities. Given 
this distinction in risk, splitting the current single income statement 
item for insurance-related income into two items to separately identify 
underwriting income would enable the Federal Reserve to more clearly 
identify institutions engaged in underwriting and to better monitor the 
results of these underwriting activities.
    Proposed Revisions to the FR Y-9C Instructions
    (1)Modify the reporting instructions to include the ``Provision for 
allocated transfer risk'' with the ``Provision for loan and lease 
losses'' in item 4 of Schedule HI, Income Statement. In addition, in 
order for the end-of-period allowance in the reconciliation of the 
``Allowance for loan and lease losses'' in Schedule HI-B, Part II, to 
equal the loan loss allowance on the balance sheet (Schedule HC, item 
4.c), which excludes the - the instructions for Schedule HI-B, Part II, 
item 6, ``Adjustments,'' would also be revised to direct respondents to 
report as a negative number in item 6 the amount of any ``Provision for 
allocated transfer risk'' included in the amount of ``Provision for 
loan and lease losses'' reported in item 4 of the Income Statement 
(Schedule HI).
    Prior to 2001, Schedule HI included a specific line item for 
``Provision for allocated transfer risk,'' but amounts were reported in 
this item only infrequently and only by a small number of BHCs. This 
separate item was removed from the face of the income statement in 2001 
and respondents were instructed to include these provisions in ``Other 
noninterest expense'' on Schedule HI, item 7.d. However, in reviewing 
the continuing merits of this instructional change, the Federal Reserve 
has found that institutions exposed to transfer risk generally view 
these provisions more like provisions for loan losses than a 
noninterest expense.
    (2) Revise the Glossary entry for ``Trading Account'' to provide 
guidance for regulatory reporting purposes on the use of the trading 
account designation for loans. Conforming changes would be made 
elsewhere in the instructions where appropriate. A new second paragraph 
of the ``Trading Account'' Glossary entry would read as follows:
    ``There is a rebuttable presumption that loans and leases 
(hereafter, loans) should not be reported as trading assets. In order 
to overcome this presumption for particular loans, a BHC must 
demonstrate, from the pattern and practice of its activity, that it is 
acquiring these loans principally for the purpose of selling them in 
the near term with the objective of generating profits on short-term 
differences in price. Thus, such loans are held for only a short period 
of time (generally not months or years). This presumption is not 
overcome if a BHC acquires loans (through origination or purchase) with 
the intent or expectation that they may or will be sold at some date in 
the future. In addition, loans acquired and held for securitization 
purposes should not be reported as trading assets, but should be 
reported as loans held for sale.''
    (3) Modify Schedule HC-S, item 1, ``Outstanding principal balance 
of assets sold and securitized by the reporting BHC with servicing 
retained or with recourse or other seller- provided credit 
enhancements'' to add the following sentence to the instructions for 
this item: -For credit card receivables, include in column C any fees 
and finance charges capitalized into the credit card receivable 
balances that the

[[Page 78471]]

reporting BHC has securitized and sold.''
    (4) Modify Schedule HC-S, item 5.a, ``Charge-offs'' [on assets sold 
and securitized with servicing retained or with recourse or other 
seller-provided credit enhancements (calendar year-to-date)] to add the 
following sentence to the instructions for this item: ``Include in 
column C charge-offs or reversals of uncollectable credit card fees and 
finance charges that had been capitalized into the credit card 
receivable balances that have been securitized and sold.''
    (5)Modify Schedule HC-S, item 8.a, ``Charge-offs'' [on loan amounts 
included in interests reported as securities in item 6.a (calendar 
year-to-date)] to add the following sentence to the instructions for 
this item: ``Include in column C the amount of credit card fees and 
finance charges written off as uncollectable that were attributable to 
the credit card receivables included in ownership interests reported as 
securities in item 6.a, column C.''
    Other Proposed Revisions Not Directly Related to Call Report 
Changes
    The following proposed revisions are not directly related to the 
proposed Call Report changes for March 2003. Some of these changes are 
proposed to provide greater consistency with current Call Report items 
that are not part of the March 2003 revisions.
    Accelerated Filing Deadline
    The Federal Reserve proposes to require the filing of FR Y-9C 
reports within 35 days after the quarter-end reporting date. This 
proposed change is consistent with the Call Report proposal to require 
all banks to file no later than 30 days after the quarter-end report 
date, effective with the June 30, 2003 reporting date, and the Security 
and Exchange Commission's (SEC's) final rule to accelerate the filing 
of quarterly reports from 45 days to 35 days after the quarter-end. In 
recognition of respondents' time and resource needs to modify reporting 
systems and review procedures, the proposed implementation date would 
be delayed until June 30, 2004.
    The Federal Reserve seeks more timely filing of bank holding 
company information to obtain more immediate feedback about the risks 
and financial condition of these institutions, allowing the Federal 
Reserve to make evaluations and develop plans of action more quickly to 
address supervisory concerns. Accelerated disclosure of bank holding 
company information would also enhance data transparency and market 
discipline. Market discipline relies on market participants having 
timely information about the risks and financial condition of banking 
organizations. The FR Y-9C, in particular, is widely used by securities 
analysts, rating agencies, and large institutional investors as sources 
of bank holding company-specific data. Disclosure that increases 
transparency leads to more accurate market assessments of risk and 
value. This, in turn, should result in more effective market discipline 
on BHCs.
    Schedule HI - Income Statement
    The Federal Reserve proposes to revise Schedule HI as follows.
    (1) Add two new items to the memoranda section, item 14, ``Stock-
based employee compensation expense (net of tax effects)'' and item 15, 
``Stock-based employee compensation expense (net of tax effects) 
calculated for all awards under the fair value method.'' Stock-based 
employee compensation plans include all arrangements by which employees 
receive shares of stock or other equity instruments of the employer or 
the employer incurs liabilities to employees in amounts based on the 
price of the employer's stock. Stock-ased employee compensation is used 
by many BHCs as a mechanism to provide substantial compensation to 
executives. Information on both the stock options expense and the 
amount of stock options expense related to all awards under the fair 
value method would provide an indication of the magnitude and the speed 
with which options are recognized as a cost of doing business. The 
information collected would be used in the analysis of the quality of 
earnings and comparability of profitability across BHCs.
    The Financial Accounting Standards Board (FASB) recently proposed 
amendments to the disclosure provisions of FASB Statement 123, 
``Accounting for Stock-Based Compensation'' to require more prominent 
disclosures about the method of accounting for stock-based employee 
compensation and the effect of the method used on reported results in 
both annual and interim financial statements. The proposed new items 
are captioned consistently with these disclosure requirements.\1\ 
Currently; companies are not required to present stock option 
disclosures in interim financial statements. The proposed amendments 
prescribe transition provisions for companies that voluntarily adopt a 
fair value based method. For institutions choosing a fair value method, 
amendments to Statement 123 will be effective for financial statements 
with fiscal years ending after December 15, 2002.
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    \1\ See FASB Financial Accounting Series Exposure Draft, 
``Accounting for Stock-Based Compensation-Transition and Disclosure: 
an amendment of FASB Statement No. 123,'' Section 3.j.(2) and 
Section 3.j.(3).
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    (2) Modify the instructions for the Notes to the Income Statement 
to accommodate the collection of selected income information of large 
predecessor institutions for a reporting BHC engaged in a merger. The 
one-time reporting of this information would be event-driven and 
submitted only during the quarter in which the business combination(s) 
occur. The income statement items requested (26 items reported on 
Schedule HI) would refer to the financial performance of an acquired 
entity prior to a business combination, which otherwise would not be 
incorporated in the consolidated financial statements of the combined 
entity. Collection of predecessor information would be reported for 
acquired entities with total consolidated assets of $150 million or 
more.
    In January 2001, FASB Statement No. 141, ``Business Combinations'' 
took effect prescribing that all business combinations are to be 
accounted for by the purchase method which instructs that the operating 
results of the acquired entity are to be included in the income and 
expenses of the acquiring entity only from the date of acquisition.
    The current lack of information in this area is a significant 
problem for analysts attempting to achieve consistent comparisons of 
BHC financial trends. Because predecessor company information is not 
currently captured in the FR Y-9C for BHCs involved in purchase 
transactions, analysts currently must extract data from SEC filings, 
when available, and through manual entry manipulate the pro forma data. 
In addition, all classifications (items) requested are not necessarily 
available in SEC filings. With the collection of new predecessor data 
the Federal Reserve analysis of BHC data and overall market 
transparency would be improved by incorporating more meaningful 
financial measures, especially those that relate to earnings 
performance.
    Schedule HC - Balance Sheet
    The Federal Reserve proposes to modify the instructions for the 
Notes to the Balance Sheet to accommodate the collection of selected 
quarterly average information of large predecessor institutions for a 
reporting BHC engaged in a merger. The one-time reporting of this 
information would be event driven and only submitted during the quarter 
in which the business combination(s) occur. The balance sheet items 
requested (4 items reported on Schedule HC-K) would refer to the 
financial

[[Page 78472]]

performance of an acquired entity prior to a business combination, 
which otherwise would not be incorporated in the consolidated financial 
statements of the combined entity. Collection of predecessor 
information would be reported for acquired entities with total 
consolidated assets of $150 million or more.
    Schedule HC-F - Other Assets
    The Federal Reserve proposes to add a new item 5, ``Cash surrender 
value of life insurance'' to collect the amount of cash surrender value 
of life insurance that exceeds 25 percent of current item 5, ``Other'' 
assets. Items 5 and 6 would be renumbered as items 6 and 7. Many 
banking organizations have substantial holdings of life insurance that 
may expose the companies to credit, liquidity and market risks. In 
addition, the utility of these products could be adversely affected by 
tax law changes. Collection of this item is proposed to allow the 
Federal Reserve to identify companies with concentrations in these 
assets and to assess, where warranted, company management of these 
risks. This item is presently collected on the bank Call Report and on 
the FR Y-9SP when it represents more than 25 percent of ``other 
assets.'' It will also be collected on the FR Y-9ES (ESOP) as of year-
end 2002.
    Schedule HC-M - Memoranda
    The Federal Reserve proposes to revise item 20, ``Net assets of 
broker-dealer subsidiaries engaged in underwriting or dealing 
securities pursuant to Section 4(k)(4)(E) of the Bank Holding Company 
Act as amended by the Gramm-Leach-Bliley Act'' to collect additional 
items for balances due from related institutions and balances due to 
related institutions. This item is completed only by top-tier BHCs who 
have made an effective election to become a financial holding company. 
Item 20 would be recaptioned with the heading ``Balances of broker-
dealer subsidiaries engaged in underwriting or dealing in securities 
pursuant to Section 4(k)(4)(E) of the Bank Holding Company Act as 
amended by the Gramm-Leach-Bliley Act'', and ``net assets'' would be 
renumbered as item 20.a. The following new items would be added: under 
the heading 20.b, ``Balances due from related institutions, gross'' 
item 20.b.(1), ``Due from the bank holding company (parent company 
only), gross,'' item 20.b.(2), ``Due from subsidiary banks of the bank 
holding company, gross,'' and item 20.b.(3), ``Due from nonbank 
subsidiaries of the bank holding company, gross;'' under the heading 
20.c, ``Balances due to related institutions, gross'' item 20.c.(1), 
``Due to bank holding company (parent company only), gross,'' item 
20.c.(2), ``Due to subsidiary banks of the bank holding company, 
gross,'' and item 20.c.(3), ``Due to nonblank subsidiaries of the bank 
holding company, gross;'' and item 20.d, ``Intercompany liabilities 
reported in items 20.c.(1), 20.c.(2) and 20.c.(3) above that qualify as 
liabilities subordinated to claims of general creditors.''
    The Federal Reserve proposes to collect these additional items to 
restore the Federal Reserve's ability to monitor the potential impact 
of intercompany transactions as a source of funds to affiliate banks 
and BHCs, and the ability to monitor the degree to which financial 
transactions at the broker-dealer subsidiary are funded internally 
within the banking organization. In addition to eliminating the 
provisions of former section 20 of the Glass-Steagall Act, the Gramm-
Leach-Bliley Act mandated a number of changes in the Federal Reserve's 
supervision of broker-dealers, including Section 20 subsidiaries, 
affiliated with BHCs. The Federal Reserve was advised to rely, to the 
fullest extent possible, on the supervisory activities and regulatory 
reports required by functional regulators (in this instance the SEC and 
the self-regulatory organizations under its auspices).
    The Federal Reserve has also ceased collection of the Financial 
Statements for a Bank Holding Company Subsidiary Engaged in Bank-
Ineligible Securities Underwriting and Dealing (FR Y-20) collected from 
broker-dealers that operate under new authority granted to financial 
holding companies to engage in unlimited underwriting, dealing and 
market making in securities pursuant to section 4(k)(4)(E) of the BHC 
Act as amended by GLBA. Federal Reserve supervisors now rely upon the 
SEC Financial and Operational Combined Uniform Single report (FOCUS) 
report, internal management reports and publicly available financial 
reports for off-site monitoring the activities of these broker-dealers. 
However, none of these reports contain information formerly collected 
on the FR Y-20 for intercompany assets and liabilities.
    By recapturing this vital intercompany financial data, supervisors 
would have an enhanced ability to monitor and understand changes in 
affiliated broker-dealer funding and capital structures and their 
effect on the banking organization. Also intercompany liabilities that 
are derived from subordinated debt agreements are considered capital 
under SEC net capital rules (Rule 15c3-1), and collection of proposed 
item 20.d (also formerly collected on the FR Y-20) would allow Federal 
Reserve to track this source of capital.
    Schedule HC-N - Past Due and Nonaccrual Loans, Leases, and Other 
Assets
    The Federal Reserve proposes to add the following two items to the 
memoranda section: item 7, ``Additions to nonaccrual assets,'' and item 
8, ``Nonaccrual assets sold during the quarter.'' Although the overall 
quarter-to-quarter change in nonaccrual assets could be easily 
calculated based on end-of-values, collection of information relating 
to inflows and outflows of nonaccrual loans would enhance the Federal 
Reserve System's ability to track shifts in credit quality within a 
portfolio and their impact on an institution's credit costs and 
earnings. In aggregate, the information provided would facilitate the 
evaluation of fundamental trends underlying a credit cycle. Data on the 
outflow of nonaccrual loans would further reveal alternative management 
approaches to the resolution of problem assets.
    Information on new additions to the level of nonaccrual assets 
during the period would indicate the extent of erosion or improvement 
in a BHC's portfolio. Aggregated data on the trend in new inflows of 
problem assets would aid in analyzing underlying credit cycle trends. 
For example, a slowdown in new inflows of problem assets may indicate 
an approaching peak level of nonperforming assets after the end of a 
recession.
    Information on the volume of nonaccrual asset sales would enable 
the Federal Reserve System to track the growth of problem asset sales 
within an institution's portfolio. The new data collection would 
provide further insight into a banking organization's ability to manage 
credit risks and approaches in dealing with credit problems. In 
addition, the new data would lead to the identification of significant 
sales of nonaccrual or problem assets that have been a subject of 
supervisory and analytical interest. This interest is primarily 
oriented to the liquidity of the secondary markets in problem loans. 
Moreover, the information on problem loan sales would increase the 
Federal Reserve System's understanding of the evolution of financial 
markets. In particular, the secondary market for distressed loan sales, 
an avenue that was not available toBHCs in the past, has become 
prevalent only in recent years.
    Instructions
    Instructional revisions and clarifications would be done in 
accordance with changes made to the Call Report instructions or will

[[Page 78473]]

correspond to existing Call Report instructions. In addition, 
instructional revisions and clarifications would be made as necessary 
with respect to proposed revisions not directly related to the proposed 
Call Report changes for March 2003.
FR Y-9LP
    The Federal Reserve proposes to make the following changes to the 
FR Y-9LP regarding the accelerated filing deadline and information on 
nonbank subsidiaries.
    Accelerated Filing Deadline
    The Federal Reserve proposes to require the filing of FR Y-9LP 
reports within 35 days after the quarter-end reporting date. This 
proposed change is consistent with the proposed change to the FR Y-9C 
described above, with the Call Report proposal to require all banks to 
file no later than 30 days after the quarter-end report date, and with 
the SEC's final rule to accelerate the filing of quarterly reports from 
45 days to 35 days after the quarter-end. In recognition of 
respondents' time and resource needs to modify reporting systems and 
review procedures, the proposed implementation date would be delayed 
until June 30, 2004.
    Schedule PC-B - Memoranda
    The Federal Reserve proposes to add two new subitems to item 15 to 
collect additional information on nonbank subsidiaries of top-tier 
BHCs, item 15.b, ``Total combined loans and leases of nonbank 
subsidiaries,'' and 15.c, ``Total aggregate operating revenue of 
nonbank subsidiaries.'' Current items 15.b through 15.f would be 
renumbered accordingly. Operating revenue would be defined as the sum 
of total interest income and total noninterest income (before deduction 
of expenses and extraordinary items.)
    Under Federal Reserve supervision procedures, complex BHCs with 
assets of $1 billion or less are subject to more extensive reviews than 
noncomplex BHCs with assets of $1 billion or less. In particular, they 
are assigned complete BOPEC (Banks, Other nonbank subsidiaries, Parent 
Company, Earnings, Capital) ratings, while their noncomplex peers are 
assigned only composite ratings based on the condition of their lead 
depository institutions. The Federal Reserve identifies complex 
companies based on a number of factors, including the nature and scale 
of any nonbank activities. In order to assist to ensure that complexity 
designations are up to date and accurate, the Federal Reserve has 
monitored aggregate nonbank revenue and nonbank loans using data 
reported by nonbank subsidiaries on the Financial Statements of Nonbank 
Subsidiaries of Bank Holding Companies (FR Y-11). Recent revisions made 
to these reporting forms will significantly reduce the panel of 
companies filing detailed (or any) Y-11s on an annual basis, 
eliminating a key source of data for identifying complex BHCs.
    Instructions
    The FR Y-9LP instructions would be revised and clarified in 
accordance with changes made to the FR Y-9C instructions.
FR Y-9SP
    The Federal Reserve proposes to make the following changes to the 
FR Y-9SP in a manner consistent with the previously described changes 
to the FR Y-9C or FR Y-9LP.
    Accelerated Filing Deadline
    The Federal Reserve proposes to require the filing of FR Y-9SP 
reports within 35 days after the June 30 and December 31 reporting 
dates. This proposed change is consistent with the proposed change to 
the FR Y-9C described above, with the Call Report proposal to require 
all banks to file no later than 30 days after the quarter-end report 
date, and with the SEC's final rule to accelerate the filing of 
quarterly reports from 45 days to 35 days after the quarter-end. In 
recognition of respondents' time and resource needs to modify reporting 
systems and review procedures, the proposed implementation date would 
be delayed until June 30, 2004.
    Balance Sheet
    The Federal Reserve proposes to add two new subitems to Memorandum 
item 17 to collect additional information on top-tier BHC nonbank 
subsidiaries, item 17.b, ``Total combined loans and leases of nonbank 
subsidiaries,'' and 17.c, ``Total aggregate operating revenue of 
nonbank subsidiaries.'' Current items 17.b through 17.d would be 
renumbered accordingly. Operating revenue would be defined as the sum 
of total interest income and total noninterest income (before deduction 
of expenses and extraordinary items.) As described above for the 
proposed addition of similar items to the FR Y-9LP, the Federal Reserve 
proposes to add these items to the FR Y-9SP to retain information 
formerly available on the Annual Financial Statements of Nonbank 
Subsidiaries of Bank Holding Companies (FR Y-11I) needed to identify 
small complex BHCs.
    Instructions
    The FR Y-9SP instructions would be revised and clarified in 
accordance with changes made to the FR Y-9C instructions.
    Board of Governors of the Federal Reserve System, December 18, 
2002.

Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-32275 Filed 12-23-02; 8:45 am]
BILLING CODE 6210-01-S