[Federal Register Volume 69, Number 65 (Monday, April 5, 2004)]
[Notices]
[Pages 17733-17736]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7640]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision


Submission for OMB Review; Comment Request--Thrift Financial 
Report: Schedule CMR

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final notice.

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SUMMARY: The information collection requirement described below has 
been submitted to the Office of Management and Budget (OMB) for review, 
as required by the Paperwork Reduction Act of 1995. OTS has solicited 
public comments on the proposal and is now providing a summary of those 
comments as well as providing final notice of the initial phase of its 
revised data collection.

DATES: Submit written comments on or before May 5, 2004.

ADDRESSES: Send comments, referring to the collection by title of the 
proposal or by OMB approval number, to OMB and OTS at these addresses: 
Joseph F. Lackey, Jr., Office of Information and Regulatory Affairs, 
Office of Management and Budget, Room 10235, New Executive Office 
Building, Washington, DC 20503, or e-mail to [email protected]; and Information Collection Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, by fax to (202) 906-6518, or by e-mail to 
[email protected]. OTS will post comments and the 
related index on the OTS Internet Site at http://www.ots.treas.gov. In 
addition,

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interested persons may inspect comments at the Public Reading Room, 
1700 G Street, NW., by appointment. To make an appointment, call (202) 
906-5922, send an e-mail to [email protected], or send a 
facsimile transmission to (202) 906-7755.

FOR FURTHER INFORMATION CONTACT: To obtain a copy of the submission to 
OMB, contact Marilyn K. Burton at [email protected], (202) 
906-6467, or facsimile number (202) 906-6518, Regulations and 
Legislation Division, Chief Counsel's Office, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION: OTS may not conduct or sponsor an 
information collection, and respondents are not required to respond to 
an information collection, unless the information collection displays a 
currently valid OMB control number. As part of the approval process, we 
invite comments on the following information collection.
    Title of Proposal: Thrift Financial Report: Schedule CMR 
(Consolidated Maturity/Rate).
    OMB Number: 1550-0023.
    Form Number: OTS Form 1313: Schedule CMR of the Thrift Financial 
Report (TFR).
    Description: Currently, Schedule CMR provides all the institution-
level inputs to OTS's Net Portfolio Value (NPV) model, the agency's key 
resource for measuring interest-rate risk. The NPV model is a key 
component of OTS's safety and soundness monitoring.

Overview

    OTS, in a Federal Register notice published March 20, 2003, 
requested comment on a proposed replacement schedule--``Risk Exposure 
Data'' (Schedule RED)--for the current Consolidated Maturity and Rate 
form (Schedule CMR) of the Thrift Financial Report (TFR). Throughout 
this document, ``CMR'' refers to the current schedule, and ``RED'' 
refers to the proposed replacement. In response to comments received, 
OTS has decided to (1) scale back on the scope and depth of the 
proposed Schedule RED, and (2) employ a gradual, or phased-in, 
implementation strategy. The scaling back was in response to many 
commenters suggesting that full implementation of RED was too 
burdensome. We are dropping our request for the various credit risk 
variables that appeared in the original proposal, as well as the 
requirement for coupon buckets finer than 100 basis points. In 
addition, because some commenters suggested that the cost of 
implementation could be significant, we are proposing to implement RED 
in two phases. In the first phase, firms will not be required to 
provide any new information. All information now being supplied 
relating to derivatives and off-balance sheet positions, as well as any 
information now being supplied in Supplemental Reporting of Assets and 
Liabilities and any information now being supplied in Supplemental 
Reporting of Market Value Estimates, will all be supplied in the 
Schedule RED format. In effect, RED will replace all the current 
supplemental reporting schedules and will eliminate the need for CMR 
fields 801-903. All other data will continue to be reported in the CMR 
format until the implementation of the second phase. Phase I will be 
implemented for the quarter ending March 31, 2005. Naturally, OTS 
intends to continue to make improvements to the existing NPV model 
during the next year to improve the quality of the model outputs within 
the limits of current institutional inputs. In the meantime, the 
industry (and OTS) will gain experience with the new reporting format 
without the burden of developing the systems to report additional data.
    In the second phase, firms will be asked to provide all their 
information in the Schedule RED format, plus some additional data 
necessary to improve the quality of valuations in those areas where the 
quality of information collected under CMR could be improved. The 
amount of additional data will be less than what was called for in the 
original proposal. In addition, OTS intends only to ask for data that 
can be utilized by the NPV model to produce improved valuations. Prior 
to implementing phase two, OTS will formally propose the associated 
reporting changes and will once again request comment on those changes. 
In addition, OTS will strive to provide 12 months advance notice prior 
to implementation of phase two.

Discussion of Comments on the Proposed Schedule RED

    OTS published the request for comment in the Federal Register on 
March 20, 2003 (68 FR 13758), and received 15 comment letters from 13 
thrifts and 2 trade groups. OTS has the following response to the 
comments:
    Most of the commenters agreed that the RED proposal contains some 
significant enhancements over the current Schedule CMR. Supportive 
comments focused on flexibility and simplification of reporting, and 
the potential for more accurate NPV estimates. However, most commenters 
suggested important areas where the RED proposal might be improved. 
Objections focused on the burden of the increased volume of data to be 
requested under RED, the cost of computer systems conversions, and 
potential privacy issues.
    A. Reporting Burden: Most commenters addressed Schedule RED's 
reporting burden. While a majority of commenters anticipate that RED 
would reduce burden in at least some areas--through simplification and 
flexibility--a majority also saw potential problems in the proposal, in 
many cases due to the increase in data volume under RED. Specific 
concerns suggested include:
     Data volume would require institutions to devote 
additional time for data entry and data review under RED.
     The proposed breakout of positions into 25 basis 
point coupon-rate buckets is superfluous.
     The conversion of thrift information technology 
(IT) systems to support RED will be costly. (Some asserted that the 
costs outweigh the potential benefits.)
     The proposed credit-risk fields are superfluous 
for measuring interest-rate risk.
     Many of the Loan Memoranda fields are 
superfluous.
     Electronic bulk imports of data are preferable 
to cell-by-cell manual data entry.
    While RED should simplify reporting and add flexibility, it will 
increase the volume of data. Indeed, increased granularity will be one 
of the main sources of improvements to NPV model accuracy. 
Nevertheless, OTS acknowledges that there will be transition costs, and 
OTS has carefully reviewed and noted the specific concerns of 
commenters about reporting burden.
    For these reasons, OTS has decided to adopt a gradual, or phased-
in, approach to implement Schedule RED. The first phase--to commence 
with the first reporting cycle (March) of 2005 would call for the 
conversion of four different sections of the current CMR Schedule into 
the RED format. These sections are: (1) Financial Derivatives and Off-
Balance-Sheet Positions, CMR fields 801-903; (2) Supplemental Reporting 
for Assets and Liabilities, columns OAL010-OAL100; (3) Supplemental 
Reporting of Market Value Estimates, columns RMV010-RMV100; and (4) 
Supplemental Reporting of Financial Derivatives and Off-Balance-Sheet 
Positions, columns OBS010-OBS060.
    The effect of this first phase will be to introduce the industry to 
the RED reporting without actually requiring any additional data. This 
will minimize the impact of the transition to the industry

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by limiting the initial burden to adjusting to the new format, and 
allowing a full year for that adjustment. During that period OTS will 
be making improvements to its existing legacy model, preparing its 
systems to work with RED-formatted data, and developing other model-
related system enhancements and products. The second stage of the 
Schedule RED phase-in will not be implemented before March 2006.
    The proposed optional credit risk variables have been dropped from 
the Schedule RED proposal. OTS will carefully monitor industry and NPV-
model performance--in particular the effects of Basel II--and may 
choose to re-propose these features at a later date, provided there is 
a compelling regulatory need.
    B. Accuracy: Several commenters agreed that RED data will enhance 
valuations, and that such accuracy and detail are desirable. A number 
of commenters noted specific advantages of the proposed new RED over 
the current CMR:
     The current CMR fails to specify the market 
index driving coupon rates on adjustable-rate mortgages (ARMs), whereas 
RED will rectify this shortcoming.
     The current CMR must pool all fixed-rate 
mortgages (FRMs) with ``extreme'' coupons--i.e., weighted-average 
coupons (WACs) above 8% or below 5%.
     The current CMR pools ARM loans and adjustable-
rate mortgage-backed securities (MBSs), thus losing accuracy in the 
averaging process.
    OTS is aware of this market-index problem for ARMs in CMR, and 
looks forward to the ability, wherever possible, to value mortgages 
relative to their true underlying index, rather than a proxy. This is 
an example of a limitation that can be best solved only with better 
institutional input data. Resolution of these shortcomings will occur 
during the second stage of the Schedule RED phase-in.
    OTS recently shifted the fixed-rate mortgage coupon buckets to 
better reflect current market conditions, although the total number of 
WAC buckets for FRMs remains five. Full implementation of RED in the 
second phase will eliminate this sort of reprogramming, because RED 
will then define a general rule for specifying buckets, rather than 
specifying a limited number of buckets directly. Non-mortgage assets 
will benefit most from the improved granularity deriving from RED's new 
bucketing rules. All non-mortgage assets are currently pooled, 
regardless of coupon rate.
    OTS agrees that the pooling of ARM loans and ARM MBSs necessarily 
diminishes the accuracy of published NPV results. The full RED, once 
implemented, will distinguish whole loans and MBSs.
    On the other hand, a number of commenters suggested some possible 
shortcomings in RED and/or CMR:
     Multifamily ARM valuations are somewhat 
inaccurate, valuing even newly issued loans at a significant discount 
to par.
     Increasing granularity of thrift inputs would 
not make the NPV model more accurate, since other inputs (e.g., 
discount rates and prepayment speeds) are significant.
     The benefits of pooling--namely the stability of 
valuations implied by averaging away idiosyncratic noise--would be lost 
in a move to finer-grained data. Conversely, the pooling of prime and 
subprime loans could skew the valuations for both. Lastly, NPV output 
should match the granularity of RED inputs.
     RED should collect the WAC for non-teaser ARMs.
    OTS acknowledges that the valuation of multifamily ARMs has been a 
problem in the past, caused largely by the application of a generic, 
industry-wide margin in the discounting of cash flows. Since the second 
quarter of 2003, however, this valuation procedure has been revised 
such that firm-specific margins and firm-specific base lending rates 
are now used instead.
    OTS acknowledges that there are areas of the NPV model unrelated to 
CMR/RED that will benefit from critical review. Nevertheless, the 
refinement of cash-flow estimates enabled by more granular input data 
will provide important improvements in accuracy. OTS is also reviewing 
other aspects of the NPV model to identify potential enhancements 
independent of RED/CMR.
    At this time, OTS does not foresee requiring granularity finer than 
100 basis points (contrasted with the 25 basis points maximum 
granularity suggested in the original proposal) when it sets forth the 
reporting requirements for phase two of the RED implementation. As 
noted below, the industry will be given ample advanced notification of 
those requirements.
    The pooling comment is accurate for inputs subject to significant 
idiosyncratic noise. Where noise is not a significant concern, the 
additional detail should be beneficial. For example, disaggregating 
positions by coupon should help--albeit imperfectly--separate prime and 
subprime loans. OTS expects that RED submissions will contain examples 
of both ``noisy'' and ``quiet'' portfolios. OTS agrees that NPV outputs 
should, in principle, be available at the level of granularity supplied 
in the RED inputs, and is working to achieve that. However, nothing in 
the full RED will prevent users from considering only aggregated 
results. That is, it will still be possible to sum or average results 
after the fact to achieve any desired degree of pooling.
    The suggestion to collect WACs for non-teaser ARMs is sound, and 
has now been incorporated into the full RED design and should appear in 
the second stage. Indeed, adding a ``Current Coupon'' field for non-
teaser ARMs allows us to simplify the proposal by combining the teaser 
and non-teaser ARM tables in the RED proposal into a single table for 
all single-family ARM tables. This again is something that will not be 
implemented until the second stage of RED implementation.
    C. Privacy: Several commenters expressed concern about the 
confidentiality of the data collected, particularly credit-quality 
attributes and account-level data.
    OTS is aware of the need to protect the confidentiality of thrift 
data. Access to institution-level RED data is restricted to OTS staff 
with a need to know. Data access is maintained on a secure intranet, 
and any offsite transmissions are encrypted. Data are backed up 
nightly, with backups archived at a secure offsite facility. OTS 
emphasizes that RED does not collect account numbers or other 
information revealing the identity of the account holder. Finally, OTS 
is removing credit-risk fields from the current proposal, and thus 
their confidentiality is not a concern.
    D. Miscellaneous Changes: A number of comments do not cluster 
neatly under the foregoing topics, and are addressed individually here.
     OTS should define a new deposit account in more 
``retail'' terms than the current legalistic definition that relies on 
the account-holders' names.
    OTS will investigate the potential ramifications of this for our 
other systems, and for other thrifts, and will consider this change at 
a later time.
     Will OTS make a data-extraction tool available?
    Due to the broad diversity and idiosyncracy of end-user systems, 
OTS is not in a position to provide a data-extraction tool that would 
access all the necessary data.
     Cash and money-market assets should be pooled 
with office premises, Miscellaneous I assets, etc., since all of these 
are currently carried through by

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the model without a mark-to-market valuation.
    The fully-implemented RED design will indeed collect all of these 
asset types within the same table, but will ask for more granularity by 
product type than is currently being requested under CMR. There is 
considerable variability among these products in terms of liquidity and 
the ability to define cash flows. Although historically they have been 
regarded as relatively negligible components of the asset portfolio, 
many of them (e.g., term Fed funds or zero-coupon securities) will be 
easy to mark to market. OTS views the resulting additional accuracy as 
desirable.
     One commenter suggested that thrifts should be 
allowed to self-value mortgages serviced for others. Another felt the 
OTS should encourage large thrifts to abandon the NPV model altogether, 
in favor of internal models.
    OTS believes that valuations should occur within the NPV model 
wherever practicable, since this puts all valuations on the same basis, 
and provides a potentially useful benchmark for self or vendor 
valuations.
     Would multifamily mortgages be reported with 
``Other Commercial Property?'' Multifamily loans on RED should be 
reported under ``Other fixed- [or adjustable-] rate real-estate 
loans.''
     When would RED become effective?
    OTS's RED implementation schedule calls for a first phase RED to be 
implemented by March 2005. This will allow one year for implementation 
of this phase by both OTS and thrifts. As indicated in detail above, 
this first phase will involve only the re-formatting of certain 
existing schedules into the RED format, with no new data required. A 
second phase will incorporate moving the remaining areas of CMR into 
the RED format. This stage will call for the additional data discussed 
above. We are tentatively scheduling the implementation of the second 
stage for March 2006. While a firm date for the second stage has not 
yet been set, the industry should rest assured that at least a full 
year's advance notice will be given. In the meantime, the industry will 
have gotten some experience with the RED format from the first phase 
implementation.
     Six commenters objected to acceleration of the 
filing due date for the TFR from the current 45 days to 30.
    The accelerated filing proposal is unrelated to the RED proposal, 
but rather was part of a separate public comment process (68 FR 3318), 
providing notice of intent to make certain changes to the Thrift 
Financial Report (TFR) effective March 2004. In a Federal Register 
notice dated September 2, 2003, OTS announced it will not change TFR 
filing due dates. The filing due date for Schedule CMR will remain the 
same, 45 days after the close of the quarter.
    Type of Review: Revision.
    Affected Public: Savings Associations.
    Estimated Number of Respondents: 890.
    Estimated Frequency of Response: Four times per year.
    Estimated Burden Hours per Response: 12 hours.
    Estimated Total Burden: 42,720 hours.
    Clearance Officer: Marilyn K. Burton, (202) 906-6467, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
    OMB Reviewer: Joseph F. Lackey, Jr., (202) 395-7316, Office of 
Management and Budget, Room 10235, New Executive Office Building, 
Washington, DC 20503.

    Dated: March 30, 2004.

    By the Office of Thrift Supervision.
Richard M. Riccobono,
Deputy Director.
[FR Doc. 04-7640 Filed 4-2-04; 8:45 am]
BILLING CODE 6720-01-P