[Federal Register Volume 74, Number 17 (Wednesday, January 28, 2009)]
[Notices]
[Pages 5028-5041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-1734]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Agency Information Collection Activities: Submission for OMB 
Review; Joint 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 of information collection to be submitted to OMB for 
review and approval under the Paperwork Reduction Act of 1995.

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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. On September 23, 2008, the agencies, under the auspices 
of the Federal Financial Institutions Examination Council (FFIEC), 
requested public comment for 60 days on a proposal to extend, with 
revision, the Consolidated Reports of Condition and Income (Call 
Report), which are currently approved collections of information. After 
considering the comments received on the proposal, the FFIEC and the 
agencies will move forward with the most of the reporting changes, with 
limited modifications in response to certain comments, on the phased-in 
basis that had been proposed. The FFIEC and the agencies are continuing 
to evaluate certain other proposed revisions in light of the comments 
received thereon and will not implement these revisions on their 
proposed effective dates.

DATES: Comments must be submitted on or before February 27, 2009.

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: You should direct all written comments to: Communications 
Division, Office of the Comptroller of the Currency, Public Information 
Room, Mailstop 1-5, Attention: 1557-0081, 250 E Street, SW., 
Washington, DC 20219. In addition, comments may be sent by fax to (202) 
874-4448, or by electronic mail to [email protected]. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 874-5043. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect and photocopy comments.
    Board: You may submit comments, which should refer to 
``Consolidated Reports of Condition and Income, 7100-0036,'' by any of 
the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include docket 
number in the subject line of the message.
     FAX: 202-452-3819 or 202-452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons. Accordingly, your comments will 
not be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper in Room MP-500 
of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m. 
and 5 p.m. on weekdays.
    FDIC: You may submit comments, which should refer to ``Consolidated

[[Page 5029]]

Reports of Condition and Income, 3064-0052,'' by any of the following 
methods:
     Agency Web Site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow the instructions for submitting comments 
on the FDIC Web site.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include ``Consolidated Reports 
of Condition and Income, 3064-0052'' in the subject line of the 
message.
     Mail: Herbert J. Messite (202-898-6834), Counsel, Attn: 
Comments, Room F-1052, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
     Hand Delivery: 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.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal/propose.html 
including any personal information provided. Comments may be inspected 
at the FDIC Public Information Center, Room E-1002, 3501 Fairfax Drive, 
Arlington, VA 22226, between 9 a.m. and 5 p.m. on business days.
    Additionally, commenters may send a copy of their comments to the 
OMB desk officer for the agencies by mail to the Office of Information 
and Regulatory Affairs, U.S. Office of Management and Budget, New 
Executive Office Building, Room 10235, 725 17th Street, NW., 
Washington, DC 20503, or by fax to (202) 395-6974.

FOR FURTHER INFORMATION CONTACT: For further information about the 
revisions discussed in this notice, please contact any of the agency 
clearance officers whose names appear below. In addition, copies of the 
Call Report forms can be obtained at the FFIEC's Web site (http://www.ffiec.gov/ffiec_report_forms.htm).
    OCC: Mary Gottlieb, OCC Clearance Officer, (202) 874-5090, 
Legislative and Regulatory Activities Division, Office of the 
Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
    Board: Michelle E. Shore, Federal Reserve Board Clearance Officer, 
(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 call 
(202) 263-4869.
    FDIC: Herbert J. Messite, Counsel, (202) 898-6834, Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The agencies are proposing to revise the 
Call Report, which are currently approved collections of information.
    Report Title: Consolidated Reports of Condition and Income (Call 
Report).
    Form Number: Call Report: 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.
    OCC:
    OMB Number: 1557-0081.
    Estimated Number of Respondents: 1,620 national banks.
    Estimated Time per Response: 46.76 burden hours.
    Estimated Total Annual Burden: 303,027 burden hours.
    Board:
    OMB Number: 7100-0036.
    Estimated Number of Respondents: 877 state member banks.
    Estimated Time per Response: 53.30 burden hours.
    Estimated Total Annual Burden: 186,976 burden hours.
    FDIC:
    OMB Number: 3064-0052.
    Estimated Number of Respondents: 5,110 insured state nonmember 
banks.
    Estimated Time per Response: 37.36 burden hours.
    Estimated Total Annual Burden: 763,638 burden hours.
    The estimated time per response for the Call Report is an average 
that varies by agency because of differences in the composition of the 
institutions under each agency's supervision (e.g., size distribution 
of institutions, types of activities in which they are engaged, and 
existence of foreign offices). The average reporting burden for the 
Call Report is estimated to range from 16 to 650 hours per quarter, 
depending on an individual institution's circumstances.

General Description of Reports

    These information collections are 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). At 
present, except for selected data items, these information collections 
are not given confidential treatment.

Abstract

    Institutions submit Call Report data to the agencies each quarter 
for the agencies' use in monitoring the condition, performance, and 
risk profile of individual institutions and the industry as a whole. 
Call Report data provide the most current statistical data available 
for evaluating institutions' corporate applications, for identifying 
areas of focus for both on-site and off-site examinations, and for 
monetary and other public policy purposes. The agencies use Call Report 
data in evaluating interstate merger and acquisition applications to 
determine, as required by law, whether the resulting institution would 
control more than ten percent of the total amount of deposits of 
insured depository institutions in the United States. Call Report data 
are also used to calculate institutions' deposit insurance and 
Financing Corporation assessments and national banks' semiannual 
assessment fees.

Current Actions

I. Overview

    On September 23, 2008, the agencies requested comment on proposed 
revisions to the Call Report (73 FR 54807). The agencies proposed to 
implement the proposed changes to the Call Report requirements on a 
phased-in basis during 2009. A limited group of changes were proposed 
to take effect March 31, 2009; most revisions were proposed to take 
effect June 30, 2009; and a final group of revisions applicable only to 
trust institutions that complete the Call Report's Fiduciary and 
Related Services schedule were proposed to take effect December 31, 
2009.\1\
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    \1\ In addition, on November 26, 2008, OMB approved the 
agencies' emergency clearance requests to add two items to Call 
Report Schedule RC-O, Other Data for Deposit Insurance and FICO 
Assessments, effective December 31, 2008, that are applicable to all 
banks participating in the FDIC's Transaction Account Guarantee 
Program. A participating bank must report the amount and number of 
its noninterest-bearing transaction accounts, as defined in the 
FDIC's regulations governing the program, of more than $250,000 in 
Schedule RC-O, Memorandum items 4.a and 4.b. The FDIC will use this 
information to calculate assessments for participants in the 
Transaction Account Guarantee Program. Because OMB's approval of the 
agencies' emergency clearance request expires on May 31, 2009, the 
agencies proposed on December 23, 2008, under OMB's normal clearance 
procedures to collect these two items each quarter until the 
Transaction Account Guarantee Program ends. See 73 FR 78794.
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    The Call Report, as it has been proposed to be revised, will better 
support the agencies' surveillance and supervision of individual banks 
and enhance their monitoring of the industry's condition and 
performance. The proposed revisions reflected a thorough and careful 
review of the agencies' data needs in a variety of areas as banks 
encountered the most turbulent environment in more than a decade. Thus, 
the proposed revisions included new items that focus on areas in which 
the banking industry has faced heightened risk as a result of market

[[Page 5030]]

turmoil and illiquidity and weakening economic and credit conditions. 
Where possible, the agencies sought to establish reporting thresholds 
for proposed new items. Other proposed new items would be relevant to 
only a small percentage of banks.
    The agencies collectively received comments from seven respondents: 
Two banks, one bank holding company, three bankers' organizations, and 
a bank insurance consultant. None of these commenters specifically 
addressed all of the aspects of the proposal. Rather, individual 
respondents commented upon one or more of the proposed Call Report 
changes. In two cases, commenters brought up reporting matters that 
were not addressed in the agencies' proposal. The following is a 
summary of the general comments received on the proposed Call Report 
revisions. Sections II, III, and IV of this notice identify the changes 
proposed to take effect March 31, June 30, and December 31, 2009, 
respectively; discuss the agencies' evaluation of the comments received 
on the proposed changes that the FFIEC and the agencies have decided to 
implement, as modified; and describe the proposed Call Report revisions 
that remain under review by the FFIEC and the agencies.
    One bankers' organization stated that it believed that the proposed 
revisions would provide additional information that would be useful to 
the agencies' assessment of risk. This organization expressed general 
agreement, on balance, with the proposed revisions, but also offered 
several suggested changes for the agencies' consideration.\2\ Another 
bankers' organization indicated its understanding of the agencies' need 
for more information on certain types of loans currently under stress, 
but noted that the proposed revisions would require many community 
banks to submit significantly more data in the Call Report. This 
organization hoped that the increased staff time that would be needed 
to provide the proposed Call Report data would be offset by a reduction 
in on-site examination time through examiners' use of these data to 
better focus their examination priorities. In this regard, the 
agencies' intent in proposing the revisions to the Call Report was to 
enhance their risk-focused supervision, both from an off-site and an 
on-site perspective. The third bankers' organization commented on the 
amount of lead time necessary for institutions to implement systems 
changes to enable them to provide the requested additional data, 
recommending a minimum of three months between the agencies' 
publication of final revisions in the Federal Register and the 
effective date of the reporting changes.
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    \2\ One bank that is a member of this bankers' organization 
referred to the organization's comment letter and appeared to concur 
with the organization's comments, but also addressed one aspect of 
the agencies' proposal on which the bankers' organization did not 
specifically comment.
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    Two commenters submitted comments on reporting issues that were not 
addressed in the agencies' Call Report proposal. One bank holding 
company sent a copy of separate correspondence that it had previously 
sent to three organizations suggesting a suspension of the accounting 
rules for other-than-temporary impairments on investment securities. By 
law, the accounting principles applicable to the Call Report must be 
consistent with or, if certain conditions are met, no less stringent 
than generally accepted accounting principles.\3\ Therefore, the 
suggested suspension of accounting rules cannot be implemented for Call 
Report purposes.
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    \3\ See 12 U.S.C. 1831n(a).
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    One bankers' organization recommended that the Call Report be 
revised to require ``reciprocal deposits'' \4\ to be reported 
separately from brokered deposits. This bankers' organization also 
commented on the reporting of certain sweep accounts from other 
institutions, including affiliated institutions, in the Call Report. 
The impetus for the bankers' organization's comments about the 
reporting of these two types of deposits was a Notice of Proposed 
Rulemaking (NPR) on which the FDIC was simultaneously requesting 
comment concerning amendments to its deposit insurance assessment 
regulations (12 CFR part 327).\5\ In the NPR, the FDIC proposed to 
alter the way in which it differentiates for risk in the risk-based 
assessment system; revise deposit insurance assessment rates, including 
base assessment rates; and make technical and other changes to the 
rules governing the risk-based assessment system. In its comment letter 
to the agencies on the proposed Call Report revisions, the bankers' 
organization observed that the Call Report may need to be revised 
depending on the FDIC's decisions on the treatment of these accounts 
for deposit insurance assessment purposes. Accordingly, the FFIEC and 
the agencies will monitor the outcome of the FDIC's rulemaking for 
assessments and the need for new Call Report data items for reciprocal 
deposits and certain sweep accounts to support any modifications that 
the FDIC makes in its risk-based assessment system in a final rule. In 
this regard, as proposed by the FDIC, these modifications would take 
effect April 1, 2009, which means that any new reporting requirements 
to provide data for the FDIC's risk-based assessment system would need 
to be in place June 30, 2009.
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    \4\ The organization also recommended that ``reciprocal 
deposit'' be defined as a deposit ``obtained when an insured 
depository institution exchanges funds, dollar-for-dollar, with 
members of a network of other insured depository institutions, where 
each member of the network sets the interest rate to be paid on the 
entire amount of funds it places with other network members, and all 
funds placed through the network are fully insured by the FDIC.''
    \5\ 73 FR 61560, October 16, 2008.
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    After considering the comments received on the proposal, the FFIEC 
and the agencies will move forward with most of the reporting changes, 
with limited modifications in response to certain comments, on the 
phased-in basis that had been proposed. The FFIEC and the agencies are 
continuing to evaluate certain other proposed revisions in light of the 
comments received thereon and will not implement these revisions on 
their proposed effective dates.\6\
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    \6\ See section II.C on unused commitments, section III.D on 
past due and nonaccrual trading assets, and the portion of section 
III.E addressing the present value of unpaid premiums on sold credit 
protection.
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    The agencies recognize institutions' need for lead time to prepare 
for reporting changes, which led them to propose the phased-in 
implementation schedule for 2009. The Call Report items that will be 
new or revised effective March 31, 2009, are limited in number and all 
but one are linked to changes in generally accepted accounting 
principles taking effect at the same time. For the March 31, 2009, 
report date, banks may provide reasonable estimates for any new or 
revised Call Report item initially required to be reported as of that 
date for which the requested information is not readily available. This 
same policy on the use of reasonable estimates will apply to the 
reporting of other new or revised items when they are first implemented 
effective June 30 and December 31, 2009. In addition, the specific 
wording of the captions for the new or revised Call Report data items 
discussed in this notice and the numbering of these data items should 
be regarded as preliminary.
    Type of Review: Revision of currently approved collections.

II. Call Report Revisions Proposed for March 2009

    The agencies received no comments on the following two revisions 
that were proposed to take effect as of March 31,

[[Page 5031]]

2009, and therefore these revisions will be implemented as proposed:
     Revisions to several Call Report schedules in response to 
accounting changes applicable to noncontrolling (minority) interests in 
consolidated subsidiaries; and
     The addition of a new item to be reported annually on the 
bank's fiscal year-end date.
    The agencies received one or more comments addressing each of the 
following proposed March 31, 2009, revisions:
     The addition of new items in response to a revised 
accounting standard that will provide information on held-for-
investment loans and leases acquired in business combinations;
     Clarifications of the definition of the term ``loan 
secured by real estate'' and of the instructions for reporting unused 
commitments;
     Exemptions from reporting certain existing Call Report 
items for banks with less than $1 billion in total assets;
     Instructional guidance on quantifying misstatements in the 
Call Report; and
     The elimination of confidential treatment for data 
collected on fiduciary income, expenses, and losses.
    The comments related to each of these proposed revisions are 
discussed below along with the agencies' response to these comments.
A. Loans and Leases Acquired in Business Combinations
    Banks must apply Statement of Financial Accounting Standards No. 
141 (Revised), Business Combinations (FAS 141(R)), which was issued in 
December 2007, prospectively to business combinations for which the 
acquisition date is on or after the beginning of their first annual 
reporting period beginning on or after December 15, 2008. Thus, for 
banks with calendar year fiscal years, FAS 141(R) will apply to 
business combinations with acquisition dates on or after January 1, 
2009. Compared to current accounting practice, FAS 141(R) significantly 
changes the accounting for those loans and leases acquired in business 
combinations that will be held for investment.\7\ In response to this 
accounting change, the agencies proposed to add new items to the Call 
Report loan and lease schedule (Schedule RC-C, part I) that would 
mirror the acquisition-date disclosures required by FAS 141(R). These 
new items would disclose the following information for four categories 
of loans (not subject to SOP 03-3) and leases that were acquired in 
each business combination that occurred during the year-to-date 
reporting period:
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    \7\ This change in accounting treatment does not apply to 
acquired held-for-investment loans within the scope of American 
Institute of Certified Public Accountants Statement of Position 03-
3, Accounting for Certain Loans or Debt Securities Acquired in a 
Transfer (SOP 03-3).
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     The fair value of the loans and leases;
     The gross contractual amounts receivable; and
     The best estimate at the acquisition date of the 
contractual cash flows not expected to be collected.
    The four categories of acquired held-for-investment loans (not 
subject to SOP 03-3) and leases are:
     Loans secured by real estate;
     Commercial and industrial loans;
     Loans to individuals for household, family, and other 
personal expenditures; and
     All other loans and all leases.
    These new items will be completed by banks that have engaged in 
business combinations that must be accounted for in accordance with FAS 
141(R) or that have been involved in push down accounting transactions 
to which the measurement principles in FAS 141(R) apply, i.e., in 
general, transactions for which the acquisition date is on or after 
January 1, 2009. A bank that has completed one or more business 
combinations or has applied push down accounting during the current 
calendar year would report these acquisition date data (as aggregate 
totals if multiple business combinations have occurred) in each Call 
Report submission after the acquisition date during that year. The 
acquisition date data would not be reported in years after the year in 
which the acquisition occurs.
    One bankers' organization stated that it concurred with the 
agencies' proposal to require these additional disclosures for loans 
(not subject to SOP 03-3) and leases acquired in business combinations 
that occurred during the reporting period. No other commenter addressed 
these proposed additional disclosures. Accordingly, the agencies will 
implement these items in the March 31, 2009, Call Report, as proposed.
    In their proposal, the agencies also stated that they were 
considering whether banks that have engaged in FAS 141(R) business 
combinations should provide additional information in the Call Report 
(beyond the disclosures described above) about acquired held-for-
investment loans (not subject to SOP 03-3) and leases and the loss 
allowances established for them in periods after their acquisition. The 
proposal stated that the additional items under consideration included 
the outstanding balance of these acquired loans and leases, their 
carrying amount, and the amount of allowances for post-acquisition 
credit losses on these loans and leases. The agencies indicated that 
this information would help them as well as other Call Report users to 
track management's judgments regarding the collectability of the 
acquired loans and leases in periods after the acquisition date and 
evaluate fluctuations in the level of the overall ALLL as a percentage 
of the held-for-investment loan and lease portfolio in periods after a 
business combination. The agencies requested comment on the merits and 
availability of these post-acquisition loan and lease data and the 
period of time after a business combination that this information 
should be reported.
    Two bankers' organizations commented on these additional loan and 
lease disclosures. One organization did not specifically address the 
merits of this information, stating only that if banks were required to 
report these additional data, they should report it only through the 
end of the calendar year of the business combination. The second 
organization agreed with the first organization concerning the 
reporting period for these additional data. However, this organization 
also stated its belief that the post-acquisition data on acquired loans 
and leases would often not be available because acquired performing 
loans and leases would tend to be combined with, rather than segregated 
from, a bank's other performing loans and leases.
    After considering these comments, the agencies have decided for the 
time being not to add items to the Call Report for the outstanding 
balance of held-for-investment loans (not subject to SOP 03-3) and 
leases acquired in FAS 141(R) business combinations, their carrying 
amount, and the amount of allowances for post-acquisition credit losses 
on these loans and leases. The agencies will continue to monitor 
accounting and disclosure practices with respect to these acquired 
loans and leases and their post-acquisition allowances and assess their 
data needs in this area. Any future revisions to the Call Report to 
collect data on acquired loans and leases and post-acquisition 
allowances will be subject to notice and comment.
B. Clarification of the Definition of Loan Secured by Real Estate
    The agencies have found that the definition of a ``loan secured by 
real estate'' in the Glossary section of the Call Report instructions 
has been interpreted differently by Call Report preparers and users. 
This has led to inconsistent reporting of loans collateralized by real 
estate in the loan

[[Page 5032]]

schedule (Schedule RC-C) and other schedules of the Call Report that 
collect loan data. As a result, the agencies proposed to clarify the 
definition by explaining that the estimated value of the real estate 
collateral must be greater than 50 percent of the principal amount of 
the loan at origination in order for the loan to be considered secured 
by real estate. Banks would apply this clarified definition 
prospectively and they need not reevaluate and recategorize loans that 
they currently report as loans secured by real estate into other loan 
categories on the Call Report loan schedule.
    One bankers' organization stated that it believes that the proposed 
definition of a ``loan secured by real estate'' is workable and 
provides additional clarity. One bank submitted examples involving 
loans with real estate as collateral and asked how they would be 
reported based on the revised definition. The agencies will implement 
the clarified definition of ``loan secured by real estate'' as proposed 
but, in response to this latter comment, they will add examples to the 
definition to assist banks in understanding how it should be applied.
C. Clarification of Instructions for Unused Commitments
    Banks report unused commitments in Schedule RC-L, item 1. The 
instructions for this item identify various arrangements that should be 
reported as unused commitments, including but not limited to 
commitments for which the bank has charged a commitment fee or other 
consideration, commitments that are legally binding, loan proceeds that 
the bank is obligated to advance, commitments to issue a commitment, 
and revolving underwriting facilities. However, the agencies have found 
that some banks have not reported commitments that they have entered 
into until they have signed the loan agreement for the financing that 
they have committed to provide. Although the agencies consider these 
arrangements to be within the scope of the existing instructions for 
reporting commitments in Schedule RC-L, they believe that these 
instructions may not be sufficiently clear. Therefore, the agencies 
proposed to revise the instructions for Schedule RC-L, item 1, ``Unused 
commitments,'' to more clearly and completely explain the arrangements 
that should be reported in this item.
    All three bankers' organizations submitting comments on the 
proposed Call Report revisions specifically addressed the proposed 
instructional clarification pertaining to unused commitments. One 
organization agreed that clarification is needed, but recommended that 
commitments to issue a commitment in the future, including those 
entered into even though the related loan agreement has not yet been 
signed, should be removed from the list of types of arrangements that 
the instructions would direct banks to report as unused commitments. 
The other two bankers' organizations also commented on the inclusion of 
this type of arrangement as an unused commitment. One organization 
expressed concern about reporting ``commitments that contain a 
relatively high level of uncertainty until a loan agreement has been 
signed or the loan has been funded with a first advance'' and the 
reliability of data on such commitments. The other organization stated 
that because some banks do not have systems for tracking such 
arrangements, the instructions should in effect permit banks to exclude 
commitment letters with an expiration date of 90 days or less. Finally, 
the first bankers' organization also recommended that the instructions 
for reporting unused commitments should state that amounts conveyed or 
participated to others that the conveying or participating bank is not 
obligated to fund should not be reported as unused commitments by the 
conveying or participating bank.
    The agencies are continuing to evaluate these commenters' 
recommendations. As a consequence, the agencies will not revise the 
instructions for Schedule RC-L, item 1, ``Unused commitments,'' 
effective March 31, 2009, as proposed and the existing instructions for 
this Schedule RC-L item will remain in effect. Once the agencies 
conclude their deliberations on these recommendations and determine 
whether and how to revise the instructions for reporting ``Unused 
commitments'' in Schedule RC-L, item 1, they will publish their 
conclusions in a separate Federal Register notice and submit them to 
OMB for review and approval. If the instructions to Schedule RC-L, item 
1, are revised, the clarifications to these instructions would take 
effect no earlier than December 31, 2009.
D. Exemptions from Reporting for Certain Existing Call Report Items
    The agencies have identified certain Call Report items for which 
the reported data are of lesser usefulness for banks with less than $1 
billion in total assets. Accordingly, the agencies proposed to exempt 
such banks from completing the following Call Report items effective 
March 31, 2009:
     Schedule RI, Memorandum item 2, ``Income from the sale and 
servicing of mutual funds and annuities (in domestic offices)'';
     Schedule RC-B, Memorandum items 5.a through 5.f, ``Asset-
backed securities,'' on the FFIEC 031 report; \8\
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    \8\ On the FFIEC 041 report, banks with less than $1 billion in 
assets are currently exempt from completing these Memorandum items.
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     Schedule RC-L, item 2.a, ``Amount of financial standby 
letters of credit conveyed to others''; and
     Schedule RC-L, item 3.a, ``Amount of performance standby 
letters of credit conveyed to others.''
    One commenter, a bank insurance consultant, objected to the 
agencies' proposal to exempt banks with less than $1 billion in total 
assets from reporting Schedule RI, Memorandum item 2, ``Income from the 
sale and servicing of mutual funds and annuities (in domestic 
offices),'' stating that this item should be preserved in all bank Call 
Reports. This commenter also stated that the agencies had not explained 
how they had determined that the collection of this Call Report item 
from banks in this size range is of lesser usefulness. This commenter 
added that by eliminating the reporting of this income information for 
these banks, ``we will lose our sole window into community banks' 
mutual fund and annuity activities.''
    Memorandum item 2 was added to Schedule RI of the Call Report in 
1994. At that time, the agencies collected limited information on 
banks' noninterest income. However, since 2001, the agencies have 
significantly expanded the amount of detailed information they collect 
on noninterest income in recognition of the increasing importance of 
such income to banks' earnings. As a result, all banks, regardless of 
size, currently report the amount of ``Fees and commissions from 
securities brokerage'' and ``Fees and commissions from annuity sales'' 
in Schedule RI, items 5.d.(1) and 5.d.(3), each quarter. Item 5.d.(1) 
specifically includes a bank's income from the sale and servicing of 
mutual funds. Thus, in general, the income that a bank reports in 
Schedule RI, Memorandum item 2, will have been included in these two 
noninterest income items in the body of Schedule RI. However, although 
the bank insurance consultant stated that as of ``June 30, 2008, more 
banks with less than $1 billion in assets reported mutual fund and 
annuity income'' in Memorandum item 2 than reported eight other types 
of noninterest income in the body of Schedule RI,'' the consultant did 
not provide comparative

[[Page 5033]]

data for the number of such banks reporting ``Fees and commissions from 
securities brokerage'' or ``Fees and commissions from annuity sales.''
    In addition, the agencies will continue to use the Call Report to 
identify banks that sell private label or third party mutual funds and 
annuities (Schedule RC-M, item 6) as well as banks managing assets held 
in proprietary mutual funds and annuities (Schedule RC-M, item 7). 
Furthermore, Call Report users within the agencies have indicated that 
Memorandum item 2 on ``Income from the sale and servicing of mutual 
funds and annuities'' is regarded as being of lesser usefulness than 
the noninterest income items with which it overlaps (items 5.d.(1) and 
5.d.(3) of Schedule RI). Accordingly, after considering the views 
expressed by the bank insurance consultant, the agencies have 
reaffirmed that the existing Call Report income statement items for 
``Fees and commissions from securities brokerage'' and ``Fees and 
commissions from annuity sales'' are sufficient to meet their ongoing 
needs for income data on these types of activities from banks with less 
than $1 billion in total assets and that such banks should be exempt 
from separately reporting ``Income from the sale and servicing of 
mutual funds and annuities'' beginning March 31, 2009.
    The agencies received no comments specifically addressing the other 
Call Report items for which they proposed to exempt banks with less 
than $1 billion in assets from continued reporting and will implement 
these exemptions as of March 31, 2009, as proposed.
E. Quantifying Misstatements in the Call Report
    The Glossary entry for ``Accounting Changes'' in the Call Report 
instructions includes a section on ``Corrections of Accounting Errors'' 
that provides guidance on reporting such corrections that is consistent 
with FASB Statement No. 154, Accounting Changes and Error Corrections 
(FAS 154). However, neither FAS 154 nor the Glossary entry for 
``Accounting Changes'' specifies the appropriate method to quantify an 
error or misstatement for purposes of evaluating materiality.
    In September 2006, the SEC staff issued Staff Accounting Bulletin 
No. 108, Considering the Effects of Prior Year Misstatements when 
Quantifying Misstatements in Current Year Financial Statements (SAB 
108),\9\ which advises that the impact of correcting all misstatements 
on current year financial statements should be accomplished by 
quantifying an error under both the ``rollover'' and ``iron curtain'' 
approaches \10\ and by evaluating the error measured under each 
approach. When either approach results in a misstatement that is 
material, after considering all relevant quantitative and qualitative 
factors, an adjustment to the financial statements would be required. 
Guidance on the consideration of all relevant factors when assessing 
the materiality of misstatements is provided in the SEC's Staff 
Accounting Bulletin No. 99, Materiality (SAB 99).\11\ SAB 108 observes 
that when the correction of an error in the current year would 
materially misstate the current year's financial statements because the 
correction includes the effect of the prior year misstatements, the 
prior year financial statements should be corrected.
---------------------------------------------------------------------------

    \9\ SAB 108 can be accessed at http://www.sec.gov/interps/account/sab108.pdf. SAB 108 has been codified as Topic 1.N. in the 
SEC's Codification of Staff Accounting Bulletins.
    \10\ According to SAB 108, the rollover approach ``quantifies a 
misstatement based on the amount of the error originating in the 
current year income statement,'' which ``ignores the `carryover 
effects' of prior year misstatements.'' In contrast, the ``iron 
curtain approach quantifies a misstatement based on the effects of 
correcting the misstatement existing in the balance sheet at the end 
of the current year, irrespective of the misstatement's year(s) of 
origination.''
    \11\ SAB 99 can be accessed at http://www.sec.gov/interps/account/sab99.htm. SAB 99 has been codified as Topic 1.M. in the 
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------

    The agencies believe that the guidance in SAB 108 and SAB 99 
represents sound accounting practices that all banks should follow for 
purposes of quantifying misstatements and considering all relevant 
factors when assessing the materiality of misstatements in their Call 
Reports. Accordingly, the agencies proposed to incorporate the guidance 
in these two Staff Accounting Bulletins into the section of the 
``Accounting Changes'' Glossary entry on error corrections.
    One banking organization supported the agencies' proposal for 
quantifying misstatements in the Call Report because it would provide a 
uniform approach for dealing with misstatements. The agencies will 
implement this instructional change as proposed.
F. Eliminating Confidential Treatment for Fiduciary Income, Expense, 
and Loss Data
    An important public policy issue for the agencies has been how to 
use market discipline to complement supervisory resources. Market 
discipline relies on market participants having sufficient appropriate 
information about the financial condition and risks of banks. The Call 
Report, in particular, is widely used by securities analysts, rating 
agencies, and large institutional investors as sources of bank-specific 
data. Disclosure that increases transparency should lead to more 
accurate market assessments of individual banks' performance and risks. 
This, in turn, should result in more effective market discipline on 
banks.
    Despite this emphasis on market discipline, the FFIEC and the 
agencies currently accord confidential treatment to the information 
that certain institutions report in Call Report Schedule RC-T, 
Fiduciary and Related Services, on fiduciary and related services 
income, expenses, and losses (items 12 through 18, items 19.a through 
23, and Memorandum item 4). Approximately 400 institutions that 
exercise fiduciary powers and have either total fiduciary assets 
greater than $250 million or gross fiduciary and related services 
income greater than 10 percent of revenue report their fiduciary and 
related services income quarterly and their fiduciary and related 
services expenses and losses annually as of year-end. Around 200 
institutions that exercise fiduciary powers, have total fiduciary 
assets greater than $100 million but less than or equal to $250 
million, and do not meet the fiduciary income test mentioned above 
report their fiduciary and related services income, expenses, and 
losses annually as of year-end. An additional 1,000 institutions that 
exercise fiduciary powers, have total fiduciary assets of $100 million 
or less, and do not meet the fiduciary income test mentioned above are 
exempt from reporting their fiduciary and related services income, 
expenses, and losses.
    Data on fiduciary and related services income, expenses, and losses 
(except for gross fiduciary and related services income, which is also 
reported in each institution's Call Report income statement) are the 
only financial information currently collected on the Call Report that 
is treated as confidential on an individual institution basis. 
Nevertheless, the agencies publish aggregate data derived from these 
confidential items. The agencies have accorded confidential treatment 
to the fiduciary services income data for individual institutions since 
it began to be collected in 1997. However, the agencies do not preclude 
institutions from publicly disclosing the fiduciary and related 
services income, expense, and loss data that the agencies treat as 
confidential.
    The agencies originally applied this confidential treatment to the 
fiduciary

[[Page 5034]]

and related services income, expense, and loss information because 
these data generally pertain to only a portion of a reporting 
institution's total operations and not to the institution as a whole. 
However, the agencies make publicly available on an individual bank 
basis the Call Report data they collect on income and expenses from 
foreign offices from banks with such offices where foreign activities 
exceed certain levels even though these data pertain to only a portion 
of these banks' total operations.
    In addition, under the Uniform Interagency Trust Rating System, the 
agencies assign a rating to the earnings of an institution's fiduciary 
activities at those institutions with fiduciary assets of more than 
$100 million, which are also the institutions that report their 
fiduciary and related services income, expenses, and losses in Call 
Report Schedule RC-T. The agencies' evaluation of an institution's 
trust earnings considers such factors as the profitability of fiduciary 
activities in relation to the size and scope of those activities and 
the institution's overall business, taking this into account by 
functions and product lines. Although the agencies' ratings for 
individual institutions are not publicly available, the reason for 
rating the trust earnings of institutions with more than $100 million 
in fiduciary assets--its effect on the financial condition of the 
institution--means that fiduciary and related services income, expense, 
and loss information for these institutions is also relevant to market 
participants and others in the public as they seek to evaluate the 
financial condition and performance of individual institutions. 
Increasing the transparency of institutions' fiduciary activities by 
making individual institutions' fiduciary income, expense, and loss 
data available to the public should improve the market's ability to 
assess these institutions' performance and risks and thereby enhance 
market discipline. Accordingly, the agencies proposed to eliminate the 
confidential treatment for the data on fiduciary and related services 
income, expenses, and losses that are reported in Schedule RC-T 
beginning with the amounts reported as of March 31, 2009. Fiduciary and 
related services income, expense, and loss data reported in Schedule 
RC-T for report dates prior to March 31, 2009, would remain 
confidential.
    One bankers' organization opposed eliminating the confidential 
treatment of fiduciary income, expense, and loss data, stating that the 
agencies' original reason for according confidential treatment to these 
data, i.e., that these data generally pertain to only a portion of a 
reporting institution's total operations and not to the institution as 
a whole, still holds true. This commenter also cited significant 
competitive concerns with the proposed elimination of confidential 
treatment because making income, expense, and loss data publicly 
available ``may make it possible for competitors to deduce'' an 
individual institution's fee schedules. In addition, the bankers' 
organization believed that these publicly disclosed data may be subject 
to misinterpretation by market participants who would lack a proper 
understanding of the scope of the income, expense, and loss data 
reported in Schedule RC-T because fiduciary income and expenses are 
presented differently in institutions' audited financial statements 
prepared in accordance with GAAP. Therefore, this commenter believes 
that institutions' financial statements can satisfy market 
participants' needs for fiduciary income, expense, and loss data. 
Finally, this commenter stated that market participants may be confused 
or misled by the fiduciary expense and loss information because they 
would be unable to determine the source or specific fiduciary activity 
giving rise to the expense or loss.
    Although the fiduciary income, expense, and loss data currently 
reported in Schedule RC-T and afforded confidential treatment apply 
only to a portion of an institution rather than an entire institution, 
all other income and expense data collected in the Call Report is 
publicly available, even when the data relates only to portions of an 
institution's activities. As previously mentioned, components of net 
income attributable to foreign offices are reported by banks with 
significant foreign activities and made publicly available. In 
addition, banks with significant trading activities have reported a 
publicly available year-to-date breakdown of the revenues generated by 
the trading portion of their activities, which discloses the net gains 
(losses) by type of exposure each quarter. The agencies believe that 
the likelihood that competing institutions will be able to deduce an 
individual institution's fee schedule for its fiduciary services from 
the fiduciary income data reported in Schedule RC-T is largely 
mitigated by the fact that, in general, as noted above, only larger 
trust institutions are required to report fiduciary income, expense, 
and loss data.\12\ Smaller trust institutions are not required to 
report such data. Therefore, smaller trust institutions whose fee 
schedules for fiduciary services may potentially be more likely to be 
able to be deduced by competitors are not subject to the risk of 
unintended disclosure of their fee schedules.
---------------------------------------------------------------------------

    \12\ Institutions with total fiduciary assets greater than $100 
million as of the preceding December 31 and institutions with gross 
fiduciary and related services income greater than 10 percent of 
revenue for the preceding calendar year are required to report 
fiduciary income data quarterly or annually, depending on their 
assets and income, and fiduciary expense and loss data annually in 
Schedule RC-T.
---------------------------------------------------------------------------

    The agencies also believe that the risk of misinterpretation of the 
fiduciary income, expense, and loss data is substantially reduced by 
the FFIEC's publication of detailed instructions for the preparation of 
Schedule RC-T, which are available to users of this schedule to assist 
them in understanding the scope of the reported fiduciary and related 
services data. Moreover, possible confusion about the source of losses 
is mitigated by the currently required reporting in Memorandum item 4 
of Schedule RC-T of a breakdown of losses by type of fiduciary account, 
which is further segregated between managed and non-managed accounts. 
Finally, the Optional Narrative Statement section of the Call Report 
affords the management of trust institutions the ability to submit 
publicly available explanatory comments concerning their fiduciary 
income, expense, and losses.
    Thus, the agencies continue to believe that the benefit of 
increased transparency from the full disclosure of fiduciary income, 
expense, and loss data will improve market discipline by enhancing the 
market's ability to assess institution-specific performance and risks. 
After carefully considering the comments on the public availability of 
fiduciary income, expense, and loss data reported in Schedule RC-T, the 
agencies are adopting the proposal to eliminate the confidential 
treatment of such data beginning with the data reported as of March 31, 
2009.

III. Call Report Revisions Proposed for June 2009

    The agencies received no comments on the following revisions that 
were proposed to take effect as of June 30, 2009, and therefore these 
revisions will be implemented as proposed:
     Holdings of collateralized debt obligations and other 
structured financial products by type of product and underlying 
collateral;
     Holdings of commercial mortgage-backed securities;
     Unused commitments with an original maturity of one year 
or less to

[[Page 5035]]

asset-backed commercial paper conduits;
     Pledged loans and pledged trading assets;
     Collateral held against over-the-counter (OTC) derivative 
exposures by type of collateral and type of counterparty as well as the 
current credit exposure on OTC derivatives by type of counterparty (for 
banks with $10 billion or more in total assets);
     Investments in real estate ventures;
     Held-to-maturity and available-for-sale securities in 
domestic offices (for banks that have both domestic and foreign 
offices); and
     Whether the bank is a trustee or custodian for certain 
types of accounts or provides certain services in connection with 
orders for securities transactions regardless of whether the bank 
exercises trust powers, which will take the form of yes/no questions.
    The agencies received one or more comments addressing each of the 
following proposed June 30, 2009, revisions:
     Real estate construction and development loans outstanding 
with capitalized interest and the amount of such interest included in 
income for the quarter (for banks with construction and development 
loan concentrations);
     Fair value measurements by level for asset and liability 
categories reported at fair value on a recurring basis (for banks that 
have $500 million or more in total assets, apply a fair value option, 
or are required to complete the Call Report trading schedule);
     Remaining maturities of unsecured other borrowings and 
subordinated notes and debentures;
     Past due and nonaccrual trading assets; and
     Credit derivatives by credit quality and remaining 
maturity and by regulatory capital treatment.
    The comments related to each of these proposed revisions are 
discussed below along with the agencies' response to these comments.
A. Construction and Development Loans With Interest Reserves
    In December 2006, the agencies issued final guidance on commercial 
real estate (CRE) loans, including construction, land development, and 
other land (C&D) loans, entitled Concentrations in Commercial Real 
Estate Lending, Sound Risk Management Practices (CRE Guidance).\13\ 
This guidance was developed to reinforce sound risk management 
practices for institutions with high and increasing concentrations of 
commercial real estate loans on their balance sheets. It provides a 
framework for assessing CRE concentrations; risk management, including 
board and management oversight, portfolio management, management 
information systems, market analysis and stress testing, underwriting 
and credit risk review; and supervisory oversight, including CRE 
concentration management and an assessment of capital adequacy.
---------------------------------------------------------------------------

    \13\ 71 FR 74580, December 12, 2006.
---------------------------------------------------------------------------

    In issuing the CRE Guidance, the agencies noted that CRE 
concentrations had been rising over the past several years and had 
reached levels that could create safety and soundness concerns in the 
event of a significant economic downturn. As a consequence, the CRE 
Guidance explains that, as part of their ongoing supervisory monitoring 
processes, the agencies would use certain criteria to identify 
institutions that are potentially exposed to significant CRE 
concentration risk. Thus, the CRE Guidance states in part that an 
institution whose total reported C&D loans is approaching or exceeds 
100 percent or more of the institution's total risk-based capital may 
be identified for further supervisory analysis of the level and nature 
of its CRE concentration risk. As of March 31, 2008, approximately 28 
percent of all banks held C&D loans in excess of 100 percent of their 
total risk-based capital.
    A practice that is common in C&D lending is the establishment of an 
interest reserve as part of the original underwriting of a C&D loan. 
The interest reserve account allows the lender to periodically advance 
loan funds to pay interest charges on the outstanding balance of the 
loan. The interest is capitalized and added to the loan balance. 
Frequently, C&D loan budgets will include an interest reserve to carry 
the project from origination to completion and may cover the project's 
anticipated sell-out or lease-up period. Although potentially 
beneficial to the lender and the borrower, the use of interest reserves 
carries certain risks. Of particular concern is the possibility that an 
interest reserve could disguise problems with a borrower's willingness 
and ability to repay the debt consistent with the terms and conditions 
of the loan agreement. For example, a C&D loan for a project on which 
construction ceases before it has been completed or is not completed in 
a timely manner may appear to be performing if the continued 
capitalization of interest through the use of an interest reserve keeps 
the troubled loan current. This practice can erode collateral 
protection and mask loans that should otherwise be reported as 
delinquent or in nonaccrual status.
    Since the CRE Guidance was issued, market conditions have weakened, 
most notably in the C&D sector. As this weakening has occurred, the 
agencies' examiners have been encountering C&D loans on projects that 
are troubled, but where interest has been capitalized inappropriately, 
resulting in overstated income and understated volumes of past due and 
nonaccrual C&D loans. Therefore, to assist the agencies in monitoring 
C&D lending activities at those banks with a concentration of such 
loans, i.e., C&D loans (in domestic offices) that exceeded 100 percent 
of total risk-based capital as of the previous calendar year-end, the 
agencies proposed to add two new Call Report items. First, banks with 
such a concentration would report the amount of C&D loans (in domestic 
offices) included in the Call Report loan schedule (Schedule RC-C) on 
which the use of interest reserves is provided for in the loan 
agreement. Second, these banks would report the amount of capitalized 
interest included in the interest and fee income on loans during the 
quarter. These data, together with information that banks currently 
report on the amount of past due and nonaccrual C&D loans, will assist 
in identifying banks with C&D loan concentrations that may be engaging 
in questionable interest capitalization practices for supervisory 
follow-up.
    One bank expressed agreement with the agencies' concerns about the 
disguising of problems with a borrower's willingness and ability to 
repay the debt consistent with the terms and conditions of the loan 
agreement through the improper use of interest reserves on C&D loans. 
The bank also acknowledged that real estate market conditions have 
weakened in its market area since the agencies issued their CRE 
Guidance in December 2006. Although the bank stated that it has a 
concentration of C&D loans, as defined above, it reported that a recent 
review of its portfolio revealed that only a modest number of its C&D 
loan agreements included interest reserves. The bank also described its 
lending policies and controls over the approval of interest reserves in 
the original underwriting of a C&D loan and in the limited cases when 
the original loan had matured or was otherwise recast. It then stated 
that both the bank lender and its supervisory agency should focus their 
attention--and any regulatory reporting requirements--on situations 
when interest reserves are added to a loan after a development project 
is completed or ``when a project goes over budget or otherwise has 
completion

[[Page 5036]]

issues.'' With respect to the two proposed items pertaining to C&D 
loans with interest reserves, the bank noted that its loan system does 
not currently capture the required data and adding this capability to 
the loan system by the proposed June 30, 2009, effective date would 
likely be difficult, which would mean that the data would have to be 
compiled manually until system changes are in place.
    In its comments, the bank concurred with the agencies' statement 
that the practice of including interest reserves as part of the 
original underwriting of a C&D loan is common. Although this bank may 
have a modest number of C&D loans with interest reserves and states 
that it controls the use of such reserves, the agencies remain 
concerned about the inappropriate capitalization of interest on C&D 
loans through the use of interest reserves. Potentially inappropriate 
interest capitalization is not limited to situations where interest 
reserves are added to a C&D loan after its originally scheduled 
maturity date or in connection with a restructuring of the loan. 
Inappropriate interest income recognition may also occur when budgeted 
interest reserves that were determined to be appropriate at the 
inception of the loan based on a project's original development and 
sale or lease-up plans continue to be used after construction has been 
substantially curtailed or has ceased and collection of all principal 
and interest on the loan is in doubt. In addition, a bank may loosen 
its policies and controls over the recognition of interest income on 
C&D loans through the use of interest reserves.
    The agencies acknowledge that at some banks with C&D loan 
concentrations, only a limited portion of such loans may provide for 
the use of interest reserves. Nevertheless, the agencies believe that 
all banks with such concentrations should report the proposed data on 
loans with interest reserves to enable them to monitor this lending 
activity and detect changes in the extent to which such banks' C&D 
loans provide for the use of interest reserves. As noted above, the new 
and existing C&D loan data will also assist in identifying banks whose 
use of interest reserves may warrant supervisory follow-up. 
Accordingly, after considering the bank's comment, the agencies have 
decided to implement the proposed new items for the amount of C&D loans 
with interest reserves and the amount of capitalized interest included 
in income for the quarter as of June 30, 2009, as proposed. Banks with 
C&D loan concentrations are reminded that they are permitted to report 
reasonable estimates for these two amounts in the June 30, 2009, Call 
Report, which will provide them with additional flexibility in making 
any necessary systems changes. Finally, banks with C&D loan 
concentrations may choose to provide explanatory comments about their 
C&D loans with interest reserves in the Optional Narrative Statement 
section of the Call Report and these comments will be publicly 
available.
B. Fair Value Measurements
    Effective March 31, 2007, the banking agencies began collecting 
information on certain assets and liabilities measured at fair value on 
Call Report Schedule RC-Q, Financial Assets and Liabilities Measured at 
Fair Value. Currently, this schedule is completed by banks with a 
significant level of trading activity or that use a fair value option. 
The information collected on Schedule RC-Q is intended to be consistent 
with the fair value disclosures and other requirements in FASB 
Statement No. 157, Fair Value Measurements (FAS 157).
    Based on the banking agencies' ongoing review of industry reporting 
and disclosure practices since the inception of this standard, and the 
reporting of items at fair value on Schedule RC, Balance Sheet, the 
agencies proposed to expand the data collected on Schedule RC-Q in two 
material respects.
     First, the agencies proposed to expand the detail on 
Schedule RC-Q to (1) collect fair value information on all assets and 
liabilities reported at fair value on a recurring basis in a manner 
consistent with the asset and liability breakdowns on Schedule RC, (2) 
add totals to capture total assets and total liabilities for items 
reported on the schedule, (3) modify the existing items for ``other 
financial assets and servicing assets'' and ``other financial 
liabilities and servicing liabilities'' to collect information on 
``other assets'' and ``other liabilities'' reported at fair value on a 
recurring basis (including nontrading derivatives and loan 
commitments), and (4) add separate disclosures for those components of 
``other assets'' and ``other liabilities'' greater than $25,000 and 
exceeding 25 percent of the total fair value of ``other assets'' and 
``other liabilities,'' respectively.
     Second, the agencies proposed to extend the requirement to 
complete Schedule RC-Q to all banks that reported $500 million or more 
in total assets at the beginning of their fiscal year while retaining 
the schedule's current applicability to all banks that (1) have elected 
to account for financial instruments or servicing assets and 
liabilities at fair value under a fair value option or (2) are required 
to complete Schedule RC-D, Trading Assets and Liabilities.
    One bankers' organization commented that ``[c]ommunity banks have 
long been concerned about the application of fair value accounting to 
their financial statements'' and urged the agencies to use the 
increased data to be collected in Schedule RC-Q ``to carefully study 
the impact of this controversial accounting methodology'' because it 
``often does not reflect the reality of community banking.'' In 
proposing the revisions to Schedule RC-Q, the agencies stated that 
additional data will enable them to more accurately assess the impact 
of fair value accounting and fair value measurements for safety and 
soundness purposes. This objective is consistent with the 
recommendation from this bankers' organization concerning the manner in 
which the agencies should use these fair value data. Thus, the agencies 
will implement the revisions to Schedule RC-Q effective June 30, 2009, 
as proposed.
C. Maturity Distributions of Unsecured Other Borrowings and 
Subordinated Debt
    As part of the Omnibus Budget Reconciliation Act of 1993, Congress 
enacted depositor preference legislation that elevated the claims of 
depositors in domestic offices (and in insured branches in Puerto Rico 
and U.S. territories and possessions) over the claims of general 
unsecured creditors in a bank failure. When a bank fails, the claims of 
general unsecured creditors provide a cushion that lowers the cost of 
the failure to the Deposit Insurance Fund (DIF) administered by the 
FDIC. The greater the amount of general unsecured creditor claims, the 
greater the cushion and the lower the cost of the failure to the DIF.
    At the time the agencies issued their proposed revisions to the 
Call Report in 2008, the FDIC was considering proposing an adjustment 
to the risk-based assessment system so that insured depository 
institutions with greater amounts of general unsecured long-term 
liabilities will be rewarded with a lower assessment rate. The FDIC has 
since issued proposed amendments to its risk-based assessment system 
that include an unsecured debt adjustment that would lower an 
institution's base assessment rate.\14\
---------------------------------------------------------------------------

    \14\ 73 FR 61560, October 16, 2008.
---------------------------------------------------------------------------

    Because the Call Reports lack information regarding the remaining

[[Page 5037]]

maturities of unsecured ``other borrowings'' and subordinated notes and 
debentures, the agencies proposed to collect this information in the 
Call Report so that the FDIC would be able to implement an unsecured 
debt adjustment. One bankers' organization expressed support for the 
proposed collection of this information to facilitate this risk-based 
assessment adjustment, indicating that the reporting of this additional 
data ``would be reasonable and would not be unduly burdensome.'' The 
agencies will implement the new items for reporting data on the 
remaining maturities of unsecured other borrowings and subordinated 
debt beginning June 30, 2009, as proposed.
D. Trading Assets That Are Past Due or in Nonaccrual Status
    Currently, the agencies do not distinguish past due and nonaccrual 
trading assets from other assets on Schedule RC-N, Past Due and 
Nonaccrual Loans, Leases, and Other Assets. The agencies proposed to 
replace Schedule RC-N, item 9, for ``Debt securities and other assets'' 
that are past due 30 days or more or in nonaccrual status with two 
separate items: item 9.a, ``Trading assets,'' and item 9.b, ``All other 
assets (including available-for-sale and held-to-maturity 
securities).'' These items would follow the existing three-column 
breakdown on Schedule RC-N that banks utilize to report assets past due 
30 through 89 days and still accruing, past due 90 days or more and 
still accruing, and in nonaccrual status. Item 9.a would include all 
assets held for trading purposes, including loans held for trading. 
Collection of this information would allow the agencies to better 
assess the quality of assets held for trading purposes, and generally 
enhance surveillance and examination planning efforts.
    The agencies also proposed to expand the scope of Schedule RC-D, 
Trading Assets, Memorandum item 3, ``Loans measured at fair value that 
are past due 90 days or more,'' to include loans held for trading and 
measured at fair value that are in nonaccrual status. This change was 
intended to provide for more consistent treatment with the information 
that would be collected on Schedule RC-N and with the disclosure 
requirements in FASB Statement No. 159, The Fair Value Option for 
Financial Assets and Financial Liabilities.
    One bankers' organization stated that it believed that disclosure 
requirements regarding the delinquency and nonaccrual status of trading 
securities is not particularly meaningful given that these securities 
are marked to market through earnings. As a consequence, credit risk is 
already incorporated into the market price of each trading security. 
The organization further stated that the nonaccrual concept 
traditionally has not been applied to trading securities, which makes 
the proposed reporting of such data costly and difficult to implement. 
Accordingly, this commenter recommended against adding the proposed 
disclosure requirements regarding the delinquency and nonaccrual status 
of trading securities.
    The agencies are continuing to evaluate this commenter's 
recommendation. Therefore, the agencies will not implement the 
revisions to Schedule RC-N, item 9, and Schedule RC-D, Memorandum item 
3, effective June 30, 2009, as had been proposed. These items will 
remain in their current form while the agencies consider the proposed 
reporting changes in light of this banking organization's comment. When 
the agencies conclude their deliberations on these proposed disclosure 
requirements and determine whether and how to proceed with them, they 
will publish their conclusions in a separate Federal Register notice 
and submit them to OMB for review and approval. If Schedule RC-N, item 
9, and Schedule RC-D, Memorandum item 3, are revised, these reporting 
changes would take effect no earlier than December 31, 2009.
E. Enhanced Information on Credit Derivatives
    Effective for the March 2006 Call Report, the agencies revised the 
information collected on credit derivatives in Schedules RC-L, 
Derivatives and Off-Balance Sheet Items, and RC-R, Regulatory Capital, 
to gain a better understanding of the nature and trends of banks' 
credit derivative activities. Since that time, the volume of credit 
derivative activity in the banking industry, as measured by the 
notional amount of these contracts, increased steadily through March 
31, 2008, rising to an aggregate notional amount of $16.4 trillion as 
of that date. The aggregate notional amount has since declined 
slightly. Call Report data further indicate that the credit derivative 
activity in the industry is highly concentrated in banks with total 
assets in excess of $10 billion. For these banks, credit derivatives 
function as a risk mitigation tool for credit exposures in their 
operations as well as a financial product that is sold to third parties 
for risk management and other purposes.
    The agencies' safety and soundness efforts continue to place 
emphasis on understanding and assessing the role of credit derivatives 
in bank risk management practices. In addition, the agencies' 
monitoring of credit derivative activities at certain banks has 
identified differences in interpretation as to how credit derivatives 
are treated under the agencies' risk-based capital standards. To 
further the agencies' safety and soundness efforts concerning credit 
derivatives and to improve transparency in the treatment of credit 
derivatives for regulatory capital purposes, the agencies proposed to 
revise the information pertaining to credit derivatives that is 
collected on Schedules RC-L, RC-N (Past Due and Nonaccrual Loans, 
Leases, and Other Assets), and RC-R.
    In Schedule RC-L, item 7, ``Credit derivatives,'' the agencies 
proposed to change the caption of column A from ``Guarantor'' to ``Sold 
Protection'' and the caption of column B from ``Beneficiary'' to 
``Purchased Protection'' to eliminate confusion surrounding the meaning 
of ``Guarantor'' and ``Beneficiary'' that commonly occurs between the 
users and preparers of these data. The agencies also proposed to add a 
new item 7.c to Schedule RC-L to collect information on the notional 
amount of credit derivatives by regulatory capital treatment. For 
credit derivatives that are subject to the agencies' market risk 
capital standards, the agencies proposed to collect the notional amount 
of sold protection and the amount of purchased protection. For all 
other credit derivatives, the agencies proposed to collect the notional 
amount of sold protection, the notional amount of purchased protection 
that is recognized as a guarantee under the risk-based capital 
guidelines, and the notional amount of purchased protection that is not 
recognized as a guarantee under the risk-based capital standards.
    The agencies also proposed to add a new item 7.d to Schedule RC-L 
to collect information on the notional amount of credit derivatives by 
credit rating and remaining maturity. The item would collect the 
notional amount of sold protection broken down by credit ratings of 
investment grade and subinvestment grade for the underlying reference 
asset and by remaining maturities of one year or less, over one year 
through five years, and over five years. The same information would be 
collected for purchased protection.
    In Schedule RC-N, the agencies proposed to change the scope of 
Memorandum item 6, ``Past due interest rate, foreign exchange rate, and 
other commodity and equity contracts,'' to

[[Page 5038]]

include credit derivatives. The fair value of credit derivatives where 
the bank has purchased protection increased significantly to over $500 
billion at March 31, 2008, as compared to a negative $10 billion at 
March 31, 2007. Thus, the performance of credit derivative 
counterparties has increased in importance. The expanded scope of 
Memorandum item 6 on Schedule RC-N would include the fair value of 
credit derivatives carried as assets that are past due 30 through 89 
days and past due 90 days or more.
    In Schedule RC-R, the agencies proposed to change the scope of the 
information collected in Memorandum items 2.g.(1) and (2) on the 
notional principal amounts of ``Credit derivative contracts'' that are 
subject to risk-based capital requirements to include only (a) the 
notional principal amount of purchased protection that is defined as a 
covered position under the market risk capital guidelines and (b) the 
notional principal amount of purchased protection that is not a covered 
position under the market risk capital guidelines and is not recognized 
as a guarantee for risk-based capital purposes. The scope of Memorandum 
item 1, ``Current credit exposure across all derivative contracts 
covered by the risk-based capital standards,'' would be similarly 
revised to include the current credit exposure arising from credit 
derivative contracts that represent (a) purchased protection that is 
defined as a covered position under the market risk capital guidelines 
and (b) purchased protection that is not a covered position under the 
market risk capital guidelines and is not recognized as a guarantee for 
risk-based capital purposes. The agencies also proposed to add new 
Memorandum items 3.a and 3.b to Schedule RC-R to collect the present 
value of unpaid premiums on sold credit protection that is defined as a 
covered position under the market risk capital guidelines. Consistent 
with the information currently reported in Memorandum item 2.g, the 
agencies proposed to collect this present value information with a 
breakdown between investment grade and subinvestment grade for the 
rating of the underlying reference asset and with the same three 
remaining maturity breakouts.
    No comments were received on any of the agencies' proposed 
reporting revisions pertaining to credit derivatives described above, 
except for a comment from a bankers' organization on the proposal to 
collect data on Schedule RC-R relating to the present value of unpaid 
premiums on sold credit protection that is defined as a covered 
position under the market risk capital guidelines. Accordingly, the 
agencies will implement all of the proposed credit derivative reporting 
changes--other than the proposed new Schedule RC-R items for present 
value data--as of June 30, 2009, as proposed. With respect to the 
present value data, the bankers' organization requested that the 
agencies clarify the impact of this proposed reporting requirement on a 
bank's risk-based capital calculations. The agencies are continuing to 
consider this comment and the proposed collection of present value data 
for certain credit derivatives. Therefore, the agencies will not add 
Memorandum items 3.a and 3.b to Schedule RC-R to collect this present 
value information effective June 30, 2009, as had been proposed. When 
the agencies conclude their deliberations on the bankers' 
organization's comment and the proposed present value data items, they 
will publish their conclusions in a separate Federal Register notice 
and submit any new reporting requirements to OMB for review and 
approval. If Memorandum items 3.a and 3.b are added to Schedule RC-R, 
this new reporting requirement would take effect no earlier than 
December 31, 2009.

IV. Discussion of Revisions Proposed for December 2009

    Schedule RC-T, Fiduciary and Related Services, collects data on:
     Fiduciary and related assets by type of fiduciary account, 
with the amount of assets and number of accounts reported separately 
for managed and non-managed accounts;
     Fiduciary and related services income by type of fiduciary 
account and expenses, including fiduciary settlements, surcharges, and 
other losses by type of fiduciary account;
     Managed assets held in personal trust and agency accounts 
by type of asset;
     Corporate trust and agency accounts; and
     The number of collective investment funds and common trust 
funds and the market value of fund assets by type of fund.
    FDIC-insured banks that exercise fiduciary powers and have 
fiduciary assets or accounts and uninsured limited-purpose national 
trust banks (trust institutions) must complete specified sections of 
Schedule RC-T either quarterly or annually (as of December 31) 
depending on the amount of their total fiduciary assets as of the 
preceding calendar year-end and their gross fiduciary and related 
services income for the preceding calendar year. Since its addition to 
the Call Report at year-end 2001, Schedule RC-T has not been revised. 
During this time period, significant growth has occurred in both the 
assets in managed and non-managed fiduciary accounts at trust 
institutions. The agencies have monitored the growth in fiduciary 
activities and trends in this area, both from data collected in 
Schedule RC-T and through the examination process, and have determined 
that certain data should be added to Schedule RC-T to enable the 
agencies to better evaluate the trust activities of individual trust 
institutions and the industry as a whole. Accordingly, the agencies 
proposed to implement revisions to Schedule RC-T as of December 31, 
2009, that would affect the types of fiduciary accounts for which 
fiduciary assets and income are reported and the types of assets and 
fiduciary accounts for which managed assets are reported. The agencies 
also proposed to collect data on debt issues in default under corporate 
trusteeships.
    One bankers' organization submitted comments on the proposed 
changes to Schedule RC-T. This commenter requested that the effective 
date for the proposed changes to Schedule RC-T be extended from 
December 31, 2009, to December 31, 2010, in order to provide vendors 
whose systems track the data reported in this schedule additional time 
for system programming revisions. The bankers' organization indicated 
that vendors are currently devoting programming resources to changes 
necessitated by the joint Securities and Exchange Commission and 
Federal Reserve Board Regulation R--Exceptions for Banks from the 
Definition of Broker in the Securities Exchange Act of 1934. This 
commenter also stated that some banks use multiple systems to track the 
default status of debt issues under corporate trusteeships and that 
moving to a single system of record for tracking these debt issues 
would impose significant costs and require a longer implementation 
period than proposed.
    After carefully considering this organization's comment, the 
agencies have decided to retain the December 31, 2009, effective date 
for the proposed changes. The agencies are not requiring that trust 
institutions change from their use of multiple systems for corporate 
trusteeships or that they develop a single system of record for such 
trusteeships. In addition, the agencies note that banks are to start 
complying with Regulation R beginning the first day of their fiscal 
year commencing after September 30, 2008 (i.e., January 1, 2009, for 
most institutions), which implies that programming changes should be 
complete or nearing completion. Furthermore, as previously stated, the 
agencies' policy is to permit

[[Page 5039]]

banks to provide reasonable estimates for any new or revised Call 
Report item as of the report date for which the new or revised item is 
initially required to be reported. The ability to report reasonable 
estimates applies to the Schedule RC-T revisions that will be 
implemented as of December 31, 2009, which will afford trust 
institutions and their vendors additional time--either one quarter or 
one year, depending on the item and the frequency with which a 
particular institution must submit Schedule RC-T--to complete any 
necessary systems changes.
    The agencies received no comments on the following revisions to 
Schedule RC-T that were proposed to take effect as of December 31, 
2009, and therefore these revisions will be implemented as proposed:
     Breaking out foundations and endowments as well as 
investment advisory agency accounts as separate types of fiduciary 
accounts in the schedule's sections for reporting fiduciary and related 
assets and income;
     Expanding the breakdown of managed assets by type of asset 
to cover all types of fiduciary accounts; and
     Adding items for the market value of discretionary 
investments in proprietary mutual funds and the number of managed 
accounts holding such investments.
    The agencies received comments from one bankers' organization 
addressing each of the following other proposed revisions to Schedule 
RC-T:
     Adding items for Individual Retirement Accounts (IRAs), 
Health Savings Accounts (HSAs), and similar accounts included in 
fiduciary and related assets;
     Revising the manner in which discretionary investments in 
common trust funds and collective investment funds are reported in the 
breakdown of managed assets by type of asset and adding new asset types 
to this breakdown of managed assets; and
     Adding items for the number and principal amount 
outstanding of debt issues in substantive default for which the 
institution serves as indenture trustee.
    The comments related to each of these proposed revisions are 
discussed below along with the agencies' response to these comments.
A. IRAs, HSAs, and Other Similar Accounts
    IRAs, HSAs, and other similar accounts represent a large category 
of individual benefit and retirement-related accounts administered by 
trust institutions for which the agencies do not collect specific data. 
At present, data for retirement-related accounts is included in the 
totals reported for ``Other retirement accounts'' and ``Custody and 
safekeeping accounts'' in the Fiduciary and Related Assets section of 
Schedule RC-T (items 5.c and 10). Significant growth in IRAs and HSAs 
administered by trust institutions is expected. IRAs, HSAs, and other 
similar accounts for individuals have risk characteristics that differ 
from employee benefit plans covered by the Employee Retirement Income 
Security Act. To identify trust institutions experiencing significant 
changes in the number of and market value of assets in these types of 
accounts for supervisory follow-up and to monitor both aggregate and 
individual trust institution growth trends involving these accounts, 
the agencies proposed to add a new item 13 to the Fiduciary and Related 
Assets section of Schedule RC-T to capture data on IRAs, HSAs, and 
other similar accounts included in recaptioned item 5.c, ``Other 
employee benefit and other retirement-related accounts'' and renumbered 
item 11, ``Custody and safekeeping accounts.''
    In its comment on this change, the bankers' organization 
recommended that the data proposed to be reported in new item 13, 
``Individual Retirement Accounts, Health Savings Accounts, and other 
similar accounts,'' should be reported instead in a new separate 
subitem of recaptioned item 5, ``Employee benefit and retirement-
related trust and agency accounts,'' in the Fiduciary and Related 
Assets section of Schedule RC-T. In addition, the commenter requested 
clarification of how IRA, HSA, and other similar accounts held outside 
the trust department and in the retail side of an institution should be 
reported in Schedule RC-T, recommending that these accounts be excluded 
from Schedule RC-T.
    At present, IRAs, HSAs, and similar accounts that are solely 
custody and safekeeping accounts are reported in existing item 10, 
``Custody and safekeeping accounts.'' Custody and safekeeping accounts 
are not considered fiduciary accounts per se and are excluded from 
``Total fiduciary accounts'' reported in item 9 of Schedule RC-T. For 
this reason, the agencies do not believe that IRAs, HSAs, and similar 
accounts should be aggregated and reported in a new subitem of item 5, 
``Employee benefit and retirement-related trust and agency accounts,'' 
which is reserved for fiduciary accounts. Therefore, the agencies are 
implementing new item 13, ``Individual Retirement Accounts, Health 
Savings Accounts, and other similar accounts,'' as proposed.
    Regarding the reporting of IRAs, HSAs, and other similar accounts 
maintained outside the trust department and in the retail side of the 
institution, the agencies reiterate that only those activities offered 
through a fiduciary business unit should be reported in Schedule RC-T. 
Therefore, IRAs, HSAs, and other similar accounts not offered through a 
fiduciary business unit of an institution should not be reported in 
Schedule RC-T.
B. Changes to the Types of Assets Reported in the Breakdown of Managed 
Assets Held in Fiduciary Accounts by Asset Type
    The agencies reviewed the types of managed assets for which trust 
institutions currently report a breakdown of such assets by market 
value in Memorandum item 1 of Schedule RC-T. In this regard, 
discretionary investments in common trust funds (CTFs) and collective 
investment funds (CIFs) are not separately reported at present in 
Memorandum item 1. Instead, trust institutions currently are required 
to allocate the underlying assets of each CTF and CIF attributable to 
managed accounts to the individual line items for the various types of 
assets reported in Memorandum item 1. The agencies have found this 
current method of reporting investments in CTFs and CIFs to be 
misleading, confusing, and burdensome for trust institutions. It 
requires institutions to segregate the underlying assets of each CTF 
and CIF by asset type, rather than following the more straightforward 
approach of reporting the total value of managed accounts' holdings of 
investments in CTFs and CIFs. Therefore, the agencies proposed to end 
the current method of reporting these investments in Memorandum item 1 
by adding a new Memorandum item 1.h for investments in CTFs and CIFs. 
This new asset type would enable the agencies to collect data that 
actually reflects the investment choices of discretionary fiduciaries, 
i.e., investing in a fund rather than an individual asset, while 
simplifying the reporting of these investments.
    In its comment on this proposed change, the bankers' organization 
asked whether both the accounts holding units in CTFs and CIFs and the 
CTFs and CIFs themselves should be reported in the Fiduciary and 
Related Assets section of Schedule RC-T and whether double counting of 
CTF and CIF units and CTFs and CIFs will result. The agencies note that 
only the value of units in CTFs and CIFs held in fiduciary accounts 
should

[[Page 5040]]

be reported in the Fiduciary and Related Assets section of RC-T. When 
such units are held by a managed fiduciary account, the value of the 
units will be reported in new Memorandum item 1.h. Look-through 
reporting of the underlying assets of CTFs and CIFs in Memorandum item 
1 is being eliminated. Double counting of CTF and CIF assets will be 
avoided by limiting the reporting of the underlying assets of CTFs and 
CIFs to existing Memorandum item 3, ``Collective investment funds and 
common trust funds,'' in Schedule RC-T.
    At present, the asset type for ``common and preferred stocks'' in 
Memorandum item 1 includes not only these stocks, but also all 
investments in mutual funds (other than money market mutual funds, 
which are reported separately), private equity investments, and 
investments in unregistered and hedge funds. Investments in mutual 
funds (other than money market mutual funds) have long been reported 
with common and preferred stocks. However, over time, these investments 
have gone from being a relatively minor investment option for managed 
fiduciary accounts to being one of the most significant asset types for 
managed fiduciary accounts.
    As a consequence, the agencies lack specific data on discretionary 
investments in mutual funds (other than money market mutual funds) 
despite their distinctive differences from investments in individual 
common stocks. Given these differences and the growth in mutual fund 
holdings in managed fiduciary accounts, the agencies proposed to add 
two new subitems to Memorandum item 1 to collect data on investments in 
equity mutual funds and in other (non-money market) mutual funds 
separately from common and preferred stocks. None of the comments the 
agencies received specifically addressed the proposed new subitems for 
mutual funds in Memorandum item 1, which the agencies will implement as 
proposed.
    Investments in hedge funds and private equity have grown rapidly 
since the implementation of Schedule RC-T in 2001, with large 
institutional investors, e.g., large pension plans, increasing their 
allocation to these types of investments in order to increase portfolio 
returns and pursue absolute return strategies. As mentioned above, 
these types of investments are currently reported as ``common and 
preferred stocks'' in Memorandum item 1. However, given their unique 
characteristics and risks, the increasing role such investments are 
having in managed fiduciary portfolios, and the agencies' need to 
monitor the volume of these investments across the trust industry and 
at individual trust institutions, the agencies also proposed to modify 
Memorandum item 1 by adding a new subitem in which trust institutions 
would report investments in unregistered funds and private equity held 
in managed accounts. As proposed, these investments first would have 
been reported in the subitem for investments in common and preferred 
stocks, which is a component of Memorandum item 1.o, ``Total managed 
assets held in fiduciary accounts,'' but then these investments would 
have been separately disclosed in new Memorandum item 1.p of Schedule 
RC-T.
    In its comment letter, the bankers' organization suggested that 
investments in unregistered funds and private equity and investments in 
common and preferred stocks be reported as separate components of 
``Total managed assets held in fiduciary accounts,'' which would 
eliminate the need for the former type of investments to be included in 
two subitems of Memorandum item 1 of Schedule RC-T. The agencies agree 
with this suggestion and are revising Memorandum item 1 to exclude 
investments in unregistered funds and private equity from the subitem 
for investments in common and preferred stocks. Instead, each type of 
investment will be reported as a separate component of ``Total managed 
assets held in fiduciary accounts,'' with the subitems within 
Memorandum item 1 renumbered accordingly.
    The bankers' organization also requested that the agencies clarify 
the definition of ``private equity investments'' for purposes of 
reporting such investments within Memorandum item 1 of Schedule RC-T 
and explain whether investments in closely-held family businesses 
should be reported as ``private equity investments.'' In general, for 
the purposes of Memorandum item 1, private equity investments is an 
asset class consisting of purchased equity securities in operating 
companies that are not publicly traded on a stock exchange or otherwise 
registered with the SEC under federal securities laws. Investments in 
closely-held family businesses, however, would not be reported as 
``private equity investments'' if such investments represented in-kind 
transfers to a fiduciary account of securities in a closely-held family 
business or an increase in a fiduciary account's percentage ownership 
of an existing closely-held family business whose securities are held 
in the account. Such investments in closely-held family businesses 
would be reported in the subitem for miscellaneous assets within 
Memorandum item 1 of Schedule RC-T.
C. Corporate Trust and Agency Accounts
    Trust institutions currently report the number of corporate and 
municipal debt issues for which the institution serves as trustee and 
the outstanding principal amount of these debt issues in Memorandum 
item 2.a of Schedule RC-T. One of the major risks in the area of 
corporate trust administration involves debt issues that are in 
substantive default. A substantive default occurs when the issuer fails 
to make a required payment of interest or principal, defaults on a 
required payment into a sinking fund, files for bankruptcy, or is 
declared bankrupt or insolvent.
    The occurrence of a substantive default significantly raises the 
risk profile for an indenture trustee of a defaulted issue. Thus, to 
monitor and better understand the risk profile of trust institutions 
serving as an indenture trustee for debt securities and changes 
therein, the agencies proposed to require trust institutions to report 
the number of such issues that are in substantive default and the 
principal amount outstanding for these issues.
    In its comment letter, the bankers' organization suggested 
clarifications to the scope of the proposed new reporting requirements 
for debt securities in substantive default for which an institution is 
serving as indenture trustee. The commenter recommended that the term 
``substantive default'' should mean that an event of default for an 
issue of securities has actually been declared by the trustee with 
notice to investors. In addition, the bankers' organization recommended 
that events of default should include both technical and payment 
defaults. This commenter also proposed that issues in a cure period 
should not be reported as being in substantive default, and, in the 
case of private placement leases, no substantive default should be 
reported when the trustee is required to delay or waive the declaration 
of an event of default unless requested to do so in writing and no such 
request has been made. The commenter further suggested that, once the 
trustee's duty with respect to a defaulted issue is completed, the 
issue no longer should be reported as defaulted. Finally, the commenter 
requested that the agencies confirm that ``amount outstanding'' means 
the unpaid principal balance or certificate balance.
    After carefully considering these recommendations, the agencies 
agree that issues should not be reported as

[[Page 5041]]

being in substantive default until such default has been declared by 
the trustee. Similarly, issues should not be reported as being in 
substantive default during a cure period, provided the bond indenture 
provides for a cure period. Private placement leases where the trustee 
is required to delay or waive the declaration of an event of default, 
unless requested in writing to make such declaration, should not be 
reported as being in substantive default, provided such written request 
has not been made. Once a trustee's duties with respect to an issue in 
substantive default have been completed, the issue should no longer be 
reported as being in default. As for the meaning of the term ``amount 
outstanding,'' the instructions for Memorandum item 2 of Schedule RC-T 
currently refer to the par value of outstanding debt securities, except 
for zero-coupon bonds for which ``amount outstanding'' is described as 
the maturity amount. As suggested by the commenter, the instructions 
for Memorandum item 2 will be revised to clarify that ``amount 
outstanding'' for debt instruments means the unpaid principal balance. 
For trust preferred securities, the ``amount outstanding'' would be the 
redemption price.
    The agencies, however, have decided not to treat events of 
technical default as falling within the scope of the proposed new 
Memorandum item 2.a.(1) on debt issues in default for which the 
institution serves as trustee. As previously stated, the agencies 
believe that a substantive default significantly raises the risk 
profile for an indenture trustee of a defaulted issue. In such cases, 
every action or failure to act by the trustee is intensely scrutinized 
by bondholders of the defaulted issue. Moreover, an event of 
substantive default often results in the incurrence of significant 
expense and the distraction of managerial time. For these reasons, the 
agencies proposed to collect data on substantive defaults on issues for 
which the reporting trust institution serves as trustee under a bond 
indenture. The agencies do not believe that events of technical default 
necessarily entail the heightened degree of risk that substantive 
defaults do. Therefore, the agencies do not consider it necessary to 
monitor such events on a system-wide basis. The agencies will continue 
to monitor the occurrence of events of technical default and an 
institution's administration of such events during periodic on-site 
examinations.
    In addition, the agencies proposed to revise the instructions for 
reporting on corporate trust accounts to state that issues of trust 
preferred stock for which the institution is trustee should be included 
in the amounts reported for corporate and municipal trusteeships. No 
comments were received on this aspect of the corporate trust reporting 
proposal and the agencies will implement this instructional change as 
proposed.
F. Instructional Clarifications
    The agencies proposed to clarify the instructions for reporting:
     The managed and non-managed assets and number of managed 
and non-managed accounts for defined contribution plans and defined 
benefit plans in items 5.a and 5.b of Schedule RC-T, respectively, by 
indicating that employee benefit accounts for which the trust 
institution serves as a directed trustee should be reported as non-
managed accounts; and
     The number of, and market value of assets held in, 
collective investment funds and common trust funds in Memorandum item 3 
by stating that the number of funds should be reported, not the number 
of assets held by these funds, the number of participants, or the 
number of accounts invested in the funds.

No comments were received on these proposed instructional 
clarifications, which will be implemented as proposed.

    However, the bankers' organization requested clarification of the 
term ``managed assets'' as used in Schedule RC-T. The organization 
asked whether discretionary accounts in which the management of all or 
a portion of the account is delegated to a registered investment 
advisor, whether affiliated or unaffiliated with the reporting trust 
institution, should be considered managed or non-managed assets. The 
organization also sought clarification as to whether non-discretionary 
accounts that are managed by a registered investment advisor would be 
reported as custody or non-managed accounts.
    The current instructions for Schedule RC-T state that an account is 
considered managed if the institution has investment discretion over 
the assets of the account. Investment discretion is defined as the sole 
or shared authority (whether or not that authority is exercised) to 
determine what securities or other assets to purchase or sell on behalf 
of a fiduciary related account. An institution that delegates its 
authority over investments and an institution that receives delegated 
authority over investments are both deemed to have investment 
discretion. Therefore, whether an account where investment discretion 
has been delegated to a registered investment adviser, whether 
affiliated or unaffiliated with the reporting institution, should be 
reported as a managed account depends on whether the delegation of 
investment authority to the registered investment adviser was made 
pursuant to the exercise of investment discretion by the reporting 
institution. If so, the account is deemed to be a managed account by 
the reporting institution. Otherwise, the account would be a non-
managed account for purposes of Schedule RC-T.

V. Request for Comment

    Public comment is requested on all aspects of this joint notice. 
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 joint 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.

    Dated: January 22, 2009.
Stuart E. Feldstein,
Assistant Director, Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency.
    Board of Governors of the Federal Reserve System, January 22, 
2009.
Jennifer J. Johnson,
Secretary of the Board.
    Dated at Washington, DC, this 22nd day of January, 2009.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E9-1734 Filed 1-27-09; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P