[Federal Register Volume 75, Number 189 (Thursday, September 30, 2010)]
[Notices]
[Pages 60497-60506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24476]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION


Proposed Agency Information Collection Activities; Comment 
Request

AGENCY: 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: Joint notice and request for comment.

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SUMMARY: In accordance with the requirements of the Paperwork Reduction 
Act (PRA) of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the 
FDIC (the ``agencies'') may not conduct or sponsor, and the respondent 
is not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The Federal Financial Institutions Examination Council 
(FFIEC), of which the agencies are members, has approved the agencies' 
publication for public comment of a proposal to extend, with revision, 
the Consolidated Reports of Condition and Income (Call Report), which 
are currently approved collections of information. At the end of the 
comment period, the comments and recommendations received will be 
analyzed to determine the extent to which the FFIEC and the agencies 
should modify the proposed revisions prior to giving final approval. 
The agencies will then submit the revisions to OMB for review and 
approval.

DATES: Comments must be submitted on or before November 29, 2010.

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 2-3, Attention: 1557-0081, 250 E Street, SW., 
Washington, DC 20219. In addition, comments may be sent by fax to (202) 
874-5274, or by electronic mail to [email protected]. You may 
personally inspect and photocopy comments at the OCC, 250 E Street, 
SW., Washington, DC 20219. For security reasons, the OCC requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 874-4700. Upon arrival, visitors will be required to 
present valid government-issued photo identification and to 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 (FFIEC 031 and 041),'' 
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 
reporting form 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 
http://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 
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

[[Page 60498]]

Condition and Income, 3064-0052'' in the subject line of the message.
     Mail: Gary A. Kuiper, (202) 898-3877, Counsel, Attn: 
Comments, Room F-1072, 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: Gary A. Kuiper, Counsel, (202) 898-3877, Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The agencies are proposing to revise and 
extend for three years the Call Report, which is currently an approved 
collection of information for each agency.
    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: 1,491 national banks.
    Estimated Time per Response: 53.78 burden hours.
    Estimated Total Annual Burden: 320,744 burden hours.

Board

    OMB Number: 7100-0036.
    Estimated Number of Respondents: 841 state member banks.
    Estimated Time per Response: 55.87 burden hours.
    Estimated Total Annual Burden: 187,947 burden hours.

FDIC

    OMB Number: 3064-0052.
    Estimated Number of Respondents: 4,800 insured state nonmember 
banks.
    Estimated Time per Response: 40.83 burden hours.
    Estimated Total Annual Burden: 783,936 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 17 to 665 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

    The agencies are proposing to implement a number of changes to the 
Call Report requirements effective March 31, 2011. These changes, which 
are discussed in detail in Sections II.A through II.L of this notice, 
are intended to provide data needed for reasons of safety and soundness 
or other public purposes. The proposed revisions would assist the 
agencies in gaining a better understanding of banks' credit and 
liquidity risk exposures, primarily through enhanced data on lending 
and securitization activities and sources of deposits. The banking 
agencies are also proposing certain revisions to the Call Report 
instructions. The proposed changes include:
     A breakdown by loan category of the existing Memorandum 
items for ``Other loans and leases'' that are troubled debt 
restructurings and are past due 30 days or more or in nonaccrual status 
(in Schedule RC-N, Past Due and Nonaccrual Loans, Leases, and Other 
Assets) or are in compliance with their modified terms (in Schedule RC-
C, part I, Loans and Leases) as well as the elimination of the 
exclusion from reporting restructured troubled consumer loans in these 
Memorandum items;
     A breakdown of ``Other consumer loans'' into automobile 
loans and all other consumer loans in the Call Report schedules in 
which loan data are reported: Schedule RC-C, part I, Loans and Leases; 
Schedule RC-K, Quarterly Averages; Schedule RC-N, Past Due and 
Nonaccrual Loans, Leases, and Other Assets; Schedule RI, Income 
Statement; and Schedule RI-B, part I, Charge-offs and Recoveries on 
Loans and Leases;
     A breakdown of the existing items for commercial mortgage-
backed securities between those issued or guaranteed by U.S. Government 
agencies and sponsored-agencies and those that are not in Schedule RC-
B, Securities, and Schedule RC-D, Trading Assets and Liabilities;
     A new Memorandum item for the estimated amount of 
nonbrokered deposits obtained through the use of

[[Page 60499]]

deposit listing service companies in Schedule RC-E, Deposit 
Liabilities;
     A breakdown of the existing items for deposits of 
individuals, partnerships, and corporations between deposits of 
individuals and deposits of partnerships and corporations in Schedule 
RC-E, Deposit Liabilities;
     A new Schedule RC-V, Variable Interest Entities, for 
reporting the categories of assets of consolidated variable interest 
entities (VIEs) that can be used only to settle the VIEs' obligations, 
the categories of liabilities of consolidated VIEs without recourse to 
the bank's general credit, and the total assets and total liabilities 
of other consolidated VIEs included in the bank's total assets and 
total liabilities, with these data reported separately for 
securitization trusts, asset-backed commercial paper conduits, and 
other VIEs;
     Breakdowns of the existing items for loans and other real 
estate owned (OREO) covered by FDIC loss-sharing agreements by loan and 
OREO category in Schedule RC-M, Memoranda, along with a breakdown of 
the existing items in Schedule RC-N, Past Due and Nonaccrual Loans, 
Leases, and Other Assets for reporting past due and nonaccrual U.S. 
Government-guaranteed loans to segregate those covered by FDIC loss-
sharing agreements (which would be reported by loan category) from 
other guaranteed loans;
     A breakdown of the existing item for ``Life insurance 
assets'' in Schedule RC-F, Other Assets, into items for general account 
and separate account life insurance assets;
     New items for the total assets of captive insurance and 
reinsurance subsidiaries in Schedule RC-M, Memoranda;
     New Memorandum items in Schedule RI, Income Statement, for 
credit valuation adjustments and debit valuation adjustments included 
in trading revenues for banks with total assets of $100 billion or 
more;
     A change in reporting frequency from annual to quarterly 
for the data reported in Schedule RC-T, Fiduciary and Related Services, 
on collective investment funds and common trust funds for those banks 
that currently report fiduciary assets and income quarterly, i.e., 
banks with fiduciary assets greater than $250 million or gross 
fiduciary income greater than 10 percent of bank revenue; and
     Instructional revisions addressing the reporting of 
construction loans following the completion of construction in Schedule 
RC-C, part I, Loans and Leases, and other schedules that collect loan 
data; incorporating residential mortgages held for trading within the 
scope of Schedule RC-P, 1-4 Family Residential Mortgage Banking 
Activities; and revising the treatment of assets and liabilities whose 
interest rates have reached contractual ceilings or floors for purposes 
of reporting maturity and repricing data in Schedule RC-B, Securities, 
Schedule RC-C, part I, Loans and Leases, Schedule RC-E, Deposit 
Liabilities, and Schedule RC-M, Memoranda.
    For the March 31, 2011, 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. The specific wording of the captions for the new or 
revised Call Report data items discussed in this proposal and the 
numbering of these data items should be regarded as preliminary.
    Type of Review: Revision and extension of currently approved 
collections.

II. Discussion of Proposed Call Report Revisions

A. Troubled Debt Restructurings

    The banking agencies are proposing that banks report additional 
detail on loans that have undergone troubled debt restructurings in 
Call Report Schedule RC-C, part I, Loans and Leases, and Schedule RC-N, 
Past Due and Nonaccrual Loans, Leases, and Other Assets. More 
specifically, Schedule RC-C, part I, Memorandum item 1.b, ``Other loans 
and all leases'' that are restructured and in compliance with modified 
terms, and Schedule RC-N, Memorandum item 1.b, Restructured ``Other 
loans and all leases'' that are past due or in nonaccrual status and 
included in Schedule RC-N, would be broken out to provide information 
on restructured troubled loans for many of the loan categories reported 
in the bodies of Schedule RC-C, part I, and Schedule RC-N. The breakout 
would also include ``Loans to individuals for household, family, and 
other personal expenditures'' whose terms have been modified in 
troubled debt restructurings, which are currently excluded from the 
reporting of troubled debt restructurings in the Call Report.
    In the aggregate, troubled debt restructurings for all insured 
institutions have grown from $6.9 billion at year-end 2007, to $24.0 
billion at year-end 2008, to $58.1 billion at year-end 2009, with a 
further increase to $64.0 billion as of March 31, 2010. The proposed 
additional detail on troubled debt restructurings in Schedules RC-C, 
part I, and RC-N would enable the agencies to better understand the 
level of restructuring activity at banks, the categories of loans 
involved in this activity, and, therefore, whether banks are working 
with their borrowers to modify and restructure loans. In particular, to 
encourage banks to work constructively with their commercial borrowers, 
the agencies recently issued guidance on commercial real estate loan 
workouts and small business lending. While this guidance has explained 
the agencies' expectations for prudent workouts, the agencies and the 
industry would benefit from additional reliable data outside of the 
examination process to assess restructuring activity for commercial 
real estate loans and commercial and industrial loans. Further, it is 
important to separately identify commercial real estate loan 
restructurings from commercial and industrial loan restructurings given 
that the value of the real estate collateral is a consideration in a 
bank's decision to modify the terms of a commercial real estate loan in 
a troubled debt restructuring, but such collateral protection would 
normally be absent from commercial and industrial loans for which a 
loan modification is being explored because of borrowers' financial 
difficulties.
    It is also anticipated that other loan categories will experience 
continued workout activity in the coming months given that most asset 
classes have been adversely impacted by the recent recession. This 
impact is evidenced by the increase in past due and nonaccrual assets 
across virtually all asset classes over the past two to three years.
    Presently, banks report loans and leases restructured and in 
compliance with their modified terms (Schedule RC-C, part I, Memorandum 
item 1) with separate disclosure of (a) loans secured by 1-4 family 
residential properties (in domestic offices) and (b) other loans and 
all leases (excluding loans to individuals for household, family, and 
other personal expenditures). This same breakout is reflected in 
Schedule RC-N, Memorandum item 1, for past due and nonaccrual 
restructured troubled loans. The broad category of ``other loans'' in 
Schedule RC-C, part I, Memorandum item 1.b, and Schedule RC-N, 
Memorandum item 1.b, does not permit an adequate analysis of troubled 
debt restructurings. In addition, the disclosure requirements for 
troubled debt restructurings under generally accepted accounting 
principles do not exempt restructurings of loans to individuals for 
household, family, and other personal expenditures. Therefore, if the 
Call Report added more detail to match the reporting of loans in

[[Page 60500]]

Schedule RC-C, part I, and Schedule RC-N, the new data would provide 
the banking agencies with the level of information necessary to assess 
banks' troubled debt restructurings to the same extent that other loan 
quality and performance indicators can be assessed. However, the 
agencies note that, under generally accepted accounting principles, 
troubled debt restructurings do not include changes in lease agreements 
\1\ and they therefore propose to exclude leases from Schedule RC-C, 
part I, Memorandum item 1, and from Schedule RC-N, Memorandum item 1.
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    \1\ Accounting Standards Codification paragraph 470-60-15-11.
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    Thus, the banking agencies' proposed breakdowns of existing 
Memorandum item 1.b in both Schedule RC-C, part I, and Schedule RC-N 
would create new Memorandum items in both schedules covering troubled 
debt restructurings of ``1-4 family residential construction loans,'' 
``Other construction loans and all land development and other land 
loans,'' loans ``Secured by multifamily (5 or more) residential 
properties,'' ``Loans secured by owner-occupied nonfarm nonresidential 
properties,'' ``Loans secured by other nonfarm nonresidential 
properties,'' ``Commercial and industrial loans,'' and ``All other 
loans (including loans to individuals for household, family, and other 
personal expenditures).'' \2\ If restructured loans in any category of 
loans (as defined in Schedule RC-C, part I) included in restructured 
``All other loans'' exceeds 10 percent of the amount of restructured 
``All other loans,'' the amount of restructured loans in this category 
or categories must be itemized and described.
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    \2\ For banks with foreign offices, the Memorandum items for 
restructured real estate loans would cover such loans in domestic 
offices. In addition, banks with foreign offices or with $300 
million or more in total assets would also provide a breakdown of 
restructured commercial and industrial loans between U.S. and non-
U.S. addressees.
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    Finally, Schedule RC-C, part I, Memorandum item 1, and Schedule RC-
N, Memorandum item 1, are intended to capture data on loans that have 
undergone troubled debt restructurings as that term is defined in 
generally accepted accounting principles. However, the captions of 
these two Memorandum items include only the term ``restructured'' 
rather than explicitly mentioning troubled debt restructurings, which 
has led to questions about the scope of these Memorandum items. 
Accordingly, the agencies propose to revise the captions so that they 
clearly indicate that the loans to be reported in Schedule RC-C, part 
I, Memorandum item 1, and Schedule RC-N, Memorandum item 1, are 
troubled debt restructurings.

B. Auto Loans

    The banking agencies are proposing to add a breakdown of the 
``other consumer loans'' loan category in five Call Report schedules in 
order to separately collect information on auto loans. The affected 
schedules would be Schedule RC-C, part I, Loans and Leases; Schedule 
RC-K, Quarterly Averages; Schedule RC-N, Past Due and Nonaccrual Loans, 
Leases, and Other Assets; Schedule RI, Income Statement; and Schedule 
RI-B, part I, Charge-offs and Recoveries on Loans and Leases. Auto 
loans would include loans arising from retail sales of passenger cars 
and other vehicles such as minivans, vans, sport-utility vehicles, 
pickup trucks, and similar light trucks for personal use. This new loan 
category would exclude loans to finance fleet sales, personal cash 
loans secured by automobiles already paid for, loans to finance the 
purchase of commercial vehicles and farm equipment, and lease 
financing.
    Automobile loans are a significant consumer business for many large 
banks. Because of the limited disclosure of auto lending on existing 
regulatory reports, supervisory oversight of auto lending is presently 
diminished by the need to rely on the examination process and public 
information sources that provide overall market information but not 
data on idiosyncratic risks.
    Roughly 65 percent of new vehicle sales and 40 percent of used 
vehicle sales are funded with auto loans. According to household 
surveys and data on loan originations, banks are an important source of 
auto loans. In 2008, this sector originated approximately one-third of 
all auto loans. Finance companies, both independent and those 
affiliated with auto manufacturers originated a bit more than one-
third, while credit unions originated a bit less than one-quarter. In 
addition to originating auto loans, some banks purchase auto loans 
originated by other entities, which suggests that commercial banks 
could be the largest holder of auto loans.
    Despite the importance of banks to the auto loan market, the 
agencies know less about banks' holdings of auto loans than is known 
about finance company, credit union, and savings association holdings 
of these loans. All nonbank depository institutions are required to 
report auto loans on their respective regulatory reports, including 
savings associations, which originate less than five percent of auto 
loans. On their regulatory reports, credit unions must provide not only 
the outstanding amount of new and used auto loans, but also the average 
interest rate and the number of loans. In a monthly survey, the Federal 
Reserve collects information on the amount of auto loans held by 
finance companies. As a consequence, during the financial crisis when 
funds were scarce for finance companies in general and the finance 
companies affiliated with automakers in particular, a lack of data on 
auto loans at banks hindered the banking agencies' ability to estimate 
the extent to which banks were filling in the gap in auto lending left 
by the finance companies.
    Additional disclosure regarding auto loans on bank Call Reports is 
especially important with the implementation of the amendments to 
Financial Accounting Standards Board (FASB) Accounting Standards 
Codification (ASC) Topics 860, Transfers and Servicing, and 810, 
Consolidations, resulting from Accounting Standards Update (ASU) No. 
2009-16 (formerly Statement of Financial Accounting Standards (SFAS) 
No. 166, Accounting for Transfers of Financial Assets (FAS 166)), and 
ASU No. 2009-17 (formerly SFAS No. 167, Amendments to FASB 
Interpretation No. 46(R) (FAS 167)), respectively. Until 2010, Call 
Report Schedule RC-S had provided the best supervisory information on 
auto lending because it included a separate breakout of securitized 
auto loans outstanding as well as securitized auto loan delinquencies 
and charge-offs. The accounting changes brought about by the amendments 
to ASC Topics 860 and 810, however, mean that if the auto loan 
securitization vehicle is now required to be consolidated, securitized 
auto lending previously reported on Schedule RC-S will be grouped as 
part of ``other consumer loans'' on Schedules RC-C, part I; RC-K; RC-N; 
RI; and RI-B, part I, which diminishes supervisors' ability to assess 
auto loan exposures and performance.
    Finally, separating auto lending from other consumer loans will 
assist the agencies in understanding consumer lending activities at 
individual institutions. When an institution holds both auto loans and 
other types of consumer loans (other than credit cards, which are 
currently reported separately), the current combined reporting of these 
loans in the Call Report tends to masks any significant differences 
that may exist in the performance of these portfolios. For example, a 
bank could have a sizeable auto loan portfolio with low loan losses, 
but its other consumer lending, which could consist primarily of 
unsecured loans, could exhibit very high loss rates.

[[Page 60501]]

The current blending of these divergent portfolios into a single Call 
Report loan category makes it difficult to adequately monitor consumer 
loan performance.

C. Commercial Mortgage Backed Securities Issued or Guaranteed by U.S. 
Government Agencies and Sponsored Agencies

    The agencies propose to split the existing items on commercial 
mortgage-backed securities (CMBS) in Schedule RC-B, Securities, and 
Schedule RC-D, Trading Assets and Liabilities, to distinguish between 
CMBS issued or guaranteed by U.S. Government agencies and sponsored 
agencies (collectively, U.S. Government agencies) and those issued by 
others. Until June 2009, information reported in the Call Report on 
mortgage-backed securities (MBS) issued or guaranteed by U.S. 
Government agencies included both residential MBS and CMBS. However, in 
June 2009 when banks began to report information on CMBS separately 
from residential MBS, data was collected only for commercial mortgage 
pass-through securities and for other CMBS without regard to issuer or 
guarantor. Thus, the agencies were no longer able to identify all MBS 
issued or guaranteed by U.S. Government agencies.
    U.S. Government agencies issue or guarantee a significant volume of 
CMBS that are backed by multifamily residential properties. In the 
fourth quarter of 2009, out of a total of $854 billion in commercial 
and multifamily loans that were securitized, loan pools issued or 
guaranteed by U.S. Government agencies accounted for 19 percent or $164 
billion. These pools present a substantially different risk profile 
than privately issued CMBS, but current reporting does not allow for 
the identification of bank holdings of CMBS issued or guaranteed by 
U.S. Government agencies. In addition, because CMBS issued or 
guaranteed by U.S. Government agencies are accorded lower risk weights 
for regulatory capital purposes than CMBS issued by others, banks 
generally should have the information necessary to separately report 
these two categories of CMBS in the proposed new items in Schedules RC-
B and RC-D.
    Thus, in Schedule RC-B, the banking agencies are proposing to split 
both item 4.c.(1), ``Commercial mortgage pass-through securities,'' and 
item 4.c.(2), ``Other commercial MBS,'' into separate items for those 
issued or guaranteed by U.S. Government agencies (new items 4.c.(1)(a) 
and 4.c.(2)(a)) and all other CMBS (new items 4.c.(1)(b) and 
4.c.(2)(b)). Similarly, in Schedule RC-D, existing item 4.d, 
``Commercial MBS,'' would be split into separate items for CMBS issued 
or guaranteed by U.S. Government agencies (item 4.d.(1)) and all other 
CMBS (item 4.d.(2)). Less than five percent of banks hold commercial 
mortgage-backed securities and would be affected by this proposed 
reporting change.

D. Nonbrokered Deposits Obtained Through the Use of Deposit Listing 
Service Companies

    In its semiannual report to the Congress covering October 1, 2009, 
through March 31, 2010, the FDIC's Office of Inspector General 
addressed causes of bank failures and material losses and noted that 
``[f]ailed institutions often exhibited a growing dependence on 
volatile, non-core funding sources, such as brokered deposits, Federal 
Home Loan Bank advances, and Internet certificates of deposit. '' \3\ 
At present, banks report information on their funding in the form of 
brokered deposits in Memorandum items 1.b through 1.d of Schedule RC-E, 
Deposit Liabilities. Data on Federal Home Loan Bank advances are 
reported in items 5.a.(1) through (3) of Schedule RC-M, Memoranda. 
These data are an integral component of the banking agencies' analyses 
of individual institutions' liquidity and funding, including their 
reliance on non-core sources to fund their activities.
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    \3\ http://www.fdicig.gov/semi-reports/sar2010mar/OIGSar2010.pdf.
---------------------------------------------------------------------------

    Deposit brokers have traditionally provided intermediary services 
for financial institutions and investors. However, the Internet, 
deposit listing services, and other automated services now enable 
investors who focus on yield to easily identify high-yielding deposit 
sources. Such customers are highly rate sensitive and can be a less 
stable source of funding than typical relationship deposit customers. 
Because they often have no other relationship with the bank, these 
customers may rapidly transfer funds to other institutions if more 
attractive returns become available.
    The agencies expect each institution to establish and adhere to a 
sound liquidity and funds management policy. The institution's board of 
directors, or a committee of the board, should also ensure that senior 
management takes the necessary steps to monitor and control liquidity 
risk. This process includes establishing procedures, guidelines, 
internal controls, and limits for managing and monitoring liquidity and 
reviewing the institution's liquidity position, including its deposit 
structure, on a regular basis. A necessary prerequisite to sound 
liquidity and funds management decisions is a sound management 
information system, which provides certain basic information including 
data on non-relationship funding programs, such as brokered deposits, 
deposits obtained through the Internet or other types of advertising, 
and other similar rate sensitive deposits. Thus, an institution's 
management should be aware of the number and magnitude of such 
deposits.
    To improve the banking agencies' ability to monitor potentially 
volatile funding sources, the agencies are proposing to close a gap in 
the information currently available to them through the Call Report by 
adding a new Memorandum item to Schedule RC-E in which banks would 
report the estimated amount of deposits obtained through the use of 
deposit listing services that are not brokered deposits.
    A deposit listing service is a company that compiles information 
about the interest rates offered on deposits, such as certificates of 
deposit, by insured depository institutions. A particular company could 
be a deposit listing service (compiling information about certificates 
of deposits) as well as a deposit broker (facilitating the placement of 
certificates of deposit. A deposit listing service is not a deposit 
broker if all of the following four criteria are met:
    (1) The person or entity providing the listing service is 
compensated solely by means of subscription fees (i.e., the fees paid 
by subscribers as payment for their opportunity to see the rates 
gathered by the listing service) and/or listing fees (i.e., the fees 
paid by depository institutions as payment for their opportunity to 
list or ``post'' their rates). The listing service does not require a 
depository institution to pay for other services offered by the listing 
service or its affiliates as a condition precedent to being listed.
    (2) The fees paid by depository institutions are flat fees: they 
are not calculated on the basis of the number or dollar amount of 
deposits accepted by the depository institution as a result of the 
listing or ``posting'' of the depository institution's rates.
    (3) In exchange for these fees, the listing service performs no 
services except (A) the gathering and transmission of information 
concerning the availability of deposits; and/or (B) the transmission of 
messages between depositors and depository institutions (including 
purchase orders and trade confirmations). In publishing or displaying 
information about depository institutions, the listing service must not

[[Page 60502]]

attempt to steer funds toward particular institutions (except that the 
listing service may rank institutions according to interest rates and 
also may exclude institutions that do not pay the listing fee). 
Similarly, in any communications with depositors or potential 
depositors, the listing service must not attempt to steer funds toward 
particular institutions.
    (4) The listing service is not involved in placing deposits. Any 
funds to be invested in deposit accounts are remitted directly by the 
depositor to the insured depository institution and not, directly or 
indirectly, by or through the listing service.

E. Deposits of Individuals, Partnerships, and Corporations

    In Call Report Schedule RC-E, Deposit Liabilities, banks currently 
report separate breakdowns of their transaction and nontransaction 
accounts (in domestic offices) by category of depositor. The 
predominant depositor category is deposits of ``Individuals, 
partnerships, and corporations,'' which comprises more than 90 percent 
of total deposits in domestic offices. The recent crisis has 
demonstrated that business depositors' behavioral characteristics are 
significantly different than the behavioral characteristics of 
individuals. Thus, separate reporting of deposits of individuals versus 
deposits of partnerships and corporations would enable the banking 
agencies to better assess the liquidity risk profile of institutions 
given differences in the relative stability of deposits from these two 
sources.
    As proposed to be revised, Schedule RC-E, item 1, ``Individuals, 
partnerships, and corporations,'' would be split into item 1.a, 
``Individuals,'' and item 1.b, ``Partnerships and corporations.'' Under 
this proposal, accounts currently reported in item 1 for which the 
depositor's taxpayer identification number, as maintained on the 
account in the bank's records, is a Social Security Number (or an 
Individual Taxpayer Identification Number \4\) should be treated as 
deposits of individuals. In general, all other accounts currently 
reported in item 1 should be treated as deposits of partnerships and 
corporations. However, Schedule RC-E, item 1, also includes all 
certified and official checks. To limit the reporting burden of this 
proposed change, official checks in the form of money orders and 
travelers checks would be reported as deposits of individuals. 
Certified checks and all other official checks would be reported as 
deposits of partnerships and corporations. The agencies request comment 
on this approach to reporting certified and official checks.
---------------------------------------------------------------------------

    \4\ An Individual Taxpayer Identification Number is a tax 
processing number only available for certain nonresident and 
resident aliens, their spouses, and dependents who cannot get a 
Social Security Number. It is a 9-digit number, beginning with the 
number ``9,'' formatted like a Social Security Number.
---------------------------------------------------------------------------

F. Variable Interest Entities

    In June 2009, the Financial Accounting Standards Board (FASB) 
issued accounting standards that have changed the way entities account 
for securitizations and special purpose entities. ASU No. 2009-16 
(formerly FAS 166) revised ASC Topic 860, Transfers and Servicing, by 
eliminating the concept of a ``qualifying special-purpose entity'' 
(QSPE) and changing the requirements for derecognizing financial 
assets. ASU No. 2009-17 (formerly FAS 167) revised ASC Topic 810, 
Consolidations, by changing how a bank or other company determines when 
an entity that is insufficiently capitalized or is not controlled 
through voting or similar rights, i.e., a ``variable interest entity'' 
(VIE), should be consolidated. For most banks, ASU Nos. 2009-16 and 
2009-17 took effect January 1, 2010.
    Under ASC Topic 810, as amended, determining whether a bank is 
required to consolidate a VIE depends on a qualitative analysis of 
whether that bank has a ``controlling financial interest'' in the VIE 
and is therefore the primary beneficiary of the VIE. The analysis 
focuses on the bank's power over and interest in the VIE. With the 
removal of the QSPE concept from generally accepted accounting 
principles that was brought about in amended ASC Topic 860, a bank that 
transferred financial assets to an SPE that met the definition of a 
QSPE before the effective date of these amended accounting standards 
was required to evaluate whether, pursuant to amended ASC Topic 810, it 
must begin to consolidate the assets, liabilities, and equity of the 
SPE as of that effective date. Thus, when implementing amended ASC 
Topics 860 and 810 at the beginning of 2010, banks began to consolidate 
certain previously off-balance securitization vehicles, asset-backed 
commercial paper conduits, and other structures. Going forward, banks 
with variable interests in new VIEs must evaluate whether they have a 
controlling financial interest in these entities and, if so, 
consolidate them. In addition, banks must continually reassess whether 
they are the primary beneficiary of VIEs in which they have variable 
interests.
    For those VIEs that banks must consolidate, the banking agencies' 
Call Report instructional guidance advises institutions to report the 
assets and liabilities of these VIEs on the Call Report balance sheet 
(Schedule RC) in the balance sheet category appropriate to the asset or 
liability. However, ASC paragraph 810-10-45-25 \5\ requires a reporting 
entity to present ``separately on the face of the statement of 
financial position: a. Assets of a consolidated variable interest 
entity (VIE) that can be used only to settle obligations of the 
consolidated VIE [and] b. Liabilities of a consolidated VIE for which 
creditors (or beneficial interest holders) do not have recourse to the 
general credit of the primary beneficiary.'' This requirement has been 
interpreted to mean that ``each line item of the consolidated balance 
sheet should differentiate which portion of those amounts meet the 
separate presentation conditions.'' \6\ In requiring separate 
presentation for these assets and liabilities, the FASB agreed with 
commenters on its proposed accounting standard on consolidation that 
``separate presentation . . . would provide transparent and useful 
information about an enterprise's involvement and associated risks in a 
variable interest entity.'' \7\ The banking agencies concur that 
separate presentation would provide similar benefits to them and other 
Call Report users, particularly since data on securitized assets that 
are reconsolidated is no longer reported on Call Report Schedule RC-S, 
Servicing, Securitization, and Asset Sale Activities.
---------------------------------------------------------------------------

    \5\ Formerly paragraph 22A of FIN 46(R), as amended by FAS 167.
    \6\ Deloitte & Touche LLP, ``Back on-balance sheet: Observations 
from the adoption of FAS 167,'' May 2010, page 4 (http://www.deloitte.com/view/en_US/us/Services/audit-enterprise-risk-services/Financial-Accounting-Reporting/f3a70ca28d9f8210VgnVCM200000bb42f00aRCRD.htm).
    \7\ See paragraphs A80 and A81 of FAS 167.
---------------------------------------------------------------------------

    Consistent with the presentation requirements discussed above, the 
banking agencies are proposing to add a new Schedule RC-V, Variable 
Interest Entities, to the Call Report in which banks would report a 
breakdown of the assets of consolidated VIEs that can be used only to 
settle obligations of the consolidated VIEs and liabilities of 
consolidated VIEs for which creditors do not have recourse to the 
general credit of the reporting bank. The following proposed categories 
for these assets and liabilities would include some of the same 
categories presented on the Call Report balance sheet (Schedule RC): 
Cash and balances due from depository institutions, Held-to-

[[Page 60503]]

maturity securities; Available-for-sale securities; Securities 
purchased under agreements to resell, Loans and leases held for sale; 
Loans and leases, net of unearned income; Allowance for loan and lease 
losses; Trading assets (other than derivatives); Derivative trading 
assets; Other real estate owned; Other assets; Securities sold under 
agreements to repurchase; Derivative trading liabilities; Other 
borrowed money (other than commercial paper); Commercial paper; and 
Other liabilities. These assets and liabilities would be presented 
separately for securitization trusts, asset-backed commercial paper 
conduits, and other VIEs.
    In addition, the agencies propose to include two separate items in 
new Schedule RC-V in which banks would report the total amounts of all 
other assets and all other liabilities of consolidated VIEs (i.e., all 
assets of consolidated VIEs that are not dedicated solely to settling 
obligations of the VIE and all liabilities of consolidated VIEs for 
which creditors have recourse to the general credit of the reporting 
bank). The collection of this information would help the agencies 
understand the total magnitude of consolidated VIEs. These assets and 
liabilities would also be reported separately for securitization 
trusts, asset-backed commercial paper conduits, and other VIEs.
    The asset and liability information collected in Schedule RC-V 
would represent amounts included in the reporting bank's consolidated 
assets and liabilities reported on Schedule RC, Balance Sheet, i.e., 
after eliminating intercompany transactions.

G. Assets Covered by FDIC Loss-Sharing Agreements

    In March 2010, the banking agencies added a four-way breakdown of 
assets covered by loss-sharing agreements with the FDIC to Schedule RC-
M, Memoranda. Items 13.a through 13.d collect data on covered loans and 
leases, other real estate owned, debt securities, and other assets. In 
a January 22, 2010, comment letter to the banking agencies on the 
agencies' submission for OMB review of proposed Call Report revisions 
for implementation in 2010, the American Bankers Association (ABA) 
stated that while the addition of the covered asset items to Schedule 
RC-M was:

a step in the right direction, ABA believes it would be beneficial 
to regulators, reporting banks, investors, and the public to have 
additional, more granular information about the various categories 
of assets subject to the FDIC loss-sharing agreements. While we 
recognize that this would result in additional reporting burden on 
banks, on balance our members feel strongly that the benefit of 
additional disclosure of loss-sharing data would outweigh the burden 
of providing these detailed data. Thus, we urge the Agencies and the 
FFIEC to further revise the collection of data from banks on assets 
covered by FDIC loss-sharing agreements on the Call Report to 
include the several changes suggested below * * * We believe these 
changes would provide a more precise and accurate picture of a 
bank's asset quality.

    The changes suggested by the ABA included revising Schedule RC-M by 
replacing the two items for covered loans and leases and covered other 
real estate owned with separate breakdowns of these assets by loan 
category and real estate category. The ABA also suggested revising 
existing items 10 and 10.a in Schedule RC-N, Past Due and Nonaccrual 
Loans, Leases, and Other Assets, which collect data on past due and 
nonaccrual loans and leases that are wholly or partially guaranteed by 
the U.S. Government, including the FDIC. The ABA recommended that the 
reporting of these past due and nonaccrual loans and leases be 
segregated into separate items for loans and leases covered by FDIC 
loss-sharing agreements and loans and leases with other U.S. Government 
guarantees.
    After reviewing the ABA's recommendations and discussing them with 
their staff, the banking agencies are proposing to revise the Call 
Report along the lines suggested by the ABA. Thus, the banking agencies 
are proposing to create a breakdown of Schedule RC-M, item 13.a, 
covered ``Loans and leases,'' that would include each category of 
``Loans secured by real estate'' (in domestic offices) from Schedule 
RC-C, part I, ``Loans to finance agricultural production and other 
loans to farmers,'' ``Commercial and industrial loans,'' ``Credit 
cards,'' ``Other consumer loans,'' and ``All other loans and all 
leases.'' If any category of loans or leases (as defined in Schedule 
RC-C, part I) included in covered ``All other loans and all leases'' 
exceeds 10 percent of total covered loans and leases, the amount of 
covered loans or leases in that category or categories must be itemized 
and described. Similarly, the banking agencies would create a breakdown 
of Schedule RC-M, item 13.b, covered ``Other real estate owned,'' into 
the following categories: ``Construction, land development, and other 
land,'' ``Farmland,'' ``1-4 family residential properties,'' 
``Multifamily (5 or more) residential properties,'' and ``Nonfarm 
nonresidential properties.'' Banks would also report the guaranteed 
portion of the total amount of covered other real estate owned. In 
Schedule RC-N, as suggested by the ABA, the banking agencies would 
remove loans and leases covered by FDIC loss-sharing agreements from 
the scope of existing items 10 and 10.a on past due and nonaccrual 
loans wholly or partially guaranteed by the U.S. Government. Past due 
and nonaccrual covered loans and leases would then be collected in new 
item 11, which would include a breakdown of these loans and leases 
using the same categories as in proposed revised item 13.a of Schedule 
RC-M and also provide for banks to report the guaranteed portion of the 
total amount of covered loans and leases.

H. Life Insurance Assets

    Banks purchase and hold bank-owned life insurance (BOLI) policies 
as assets, the premiums for which may be used to acquire general 
account or separate account life insurance policies. Banks currently 
report the aggregate amount of their life insurance assets in item 5 of 
Call Report Schedule RC-F, Other Assets, without regard to whether 
their holdings are general account or separate account policies.
    Many banks have BOLI assets, and the distinction between those life 
insurance policies that represent general account products and those 
that represent separate account products has meaning with respect to 
the degree of credit risk involved as well as performance measures for 
the life insurance assets in a volatile market environment. In a 
general account policy, the general assets of the insurance company 
issuing the policy support the policy's cash surrender value. In a 
separate account policy, the policyholder's cash surrender value is 
supported by assets segregated from the general assets of the insurance 
carrier. Under such an arrangement, the policyholder neither owns the 
underlying separate account created by the insurance carrier on its 
behalf nor controls investment decisions in the account. Nevertheless, 
the policyholder assumes all investment and price risk.
    A number of banks holding separate account life insurance policies 
have recorded significant losses in recent years due to the volatility 
in the markets and the vulnerability to market fluctuations of the 
instruments that are investment options in separate account life 
insurance policies. Information distinguishing between the cash 
surrender values of general account and separate account life insurance 
policies would allow the banking agencies to track banks' holdings of 
both types of life insurance policies with their differing risk 
characteristics and changes in their carrying amounts resulting from 
their performance over

[[Page 60504]]

time. Accordingly, the banking agencies are proposing to split item 5 
of Schedule RC-F into two items: Item 5.a, ``General account life 
insurance assets,'' and item 5.b, ``Separate account life insurance 
assets.''

I. Captive Insurance and Reinsurance Subsidiaries

    Captive insurance companies are utilized by banking organizations 
to ``self insure'' or reinsure their own risks pursuant to incidental 
activities authority. A captive insurance company is a limited purpose 
insurer that may be licensed as a direct writer of insurance or as a 
reinsurer. Insurance premiums paid by a bank to its captive insurer, 
and claims paid back to the bank by the captive, are transacted on an 
intercompany basis, so there is no evidence of this type of self-
insurance activity when a bank prepares consolidated financial 
statements, including its Call Report. The cash flows for a captive 
reinsurer's transactions also are not apparent in a bank's consolidated 
financial statements.
    A number of banks own captive insurers or reinsurers, several of 
which were authorized to operate more than ten years ago. Some of the 
most common lines of business underwritten by bank captive insurers are 
credit life, accident, and health; disability insurance; and employee 
benefits coverage. Additionally, bank captive reinsurance subsidiaries 
may underwrite private mortgage guaranty reinsurance and terrorism risk 
reinsurance.
    As part of their supervisory processes, the agencies have been 
following the proliferation of bank captive insurers and reinsurers and 
the performance trends of these captives for the past several years. 
Collection of financial information regarding the total assets of 
captive insurance and reinsurance subsidiaries would assist the 
agencies in monitoring the insurance activities of banking 
organizations as well as any safety and soundness risks posed to the 
parent bank from the activities of these subsidiaries.
    The agencies propose to collect two new items in Schedule RC-M, 
Memoranda, for captive insurance subsidiaries operated by banks: Item 
14.a, ``Total assets of captive insurance subsidiaries,'' and item 
14.b, ``Total assets of captive reinsurance subsidiaries.'' These new 
items are not expected to be applicable to the vast majority of banks. 
When reporting the total assets of these captive subsidiaries in the 
proposed new items, banks should measure the subsidiaries' total assets 
before eliminating intercompany transactions between the consolidated 
subsidiary and other offices or subsidiaries of the consolidated bank.

J. Credit and Debit Valuation Adjustments Included in Trading Revenues

    Banks that reported average trading assets of $2 million or more 
for any quarter of the preceding calendar year provide a breakdown of 
trading revenue by type of exposure in Memorandum items 8.a through 8.e 
of Schedule RI, Income Statement. These revenue items are reported net 
of credit adjustments made to the fair value of banks' derivative 
assets and liabilities that are reported as trading assets and 
liabilities.
    There are two forms of credit adjustments that affect the valuation 
of derivatives held for trading and trading revenue. The first is the 
credit valuation adjustment (CVA), which is the discounted value of 
expected losses on a bank's derivative assets due to changes in the 
creditworthiness of the bank's derivative counterparties and future 
exposures to those counterparties. In contrast, the debit valuation 
adjustment (DVA) reflects the effect of changes in the bank's own 
creditworthiness on its derivative liabilities. During the financial 
crisis, the recognition of both the CVA and the DVA had a material 
impact on overall trading revenues. Because of their potential 
materiality, information on these two adjustments is needed in order 
for the agencies to better understand the level and trend of banks' 
trading revenues.
    The banking agencies are therefore proposing to add two new 
Memorandum items to the existing Schedule RI Memorandum items for 
trading revenue. In new Memorandum item 8.f, banks would report the 
``Impact on trading revenue of changes in the creditworthiness of the 
bank's derivatives counterparties on the bank's derivative assets 
(included in Memorandum items 8.a through 8.e above).'' In new 
Memorandum item 8.g, banks would report the ``Impact on trading revenue 
of changes in the creditworthiness of the bank on the bank's derivative 
liabilities (included in Memorandum items 8.a through 8.e above).'' 
Because derivatives held for trading are heavily concentrated in the 
very largest banks, these new items would be reported by banks with 
$100 billion or more in total assets.

K. Quarterly Reporting for Collective Investment Funds

    For banks that provide fiduciary and related services, the volume 
of assets under management is an important metric for understanding 
risk at these institutions and in the banking system. A bank's assets 
under management may include such pooled investment vehicles as 
collective investment funds and common trust funds (hereafter, 
collectively, CIFs) that it offers to investors. When considering how 
and where to place funds in pooled investment vehicles, which also 
include registered investment funds (mutual funds), investors' 
decisions are highly influenced by risk and return factors. While 
registered investment funds regularly disclose an array of fund-related 
data to the U.S. Securities and Exchange Commission and the investing 
public, the banking agencies' collection and public disclosure of 
summary data on CIFs is limited to annual data reported in Memorandum 
items 3.a through 3.h of Call Report Schedule RC-T, Fiduciary and 
Related Services, as of each December 31.
    Like other investment vehicles, CIFs were affected by market 
disruptions during the recent financial crisis. However, annual 
reporting on CIFs limited the agencies' ability to detect changes in 
investor behavior and bank investment management strategies at an early 
stage in this $2.5 trillion line of business. Thus, the agencies 
believe it would be beneficial to change the reporting frequency for 
the Schedule RC-T data on CIFs from annually to quarterly for those 
institutions that currently report their fiduciary assets and fiduciary 
income quarterly. Quarterly filing of these Schedule RC-T data is 
required of institutions with total fiduciary assets greater than $250 
million (as of the preceding December 31) or with gross fiduciary and 
related services income greater than 10 percent of revenue for the 
preceding calendar year. This proposed reporting change would affect 
fewer than 100 banks.

L. Call Report Instructional Revisions

1. Construction Loans
    Banks report the amount of their ``Construction, land development, 
and other land loans'' in the appropriate loan subcategory of Call 
Report Schedule RC-C, part I, item 1.a. Questions have arisen about the 
reporting treatment for a ``Construction, land development, and other 
land loan'' that was not originated as a ``combination construction-
permanent loan,'' but was originated with the expectation that 
repayment would come from the sale of the real estate, when the bank 
changes the loan's terms so that principal amortization is required. 
This may occur after completion of construction when the bank renews or 
refinances the existing

[[Page 60505]]

loan or enters into a new real estate loan with the original borrower. 
The agencies believe that as long as the repayment of a loan that was 
originally categorized as a ``Construction, land development, and other 
land loan'' remains dependent on the sale of the real property, the 
loan should continue to be reported in the appropriate subcategory of 
item 1.a of Schedule RC-C, part I, because it continues to exhibit the 
risk characteristics of a construction loan.

    The instructions for Schedule RC-C, part I, item 1.a, state 
that:

    Loans written as combination construction-permanent loans 
secured by real estate should be reported in this item until 
construction is completed or principal amortization payments begin, 
whichever comes first. When the first of these events occurs, the 
loans should begin to be reported in the real estate loan category 
in Schedule RC-C, part I, item 1, appropriate to the real estate 
collateral. All other construction loans secured by real estate 
should continue to be reported in this item after construction is 
completed unless and until (1) the loan is refinanced into a new 
permanent loan by the reporting bank or is otherwise repaid, (2) the 
bank acquires or otherwise obtains physical possession of the 
underlying collateral in full satisfaction of the debt, or (3) the 
loan is charged off.

    A combination construction-permanent loan results when the lender 
enters into a contractual agreement with the original borrower at the 
time the construction loan is originated to also provide the original 
borrower with permanent financing that amortizes principal after 
construction is completed and a certificate of occupancy is obtained 
(if applicable). This construction-permanent loan structure is intended 
to apply to situations where, at the time the construction loan is 
originated, the original borrower:
     Is expected to be the owner-occupant of the property upon 
completion of construction and receipt of a certificate of occupancy 
(if applicable), for example, where the financing is being provided to 
the original borrower for the construction and permanent financing of 
the borrower's residence or place of business, or
     Is not expected to be the owner-occupant of the property, 
but repayment of the permanent loan will be derived from rental income 
associated with the property being constructed after receipt of a 
certificate of occupancy (if applicable) rather than from the sale of 
the property being constructed.
    For a loan not written as a combination construction-permanent loan 
at the time the construction loan was originated, the agencies propose 
to clarify the instructional language quoted above stating that ``[a]ll 
other construction loans secured by real estate should continue to be 
reported in this item after construction is completed unless and until 
* * * the loan is refinanced into a new permanent loan by the reporting 
bank.'' This clarification is intended to ensure the appropriate 
categorization of such a loan in Schedule RC-C, part I. Thus, the 
agencies are proposing to revise the instructions for Schedule RC-C, 
part I, item 1.a, to explain that the phrase ``the loan is refinanced 
into a new permanent loan'' refers to:
     An amortizing permanent loan to a new borrower (unrelated 
to the original borrower) who has purchased the real property, or
     A prudently underwritten new amortizing permanent loan at 
market terms to the original borrower--including an appropriate 
interest rate, maturity, and loan-to-value ratio--that is no longer 
dependent on the sale of the property for repayment. The loan should 
have a clearly identified ongoing source of repayment sufficient to 
service the required principal and interest payments over a reasonable 
and customary period relative to the type of property securing the new 
loan. A new loan to the original borrower not meeting these criteria 
(including a new loan on interest-only terms or a new loan with a 
short-term balloon maturity that is inconsistent with the ongoing 
source of repayment criterion) should continue to be reported as a 
``Construction, land development, and other land loan'' in the 
appropriate subcategory of Schedule RC-C, part I, item 1.a.
2. Reporting of 1-4 Family Residential Mortgages Held for Trading in 
Schedule RC-P
    The banking agencies began collecting information in Schedule RC-P, 
1-4 Family Residential Mortgage Banking Activities in Domestic Offices, 
in September 2006. At that time, the instructions for Schedule RC-C, 
part I, Loans and Leases, indicated that loans generally could not be 
classified as held for trading. Therefore, all 1-4 family residential 
mortgage loans designated as held for sale were reportable in Schedule 
RC-P. In March 2008, the banking agencies provided instructional 
guidance establishing conditions under which banks were permitted to 
classify certain assets (e.g., loans) as trading, and specified that 
loans classified as trading assets should be excluded from Schedule RC-
C, part I, Loans and Leases, and reported instead in Schedule RC-D, 
Trading Assets and Liabilities (if the reporting threshold for this 
schedule were met). However, the agencies neglected to address the 
reporting treatment on Schedule RC-P of 1-4 family residential loans 
that met the conditions for classification as trading assets. 
Therefore, the agencies are proposing to correct this by providing 
explicit instructional guidance that all 1-4 family residential 
mortgage banking activities, whether held for sale or trading purposes, 
are reportable on Schedule RC-P.
3. Maturity and Repricing Data for Assets and Liabilities at 
Contractual Ceilings and Floors
    Banks report maturity and repricing data for debt securities (not 
held for trading), loans and leases (not held for trading), time 
deposits, and other borrowed money in Call Report Schedule RC-B, 
Securities; Schedule RC-C, part I, Loans and Leases; Schedule RC-E, 
Deposit Liabilities; and Schedule RC-M, Memoranda, respectively. The 
agencies use these data to assess, at a broad level, a bank's exposure 
to interest rate risk. The instructions for reporting the maturity and 
repricing data currently require that when the interest rate on a 
floating rate instrument has reached a contractual floor or ceiling 
level, which is a form of embedded option, the instrument is to be 
treated as ``fixed rate'' rather than ``floating rate'' until the rate 
is again free to float. As a result, a floating rate instrument whose 
interest rate has fallen to its floor or risen to its ceiling is 
reported based on the time remaining until its contractual maturity 
date rather than the time remaining until the next interest rate 
adjustment date (or the contractual maturity date, if earlier). This 
reporting treatment is designed to capture the potential effect of the 
embedded option under particular interest rate scenarios.
    The ABA has requested that the agencies reconsider the reporting 
treatment for floating rate instruments with contractual floors and 
ceilings. More specifically, the ABA has recommended that the 
instructions be revised so that floating rate instruments would always 
be reporting based on the time remaining until the next interest rate 
adjustment date without regard to whether the rate on the instrument 
has reached a contractual floor or ceiling.
    The agencies have considered this request and have concluded that 
an instruction revision is warranted, but the extent of the revision 
should be narrower than recommended by the ABA. The agencies believe 
that when a floating rate instrument is at its contractual floor or 
ceiling and the

[[Page 60506]]

embedded option has intrinsic value to the bank, the floor or ceiling 
should be ignored and the instrument should be treated as a floating 
rate instrument. However, if the embedded option has intrinsic value to 
the bank's counterparty, the contractual floor or ceiling should 
continue to be taken into account and the instrument should be treated 
as a fixed rate instrument. For example, when the interest rate on a 
floating rate loan reaches its contractual ceiling, the embedded option 
represented by the ceiling has intrinsic value to the borrower and is a 
detriment to the bank because the loan's yield to the bank is lower 
than what it would have been without the ceiling. When the interest 
rate on a floating rate loan reaches its contractual floor, the 
embedded option represented by the floor has intrinsic value to the 
bank and is a benefit to the bank because the loan's yield to the bank 
is higher than what it would have been without the floor.
    Accordingly, the agencies are proposing to revise the instructions 
for reporting maturity and repricing data in the four Call Report 
schedules identified above. As revised, the instructions would indicate 
that a floating rate asset that has reached its contractual ceiling and 
a floating rate liability that has reached its contractual floor would 
be treated as a fixed rate instrument and reported based on the time 
remaining until its contractual maturity date. In contrast, the 
instructions would state that a floating rate asset that has reached 
its contractual floor and a floating rate liability that has reached 
its contractual ceiling would be treated as a floating rate instrument 
and reported based on the time remaining until the next interest rate 
adjustment date (or the contractual maturity date, if earlier).

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 collections of 
information that are the subject of this notice 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. All comments will become a matter of public record.

    Dated: September 23, 2010.
Michele Meyer,
Assistant Director, Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency.

    Board of Governors of the Federal Reserve System, September 24, 
2010.
Jennifer J. Johnson
Secretary of the Board.

    Dated at Washington, DC, this 23rd day of September, 2010.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2010-24476 Filed 9-29-10; 8:45 am]
BILLING CODE 6210-01-P; 4810-33-P; 6714-01-P