[Federal Register Volume 76, Number 224 (Monday, November 21, 2011)]
[Notices]
[Pages 71968-71975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29874]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM


Proposed Agency Information Collection Activities; Comment 
Request

AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY: On June 15, 1984, the Office of Management and Budget (OMB) 
delegated to the Board of Governors of the Federal Reserve System 
(Board) its approval authority under the Paperwork Reduction Act (PRA), 
pursuant to 5 CFR 1320.16, to approve of and assign OMB control numbers 
to collection of information requests and requirements conducted or 
sponsored by the Board under conditions set forth in 5 CFR part 1320 
Appendix A.1. Board-approved collections of information are 
incorporated into the official OMB inventory of currently approved 
collections of information. Copies of the

[[Page 71969]]

Paperwork Reduction Act Submission, supporting statements and approved 
collection of information instruments are placed into OMB's public 
docket files. The Federal Reserve may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
that has been extended, revised, or implemented on or after October 1, 
1995, unless it displays a currently valid OMB control number.

DATES: Comments must be submitted on or before December 12, 2011.

ADDRESSES: You may submit comments, identified by FR Y-9C by any of the 
following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [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 
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 form 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.
    Additionally, commenters should send a copy of their comments to 
the OMB Desk Officer--Shagufta Ahmed--Office of Information and 
Regulatory Affairs, 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: A copy of the PRA OMB submission, 
including the proposed reporting form and instructions, supporting 
statement, and other documentation will be placed into OMB's public 
docket files, once approved. These documents will also be made 
available on the Federal Reserve Board's public Web site at: http://www.federalreserve.gov/boarddocs/reportforms/review.cfm or may be 
requested from the agency clearance officer, whose name appears below.
    Federal Reserve Board Clearance Officer--Cynthia Ayouch--Division 
of Research and Statistics, Board of Governors of the Federal Reserve 
System, Washington, DC 20551 ((202) 452-3829) Telecommunications Device 
for the Deaf (TDD) users may contact (202) 263-4869, Board of Governors 
of the Federal Reserve System, Washington, DC 20551.

SUPPLEMENTARY INFORMATION: 

Request for Comment on Information Collection Proposals

    The following information collections, which are being handled 
under this delegated authority, have received initial Board approval 
and are hereby published for comment. At the end of the comment period, 
the proposed information collections, along with an analysis of 
comments and recommendations received, will be submitted to the Board 
for final approval under OMB delegated authority. Comments are invited 
on the following:
    a. Whether the proposed collection of information is necessary for 
the proper performance of the Federal Reserve's functions; including 
whether the information has practical utility;
    b. The accuracy of the Federal Reserve's estimate of the burden of 
the proposed information collection, including the validity of the 
methodology and assumptions used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Proposal to approve under OMB delegated authority the revision, 
without extension, of the following report:
    Report title: Financial Statements for Bank Holding Companies.\1\
---------------------------------------------------------------------------

    \1\ This family of reports also contains the following mandatory 
reports, which are not being revised: The Parent Company Only 
Financial Statements for Large Bank Holding Companies (FR Y-9LP), 
the Parent Company Only Financial Statements for Small Bank Holding 
Companies (FR Y-9SP), the Financial Statements for Employee Stock 
Ownership Plan Bank Holding Companies (FR Y-9ES), and the Supplement 
to the Consolidated Financial Statements for Bank Holding Companies 
(FR Y-9CS).
---------------------------------------------------------------------------

    Agency form number: FR Y-9C.
    OMB control number: 7100-0128.
    Frequency: Quarterly.
    Reporters: Bank holding companies.
    Estimated annual reporting hours: 192,561 hours.
    Estimated average hours per response: 47.15 hours.
    Number of respondents: 1,021.
    General description of report: This information collection is 
mandatory (12 U.S.C. 1844(c)). Confidential treatment is not routinely 
given to the data in these reports. However, confidential treatment for 
the reporting information, in whole or in part, can be requested in 
accordance with the instructions to the form, pursuant to sections 
(b)(4), (b)(6), and (b)(8) of FOIA (5 U.S.C. 522(b)(4), (b)(6), and 
(b)(8)).
    Abstract: The FR Y-9C consists of standardized financial statements 
similar to the Federal Financial Institutions Examination Council 
(FFIEC) Consolidated Reports of Condition and Income (Call Reports) 
(FFIEC 031 & 041; OMB No. 7100-0036) filed by commercial banks. The FR 
Y-9C collects consolidated data from bank holding companies (BHCs). The 
FR Y-9C is filed by top-tier BHCs with total consolidated assets of 
$500 million or more. (Under certain circumstances defined in the 
General Instructions, BHCs under $500 million may be required to file 
the FR Y-9C.) The Federal Reserve proposes several changes to the FR Y-
9C reporting requirements to better understand BHCs' risk exposures, to 
better support macroeconomic analysis and monetary policy purposes, and 
to collect certain information prescribed by changes in accounting 
standards.
    Current Actions: The Federal Reserve proposes the following 
revisions and clarifications to the FR Y-9C effective June 30, 2012: 
(1) Add a section to Schedule HC-C, Loans and Lease Financing 
Receivables, to collect information on the allowance for loan and lease 
losses by loan category; (2) add two data items to Schedule HC-P, 1-4 
Family Residential Mortgage Banking Activities, to collect the amount 
of representation and warranty reserves for 1-4 family residential 
mortgage loans sold; (3) add a data item to Schedule HC-N, Past Due and 
Nonaccrual Loans, Leases, and Other Assets, to collect the outstanding 
balance of purchased credit impaired loans by past due and nonaccrual 
status; (4) add a schedule to Schedule HC-U, Loan Origination Activity 
in Domestic Offices, to collect information on loan originations; and 
(5) modify the reporting instructions to clarify the reporting and 
accounting treatment of specific valuation allowances.
    For the June 30, 2012, report date, institutions may report 
reasonable

[[Page 71970]]

estimates for any new or revised data items in their FR Y-9C report for 
if the information is not readily available.

Proposed Revisions--FR Y-9C

A. Proposed Revisions Related to Call Report Revisions

    The Federal Reserve proposes to make the following revisions to the 
FR Y-9C to parallel proposed changes to the Call Report. In the past, 
BHCs have commented that changes should be made to the FR Y-9C in a 
manner consistent with changes to the Call Report to reduce reporting 
burden.
A.1 Allowance for Loan and Lease Losses by Loan Category (ALLL)
    In July 2010, the Financial Accounting Standards Board (FASB) 
published Accounting Standards Update No. 2010-20, Disclosures about 
the Credit Quality of Financing Receivables and the Allowance for 
Credit Losses (ASU 2010-20), which amended Accounting Standards 
Codification (ASC) Topic 310, Receivables. The main objective of the 
update was to provide financial statement users with greater 
transparency about an entity's allowance for credit losses and the 
credit quality of its financing receivables. Examples of financing 
receivables included loans, credit cards, notes receivable, and leases 
(other than an operating lease). The update was intended to provide 
additional information to assist financial statement users in assessing 
an entity's credit risk exposures and evaluating the adequacy of its 
allowance for credit losses.
    To achieve its main objective, ASU 2010-20 requires, in part, that 
an entity disclose by portfolio segment ``[t]he balance in the 
allowance for credit losses at the end of each period disaggregated on 
the basis of the entity's impairment method'' and ``[t]he recorded 
investment in financing receivables at the end of each period related 
to each balance in the allowance for credit losses, disaggregated * * * 
in the same manner.'' \2\ As defined in the ASC Master Glossary, a 
portfolio segment is ``[t]he level at which an entity develops and 
documents a systematic methodology to determine its allowance for 
credit losses.'' For each portfolio segment, the disaggregation based 
on impairment method requires separate disclosure of the allowance and 
the related recorded investment amounts for financing receivables 
collectively evaluated for impairment, individually evaluated for 
impairment, and acquired with deteriorated credit quality.\3\ This 
disaggregated disclosure requirement is effective for public entities 
for the first interim or annual reporting period ending on or after 
December 15, 2010, and for nonpublic entities for annual reporting 
periods ending on or after December 15, 2011.
---------------------------------------------------------------------------

    \2\ ASC paragraphs 310-10-51-11B(g) and (h).
    \3\ ASC paragraph 310-10-51-11C. Allowances for amounts 
collectively evaluated for impairment are determined under ASC 
Subtopic 450-20, Contingencies-Loss Contingencies (formerly FASB 
Statement No. 5, ``Accounting for Contingencies''), allowances for 
amounts individually evaluated for impairment are determined under 
ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement 
(formerly FASB Statement No. 114, ``Accounting by Creditors for 
Impairment of a Loan''), and allowances for loans acquired with 
deteriorated credit quality are determined under ASC Subtopic 310-
30, Receivables-Loans and Debt Securities Acquired with Deteriorated 
Credit Quality (formerly AICPA Statement of Position 03-3, 
``Accounting for Certain Loans or Debt Securities Acquired in a 
Transfer'').
---------------------------------------------------------------------------

    Consistent with the ASU 2010-20 disclosure requirements described 
above, the Federal reserve proposes to revise the June 2012 FR Y-9C 
report to capture disaggregated detail of institutions' allowances for 
loan and lease losses (ALLL) and related recorded investments for loans 
and leases from institutions with $1 billion or more in total assets. 
Disaggregated data would be reported for key loan categories for which 
the recorded investments are reported in Schedule HC-C, Loans and Lease 
Financing Receivables. The Federal Reserve also proposes to collect 
this information on the basis of impairment method for each loan 
category. To the extent that an institution uses multiple impairment 
methods for a given loan category, the institution would report the 
ALLL and recorded investment for each applicable impairment method for 
that loan category. The Federal Reserve believes that the use of key 
loan categories reported on Schedule HC-C for the proposed new 
disaggregated disclosures is consistent with the meaning of the term 
portfolio segment in ASU 2010-20 and with the banking agencies' 
supervisory guidance on ALLL methodologies.\4\ More specifically, the 
Federal Reserve proposes to collect from institutions with $1 billion 
or more in total assets disaggregated allowance and recorded investment 
data on the basis of impairment method (collectively evaluated for 
impairment,\5\ individually evaluated for impairment, and acquired with 
deteriorated credit quality) for following loan categories:
---------------------------------------------------------------------------

    \4\ See the banking agencies' July 2001 ``Policy Statement on 
Allowance for Loan and Lease Losses Methodologies and Documentation 
for Banks and Savings Institutions'' at http://www.federalreserve.gov/boarddocs/srletters/2001/SR0117a1.pdf.
    \5\ For loans collectively evaluated for impairment, an 
institution would also report the amount of any unallocated portion 
of its ALLL.
---------------------------------------------------------------------------

     Construction, land development, and other land loans;
     Revolving, open-end loans secured by 1-4 family 
residential properties and extended under lines of credit;
     Closed-end loans secured by 1-4 family residential 
properties;
     Loans secured by multifamily (5 or more) residential 
properties;
     Loans secured by nonfarm nonresidential properties; \6\
---------------------------------------------------------------------------

    \6\ The first five loan categories would be reported on a 
domestic office only basis.
---------------------------------------------------------------------------

     Commercial and industrial loans;
     Credit card loans to individuals for household, family, 
and other personal expenditures;
     All other loans to individuals for household, family, and 
other personal expenditures; and
     All other loans and all lease financing receivables.
    Currently, the FR Y-9C report does not provide detail on the 
components of the ALLL disaggregated by loan category in the manner 
prescribed by ASU 2010-20. Rather, only the amount of the overall ALLL 
is reported with separate disclosure of the total amount of the 
allowance for loans acquired with deteriorated credit quality.\7\ 
Therefore, when conducting off-site evaluations of the level of an 
individual institution's overall ALLL and changes therein, examiners 
and analysts cannot determine whether the institution is releasing loan 
loss allowances in some loan categories and building allowances in 
others. Collecting more detailed ALLL information would allow the 
Federal Reserve to more finely focus efforts related to the ALLL and 
credit risk management and, in conjunction with past due and nonaccrual 
data currently reported by loan category that are used in a general 
assessment of an institution's credit risk exposures, to better 
evaluate the appropriateness of its ALLL. As an example, it is 
currently not possible to differentiate the ALLL allocated to 
commercial real estate (CRE) loans from the remainder of the ALLL at 
institutions with CRE concentrations. By collecting more detailed ALLL 
information, examiners and analysts would then better understand how 
institutions with such concentrations are building or releasing 
allowances, the extent of ALLL coverage in relation to their CRE 
portfolios, and

[[Page 71971]]

how this might differ among institutions.
---------------------------------------------------------------------------

    \7\ Credit card specialty banks and other institutions with a 
significant volume of credit card receivables also disclose the 
amount, if any, of ALLL attributable to retail credit card fees and 
finance charges.
---------------------------------------------------------------------------

    The proposed additional detail on the composition of the ALLL by 
loan category would also be useful for analysis of the depository 
institution system. As of June 30, 2011, institutions with $1 billion 
or more in total assets, which would report the additional detail under 
this proposal, held nearly 92 percent of the ALLLs held by all 
institutions. More granular ALLL information would assist the Federal 
Reserve in understanding industry trends related to the build-up or 
release of allowances for specific loan categories. The information 
would also support comparisons of ALLL levels by loan category, 
including the identification of differences in ALLL allocations by 
institution size. Understanding how institutions' ALLL practices and 
allocations differ over time for particular loan categories as economic 
conditions change may also provide insights that can be used to more 
finely tune supervisory procedures and policies.
    The Federal Reserve requests public comment on the degree to which 
the proposed disaggregated detail of institutions' ALLLs corresponds to 
institutions' current allowance methodologies, both with respect to the 
key loan categories included in the proposal and the separate reporting 
of allowance amounts on the basis of impairment method for each loan 
category. In addition, comment is invited on the appropriateness of 
including an item in the FR Y-9C report in which institutions would 
report the amount of any unallocated portion of the ALLL for loans 
collectively evaluated for impairment.\8\ To the extent that the 
proposed information is not captured in institutions' automated data 
collection systems, the Federal Reserve requests comment on 
institutions' ability to begin to capture this ALLL and related 
recorded investment information associated with outstanding loans.
---------------------------------------------------------------------------

    \8\ The Federal Reserve notes that the table in ASC paragraph 
310-10-55-7 illustrating the required disclosure by portfolio 
segment of the end-of-period balance of the ALLL disaggregated on 
the basis of impairment method and the end-of-period recorded 
investment in financing receivables related to each ALLL balance 
includes an unallocated portion of the ALLL.
---------------------------------------------------------------------------

A.2 Loan Origination Activity
    As highlighted by the recent financial crisis and its aftermath, 
the ability to assess credit availability is a key consideration for 
monetary policy, financial stability, and the supervision and 
regulation of the banking system. However, the information currently 
available to policymakers both within and outside the Federal Reserve 
is insufficient to accurately monitor the extent to which depository 
institutions are providing credit to households and businesses. In its 
current form, the FR Y-9C report collects data on the amount of loans 
to both households and businesses that are outstanding on institutions' 
books at the end of each quarter. However, the underlying flow of loan 
originations cannot be deduced from these quarter-end data owing to the 
myriad of factors and banking activities (other than charge-offs for 
which data are reported) that routinely affect the amount of 
outstanding loans held by institutions, including activities such as 
loan paydowns, extensions, purchases and sales, securitizations, and 
repurchases. Direct reporting of loan originations would allow the 
Federal Reserve to isolate the flow of credit creation from the effects 
of these other banking activities.
    Economic research points to a crucial link between the availability 
of credit and macroeconomic outcomes.\9\ For example, the rapid 
contraction in both total loans held on institutions' balance sheets 
and in credit lines held off their balance sheets in the volatile 
period following the collapse of Lehman Brothers in the fall of 2008 
likely contributed to the depth of the economic recession as well as to 
the subsequent weakness in the recovery in economic activity. As a 
result, encouraging the expansion of banking organization loan supply 
was a primary goal of most of the emergency liquidity facilities 
established during the height of the crisis and of the Troubled Asset 
Relief Program (TARP).\10\ Likewise, numerous authors have shown a 
relationship between bank lending and changes in bank capital.\11\ For 
example, during the early 1990s, lending was also significantly 
depressed while banking organizations' capital cushions were being 
rebuilt, leading some analysts to describe the period as a ``credit 
crunch'' that resulted in a materially slower recovery in economic 
activity.
---------------------------------------------------------------------------

    \9\ See, for example, A. K. Kashyap and J. C. Stein (2000), 
``What Do a Million Observations on Banks Say About the Transmission 
of Monetary Policy,'' The American Economic Review, Vol. 90, No. 3, 
pages 407-428. See also Michael Woodford, ``Financial Intermediation 
and Macroeconomic Analysis,'' Journal of Economic Perspectives, Fall 
2010, volume 24, issue 4, pages 21-44.
    \10\ Chairman Ben S. Bernanke, ``Troubled Asset Relief Program 
and the Federal Reserve's liquidity facilities,'' Testimony before 
the Committee on Financial Services, U.S. House of Representatives, 
November 18, 2008, at http://www.federalreserve.gov/newsevents/testimony/bernanke20081118a.htm.
    \11\ See, for example, Joe Peek and Eric Rosengren (1995), ``The 
Capital Crunch: Neither a Borrower nor a Lender Be,'' Journal of 
Money, Credit and Banking, volume 27(3), pages 625-638, August. See 
also Ben Bernanke and Cara Lown (1991), ``The Credit Crunch,'' 
Brookings Papers on Economic Activity, 2:1991, pages 205-239.
---------------------------------------------------------------------------

    However, the lack of data on loan originations made it very 
difficult for policymakers to assess the sources of the steep declines 
in outstanding loans and credit lines during the recent crisis and 
during the early 1990s ``credit crunch.'' In fact, a fall in 
outstanding loans could be driven by reduced demand for credit, reduced 
supply of credit by banking organizations, or both. Looking only at 
changes in outstanding loan balances can give misleading signals and 
mask important shifts in the supply of, and demand for, credit. 
Policymakers may react differently in each of these cases.
    The sources of loan growth--such as whether loans were made under 
commitment or not under commitment--also contain important insights for 
those monitoring financial stability or developing macroprudential 
regulatory policies.\12\ As observed in the fall of 2008, strong loan 
growth that is driven primarily by customers drawing down funds from 
preexisting lending commitments can be a sign of stresses in financial 
markets, and therefore a signal that the economy could be slowing down. 
In contrast, strong growth in credit that includes robust extensions to 
new customers could signal a broad pickup in demand for financing and 
hence renewed economic growth, or it could suggest that institutions 
have eased their lending standards. Accordingly, rapid loan growth can 
be an important indicator of the safety and soundness of individual 
institutions.\13\ Loan origination data, if collected from depository 
institutions, would better identify when such developments warrant 
greater supervisory scrutiny.
---------------------------------------------------------------------------

    \12\ Moritz Schularick and Alan M. Taylor, ``Credit Booms Gone 
Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-
2008,'' 2009, National Bureau of Economic Research, Inc., NBER 
Working Papers: 15512.
    \13\ William R. Keeton, ``Does Faster Loan Growth Lead to Higher 
Loan Losses?'' Federal Reserve Bank of Kansas City Economic Review, 
2nd Quarter 1999, volume 84, issue 2, pages 57-75, and Deniz Igan 
and Marcelo Pinheiro, ``Exposure to Real Estate in Bank 
Portfolios,'' Journal of Real Estate Research, January-March 2010, 
volume 32, issue 1, pages 47-74.
---------------------------------------------------------------------------

    Credit availability to small businesses is widely considered an 
important driver of economic growth. As a result, the significant 
contraction in business loans on institutions' books over the past 
several years has generated calls from policymakers (and the public) to 
better understand the credit flows of

[[Page 71972]]

small businesses.\14\ The collection of data on originations of loans 
to businesses by the size of the original loan would provide a window 
into the functioning of the important small business market.\15\
---------------------------------------------------------------------------

    \14\ See Federal Reserve Board, Report to Congress on the 
Availability of Credit to Small Business, 2007, at http://www.federalreserve.gov/boarddocs/rptcongress/smallbusinesscredit/sbfreport2007.pdf. See also testimony before the House Financial 
Services Committee (May 18, 2010) at http://cybercemetery.unt.edu/archive/cop/20110401231854/http://cop.senate.gov/documents/testimony-051810-atkins.pdf and Congressional Oversight Panel 
Oversight Report, The Small Business Credit Crunch and the Impact of 
the TARP (May 13, 2010), at http://cybercemetery.unt.edu/archive/cop/20110402035902/http://cop.senate.gov/documents/cop-051310-report.pdf.
    \15\ The Call Report and TFR currently collect the outstanding 
amount of small dollar loans to businesses and farms where, for 
loans to businesses, ``small dollar'' is defined as loans (not made 
under commitments) that have original amounts of $1 million or less 
and draws on commitments where the total commitment amount is $1 
million or less.
---------------------------------------------------------------------------

    In addition, if loan origination information were available, it 
would also be valuable in designing, and assessing the effectiveness 
of, government policies for depository institutions and other financial 
markets. For instance, policymakers would be keenly attuned to whether, 
and if so, to what extent, the changes to the capital and liquidity 
requirements for large institutions that will be contained in 
regulations implementing the Dodd-Frank Act and the international Basel 
III agreement affect depository institution loan supply. Although these 
new regulations would only directly affect a few dozen large banking 
organizations, smaller banking organizations also may adjust their 
lending policies in response to the changes at large banking 
organizations.
    Loan data currently available to the Federal Reserve provide 
insufficient detail to accurately monitor credit creation by depository 
institutions. The FR Y-9C report currently collects data on the 
recorded amounts of a wide variety of loan categories in Schedule HC-C, 
Loans and Lease Financing Receivables. Schedule HI-B, Part I, Charge-
Offs and Recoveries on Loans and Leases, collects the flow of gross 
charge-offs and recoveries in many of the loan categories for which 
recorded amounts are reported in Schedule HC-C. On Schedule HC-P, 1-4 
Family Residential Mortgage Banking Activities (in Domestic Offices), 
which was added to the FR Y-9C report in 2006, certain bank holding 
companies report originations and purchases of residential mortgage 
loans held for sale, but not originations of loans held for investment. 
On Schedule HC-S, Servicing, Securitization, and Asset Sale Activities, 
bank holding companies report the outstanding principal balance of 
seven categories of loans sold and securitized for which the 
institution has retained servicing or has provided recourse or other 
credit enhancements.\16\ For these same seven loan categories, bank 
holding companies also report the unpaid principal balance of loans 
they have sold (not in securitizations) with recourse or other seller-
provided credit enhancements. No data exist for those loans bank 
holding companies have sold without recourse or seller-provided credit 
enhancements when servicing has not been retained.
---------------------------------------------------------------------------

    \16\ The seven categories are (1) 1-4 family residential 
mortgages, (2) home equity loans, (3) credit card loans, (4) auto 
loans, (5) other consumer loans, (6) commercial and industrial 
loans, and (7) all other loans, all leases, and all other assets 
(commercial real estate loans, for example, are subsumed in this 
category).
---------------------------------------------------------------------------

    In contrast, savings associations currently report data on loan 
originations, sales, and purchases in the Thrift Financial Report (TFR) 
(OTS 1313; OMB No. 1550-0023). On TFR Schedule CF, Consolidated Cash 
Flow Information, savings associations report by major loan category 
the dollar amount of loans that were closed or disbursed, loans and 
participations purchased, and loan sales during the quarter. In 
addition, on TFR Schedule LD, Loan Data, savings associations report 
the amount of net charge-offs, purchases, originations, and sales of 
certain 1-4 family and multifamily residential mortgages with high 
loan-to-value ratios.\17\
---------------------------------------------------------------------------

    \17\ Savings associations will discontinue filing the TFR after 
the December 31, 2011, report date, which means that these data, as 
currently reported in the TFR, will no longer be collected going 
forward.
---------------------------------------------------------------------------

    The Federal Reserve proposes to begin collecting data on loan 
originations because, as outlined in detail above, this information 
would be of substantial benefit in light of the fact that the data 
currently available for banking organizations are inadequate for 
monetary policy and financial stability regulators to monitor and 
analyze credit flows and because the proposed data will support the 
Federal Reserve's supervisory efforts.
    More specifically, the Federal Reserve proposes to collect 
quarterly information on loan originations for several important loan 
categories by introducing a new Schedule HC-U, Loan Origination 
Activity (in Domestic Offices). Under this proposal, all institutions 
would report in column A of Schedule HC-U, for certain loan categories 
reported in Schedule HC-C, Loans and Lease Financing Receivables, the 
quarter-end balance sheet amount for those loans originated during the 
quarter that ended on the report date.\18\ Institutions with $1 billion 
or more in total assets would also report, for relevant loan 
categories, (1) the portion of this quarter-end amount that was 
originated under a newly established commitment \19\ (column B of 
Schedule HC-U) and (2) the portion that was not originated under a 
commitment (column C of Schedule HC-U). In general, the additional data 
that would be reported in columns B and C of Schedule HC-U by 
institutions with $1 billion or more in total assets represent two ways 
that institutions originate new loans, both of which affect the amounts 
of loans on institutions' balance sheets.
---------------------------------------------------------------------------

    \18\ For example, a loan was originated for $120,000 during the 
quarter. As a result of principal payments received during the 
quarter, the recorded amount of the loan as reported on the 
institution's balance sheet (Schedule HC) and in the loan schedule 
(Schedule HC-C) at quarter-end was $101,000. The institution would 
report the $101,000 quarter-end recorded amount for this loan in 
column A of proposed Schedule HC-U. In general, in reporting amounts 
in column A, if a loan origination date is unknown, the reporting 
institution would be instructed to use the date that the loan was 
first booked by the institution.
    \19\ A newly established commitment is one for which the terms 
were finalized and the commitment became available for use during 
the quarter that ended on the report date. A newly established 
commitment also includes a commitment that was renewed during the 
quarter that ended on the report date.
---------------------------------------------------------------------------

    In the proposed originations schedule, all institutions would 
report the amounts reported in Schedule HC-C, as of the quarter-end 
report date that were originated during the quarter that ended on the 
report date for the following loan categories:
     1-4 family residential construction loans;
     Other construction loans and all land development and 
other land loans;
     Revolving, open-end loans secured by 1-4 family 
residential properties and extended under lines of credit;
     Closed-end loans secured by first liens on 1-4 family 
residential properties;
     Closed-end loans secured by junior liens on 1-4 family 
residential properties;
     Loans secured by multifamily (5 or more) residential 
properties;
     Loans secured by nonfarm nonresidential properties; \20\
---------------------------------------------------------------------------

    \20\ The first seven loan categories would be reported on a 
domestic office only basis.
---------------------------------------------------------------------------

     Loans to commercial banks and other depository 
institutions in the U.S.;
     Loans to banks in foreign countries;
     Loans to finance agricultural production and other loans 
to farmers;
     Commercial and industrial loans to U.S. addressees with 
original amounts of $1,000,000 or less;

[[Page 71973]]

     Commercial and industrial loans to U.S. addressees with 
original amounts of more than $1,000,000;
     Consumer credit card loans;
     Consumer automobile loans;
     Other consumer loans; and
     Loans to nondepository financial institutions.
    In addition, for each of the preceding loan categories, except as 
noted below, institutions with $1 billion or more in total assets would 
separately disclose the portion of the quarter-end amount of loans 
originated during the quarter that was originated under a newly 
established commitment and the portion that was not originated under a 
commitment. Closed-end loans secured by first liens on 1-4 family 
residential properties, closed-end loans secured by junior liens on 1-4 
family residential properties, and consumer automobile loans would be 
excluded from both of these additional disclosures. Consumer credit 
card loans and revolving, open-end loans secured by 1-4 family 
residential properties and extended under lines of credit would be 
excluded from the disclosure of loans not originated under a commitment 
because it is assumed such loans are always extended under commitment.
    Loan originations that were made under a newly established 
commitment or a commitment that was renewed during the quarter are 
likely to more closely reflect the current lending standards and loan 
terms being applied by an institution, so an expansion or contraction 
in this subset of loans is indicative of current supply and demand 
conditions. In this regard, research has shown that loans not made 
under a commitment are more sensitive to changes in monetary policy 
than loans made under a commitment.\21\ In contrast, loans drawn under 
previous commitments reflect lending standards and terms that were in 
place at the time the loan agreements were reached. Hence, changes in 
outstanding balances associated with previously committed lines are 
more indicative of demand for funds from the firms that have these 
lines, as institutions are less able to ration such credit.
---------------------------------------------------------------------------

    \21\ Donald P. Morgan, ``The Credit Effects of Monetary Policy: 
Evidence Using Loan Commitments,'' Journal of Money, Credit and 
Banking, Vol. 30, No. 1 (Feb. 1998), pages 102-118.
---------------------------------------------------------------------------

    As mentioned above, all savings associations, many of which are 
small, have for many years reported in the TFR the dollar amount of 
loans that were closed or disbursed, loans and participations 
purchased, and loan sales during the quarter by major loan category. 
Thus, the additional reporting burden of proposed Schedule HC-U may be 
manageable for such institutions. Nevertheless, because bank holding 
companies have not previously been required to report data pertaining 
to loan originations for FR Y-9C reporting purposes, the Federal 
Reserve recognizes that institutions' data systems may not at present 
be designed to identify and capture data on loans originated during the 
quarter that ended on the report date. The Federal Reserve requests 
comment on the ability of institutions' existing loan systems to 
generate the proposed data for Schedule HC-U, and if this information 
is not currently available, how burdensome it would be to adapt current 
systems to report origination data as proposed in Schedule HC-U. To the 
extent that existing loan systems enable institutions to track data on 
loans originated during the quarter by loan category in a different 
manner than has been proposed, institutions are invited to suggest 
alternative ways in which such origination data could be collected in 
the FR Y-9C report and to explain how an alternative would meet the 
Federal Reserve's data needs as described above in this section.
A.3 Past Due and Nonaccrual Purchased Credit Impaired Loans
    The FR Y-9C report currently collects information regarding the 
past due and nonaccrual status of loans, leases, and other assets in 
Schedule HC-N. To determine whether an asset is past due for purposes 
of completing this schedule, an institution must look to the borrower's 
performance in relation to the contractual terms of the asset. Over the 
past few years, there has been a substantial increase in the amount of 
assets reported in Schedule HC-N as past due 90 days or more and still 
accruing. At some institutions, a large portion of this increase is 
related to loans subject to the accounting requirements set forth in 
ASC Subtopic 310-30, Receivables--Loans and Debt Securities Acquired 
with Deteriorated Credit Quality (formerly American Institute of 
Certified Public Accountants Statement of Position 03-3, ``Accounting 
for Certain Loans or Debt Securities Acquired in a Transfer''), i.e., 
purchased credit-impaired loans, that were acquired in business 
combinations, including acquisitions of failed institutions, and other 
transactions. Loans accounted for under ASC Subtopic 310-30 are 
initially recorded at their purchase price (in a business combination, 
fair value). To the extent that the cash flows expected to be collected 
exceed the purchase price of the loans acquired and the acquiring 
institution has sufficient information to reasonably estimate the 
amount and timing of these cash flows, the institution recognizes 
interest income using the interest method. Otherwise, the loans should 
be placed in nonaccrual status.
    Because loans accounted for under ASC Subtopic 310-30 are impaired 
at the time of purchase, it is possible for institutions to hold on-
balance sheet assets purchased at a deep discount that are 
contractually 90 days or more past due, but on which interest is being 
accrued because the amount and timing of the expected cash flows on the 
assets can be reasonably estimated. Currently, insufficient information 
is collected in Schedule HC-N to determine the volume of purchased 
credit-impaired loans included in the loan amounts reported as ``past 
due 90 days or more and still accruing'' (or reported in the other past 
due and nonaccrual categories in the schedule). As the volume of assets 
reported in the three past due and nonaccrual columns in Schedule HC-N 
has increased at many institutions that also report holdings of loans 
accounted for under ASC Subtopic 310-30, the Federal Reserve cannot 
determine whether this growth is due to purchased credit-impaired loans 
or whether the source of the increase has been deterioration in the 
credit quality and performance among the assets the institution 
originated (or purchased without evidence of credit problems at 
acquisition). Better understanding the source of these increases would 
assist the Federal Reserve in determining the need to adjust 
supervisory strategies for individual institutions.
    Because of the significant number of acquisitions by depository 
institutions of loans accounted for under ASC 310-30 over the past few 
years and the expected number of future acquisitions, the Federal 
Reserve proposes to collect additional information in Schedule HC-N to 
segregate the amount of purchased credit-impaired loans that are 
included in the past due and nonaccrual loans reported in this 
schedule. New Memorandum items would be added to Schedule HC-N to 
separately collect from all institutions the total outstanding balance 
of purchased credit-impaired loans accounted for under ASC 310-30 that 
are past due 30 through 89 days and still accruing, past due 90 days or 
more and still accruing, and in nonaccrual status. The related carrying 
amount of these loans (before any post-acquisition loan loss 
allowances) would also be reported by past due and nonaccrual status. 
This information would mirror the data

[[Page 71974]]

reported in Memorandum item 5, ``Purchased impaired loans held for 
investment accounted for in accordance with AICPA Statement of Position 
03-3,'' in Schedule HC-C. Based on the information reported in 
Memorandum item 5, there are less than 300 institutions that hold 
purchased credit-impaired loans and would be affected by the proposed 
new Schedule HC-N Memorandum items.
A.4 Representation and Warranty Reserves
    When institutions sell or securitize mortgage loans, they typically 
make certain representations and warranties to the investors or other 
purchasers of the loans at the time of the sale and to financial 
guarantors of the loans sold. The specific representations and 
warranties may relate to the ownership of the loan, the validity of the 
lien securing the loan, and the loan's compliance with specified 
underwriting standards. Under ASC Subtopic 450-20, Contingencies--Loss 
Contingencies (formerly FASB Statement No. 5, ``Accounting for 
Contingencies''), institutions are required to accrue loss 
contingencies relating to the representations and warranties made in 
connection with their mortgage securitization activities and mortgage 
loan sales when it is probable that a loss has been incurred and the 
amount of the loss can be reasonably estimated. In October 2010, the 
Division of Corporation Finance of the Securities and Exchange 
Commission (SEC) sent a letter to certain public companies reminding 
them of the need to ``provide clear and transparent disclosure 
regarding your obligations relating to the[se] various representations 
and warranties.'' \22\ A review of a sample of disclosures about 
mortgage loan representations and warranties by public banking 
organizations in their SEC filings since October 2010 reveals that 
these disclosures tend to distinguish between obligations to U.S. 
government-sponsored entities and other parties.
---------------------------------------------------------------------------

    \22\ The Division of Corporation Finance's ``Sample Letter Sent 
to Public Companies on Accounting and Disclosure Issues Related to 
Potential Risks and Costs Associated with Mortgage and Foreclosure-
Related Activities or Exposures'' can be accessed at http://www.sec.gov/divisions/corpfin/guidance/cfoforeclosure1010.htm.
---------------------------------------------------------------------------

    At present, BHCs with $1 billion or more in total assets and 
smaller BHCs with significant 1-4 family residential mortgage banking 
activities are required to complete Schedule HC-P, 1-4 Family 
Residential Mortgage Banking Activities. These BHCs report the amount 
of 1-4 family residential mortgage loans previously sold subject to an 
obligation to repurchase or indemnify that have been repurchased or 
indemnified during the quarter. However, the amount of representation 
and warranty reserves attributable to residential mortgages as of 
quarter-end included in other liabilities on these institutions' 
balance sheets is not separately reported in Schedule HC-P.
    Accordingly, building on the SEC's guidance concerning transparent 
disclosure in this area, the Federal Reserve proposes to add two data 
items to Schedule HC-P in which institutions required to complete this 
schedule would report the quarter-end amount of representation and 
warranty reserves for 1-4 family residential mortgage loans sold (in 
domestic offices), including those mortgage loans transferred in 
securitizations accounted for as sales. The amount of reserves for 
representations and warranties made to U.S. government-sponsored 
entities (the Federal National Mortgage Association or Fannie Mae, the 
Federal Home Loan Mortgage Corporation or Freddie Mac, and the 
Government National Mortgage Association or Ginnie Mae) (Schedule HC-P, 
data item 7.a) would be reported separately from the amount of reserves 
for representations and warranties made to other parties (Schedule HC-
P, data item 7.b).
A.5 Instructional Revisions
A.5.(1) Specific Valuation Allowances
    Savings associations that currently file a Thrift Financial Report 
(TFR) may create a ``Specific Valuation Allowance'' (SVA) in lieu of 
taking a charge-off to record the loss associated with a loan when the 
institution determines that it is likely that the amount of the loss 
classification will change due to market conditions. The use of an SVA 
allows a savings association to reduce or increase the amount of the 
SVA as market conditions change. When a charge-off is taken, however, 
the only way an institution can recover the loss is through an actual 
cash recovery. A savings association is not permitted to use an SVA in 
lieu of a charge-off when it classifies certain credits as losses such 
as unsecured loans, consumer loans, and credit cards, and in instances 
where the collateral underlying a secured loan will likely be acquired 
through foreclosure or repossession. In those cases, only a charge-off 
is appropriate.
    As announced in 76 FR 53129 published on August 25, 2011, many 
savings and loan holding companies (SLHCs) will be required to file the 
FR Y-9C report, which would consolidate the SLHC savings association 
subsidiary, beginning with the March 31, 2012, reporting period (unless 
the institution elects to begin filing the FR Y-9C before that time). 
Once SLHCs begin to file the FR Y-9C and savings associations begin to 
file the Call Report, they will be required to follow FR Y-9C and Call 
Report reporting instructions and the banking agencies' policies 
regarding loss classifications, which would require a charge-off for 
all confirmed losses and do not allow the creation or use of a SVA as 
described above. Therefore, the use of SVAs will not be permitted for 
any SLHC after December 31, 2011. Existing reporting instructions will 
be modified to clarify this point. Also the Federal Reserve will issue 
additional supplemental guidance to explain how any existing SVAs 
should be treated when an institution no longer files the TFR.
A.5.(2) Capital Contributions in the Form of Cash or Notes Receivable
    The Federal Reserve often encounters or receives questions about 
capital contributions in the form of a note receivable. The capital 
contribution may involve a sale of capital stock or a contribution to 
additional paid-in capital (surplus) that often takes place, or is 
expected to take place, at or shortly before a quarter-end report date. 
In other cases, capital contributions are in the form of cash, with 
some occurring before quarter-end and others occurring after quarter-
end. The regulatory reporting issue that arises with respect to these 
capital contributions is when and under what circumstances can they be 
reflected as an increase in the amount of equity capital reported on 
the balance sheet and thereby be included in regulatory capital.
    Although the accounting for capital contributions is not currently 
addressed in the FR Y-9C reporting instructions, institutions are 
expected to report capital contributions in their FR Y-9C report in 
accordance with generally accepted accounting principles (GAAP). In 
summary, capital contributions in the form of cash are appropriately 
recognized in equity capital on the balance sheet when received. 
Capital contributions in the form of a note receivable, executed prior 
to quarter-end, increase an institution's equity capital at quarter-end 
only when the note is collected prior to issuance of the institution's 
financial statements (including its FR Y-9C) for that quarter. To 
provide guidance to institutions and examiners on the appropriate 
reporting of these capital contributions, the Federal Reserve proposes 
to add a new Glossary entry to the FR Y-9C instructions.

[[Page 71975]]

    Capital Contributions of Cash and Notes Receivable: An institution 
may receive cash or a note receivable as a contribution to its equity 
capital. The transaction may be a sale of capital stock or a 
contribution to paid-in capital (surplus), both of which are referred 
to hereafter as capital contributions. The accounting for capital 
contributions in the form of notes receivable is set forth in ASC 
Subtopic 505-10, Equity--Overall (formerly EITF Issue No. 85-1, 
``Classifying Notes Received for Capital Stock'') and SEC Staff 
Accounting Bulletin No. 107 (Topic 4.E., Receivables from Sale of 
Stock, in the Codification of Staff Accounting Bulletins). This 
Glossary entry does not address other forms of capital contributions, 
for example, nonmonetary contributions to equity capital such as a 
building.
    A capital contribution of cash should be recorded in an 
institution's balance sheet and income statement when received. 
Therefore, a capital contribution of cash prior to a quarter-end report 
date should be reported as an increase in equity capital in the 
institution's reports for that quarter (in Schedule HI-A, item 5 or 6, 
as appropriate). A contribution of cash after quarter-end should not be 
reflected as an increase in the equity capital of an earlier reporting 
period.
    When an institution receives a note receivable, rather than cash, 
as a capital contribution, ASC Subtopic 505-10 states that it is 
generally not appropriate to report the note as an asset. As a 
consequence, the predominant practice is to offset the note and the 
capital contribution in the equity capital section of the balance 
sheet, i.e., the note receivable is reported as a reduction of equity 
capital. In this situation, the capital stock issued or the 
contribution to paid-in capital should be reported in Schedule HC, item 
23, 24, or 25, as appropriate, and the note receivable should be 
reported as a deduction from equity capital in Schedule HC, item 26.c, 
``Other equity capital components.'' No net increase in equity capital 
should be reported in Schedule HI-A, Changes in Bank Holding Company 
Equity Capital. In addition, when a note receivable is offset in the 
equity capital section of the balance sheet, accrued interest 
receivable on the note also should be offset in equity (and reported as 
a deduction from equity capital in Schedule HC, item 26.c), consistent 
with the guidance in ASC Subtopic 505-10. Because a nonreciprocal 
transfer from an owner or another party to an institution does not 
typically result in the recognition of income or expense, the accrual 
of interest on a note receivable that has been reported as a deduction 
from equity capital should be reported as additional paid-in capital 
rather than interest income.
    However, ASC Subtopic 505-10 provides that an institution may 
record a note received as a capital contribution as an asset, rather 
than a reduction of equity capital, only if the note is collected in 
cash ``before the financial statements are issued.'' The note 
receivable must also satisfy the existence criteria described below. 
When these conditions are met, the note receivable should be reported 
separately from an institution's other loans and receivables in 
Schedule HC-F, item 6, ``Other [assets].''
    For purposes of these reports, the financial statements are 
considered issued at the earliest of the following dates:
    (1) The submission deadline for the FR Y-9C (40 calendar days after 
the quarter-end report date, except for year-end reporting, for which 
the deadline is 45 calendar days after quarter-end);
    (2) Any other public financial statement filing deadline to which 
the institution is subject; or
    (3) The actual filing date of the institution's public financial 
reports, including the filing of its FR Y-9C report or a public 
securities filing by the institution.
    To be reported as an asset, rather than a reduction of equity 
capital, as of a quarter-end report date, a note received as a capital 
contribution (that is collected in cash as described above) meet the 
definition of an asset under generally accepted accounting principles 
by satisfying all of the following existence criteria:
    (1) There must be written documentation providing evidence that the 
note was contributed to the institution prior to the quarter-end report 
date by those with authority to make such a capital contribution on 
behalf of the issuer of the note;
    (2) The note must be a legally binding obligation of the issuer to 
fund a fixed and determinable amount by a specified date; and
    (3) The note must be executed and enforceable before quarter-end.
    If a note receivable for a capital contribution obligates the note 
issuer to pay a variable amount, the institution must offset the note 
and equity capital. Similarly, an obligor's issuance of several notes 
having fixed face amounts, taken together, would be considered a single 
note receivable having a variable payment amount, which would require 
all the notes to be offset in equity capital as of the quarter-end 
report date.

    Dated: November 15, 2011.

    Board of Governors of the Federal Reserve System.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-29874 Filed 11-18-11; 8:45 am]
BILLING CODE 6210-01-P