[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Notices]
[Pages 59930-59934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23727]


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FEDERAL RESERVE SYSTEM


Agency Information Collection Activities: Announcement of Board 
Approval Under Delegated Authority and Submission to OMB

AGENCY: Board of Governors of the Federal Reserve System.

SUMMARY: Notice is hereby given of the final approval of proposed 
information collections by the Board of Governors of the Federal 
Reserve System (Board) under OMB delegated authority, as per 5 CFR 
1320.16 (OMB Regulations on Controlling Paperwork Burdens on the 
Public). Board-approved collections of information are incorporated 
into the official OMB inventory of currently approved collections of 
information. Copies of the Paperwork Reduction Act Submission, 
supporting statement and approved collection of information instrument 
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

[[Page 59931]]

on or after October 1, 1995, unless it displays a currently valid OMB 
control number.

FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance 
Officer--Cynthia Ayouch--Office of the Chief Data Officer, 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.
    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.
    Final approval under OMB delegated authority of the implementation 
of the following information collection:
    Report title: Annual Company-Run Stress Test Projections.
    Agency form number: FR Y-16.
    OMB control number: 7100--to be assigned.
    Frequency: Annual.
    Reporters: Bank holding companies (BHCs), savings and loan holding 
companies (SLHCs) \1\ with average total consolidated assets of greater 
than $10 billion but less than $50 billion, and any affiliated or 
unaffiliated state member bank (SMB) with average total consolidated 
assets of more than $10 billion but less than $50 billion excluding SMB 
subsidiaries of covered companies.\2\
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    \1\ SLHCs would not be subject to Dodd-Frank annual company-run 
stress testing requirements until the next calendar year after the 
SLHCs become subject to regulatory capital requirements.
    \2\ ``Covered companies'' are defined as BHCs with at least $50 
billion in total assets and nonbank systemically important financial 
institutions, subject to annual supervisory stress tests and semi-
annual company-run stress tests; ``other financial companies'' are 
defined as BHCs with total consolidated assets over $10 billion but 
less than $50 billion, SLHCs with assets over $10 billion, and 
state-member banks with assets over $10 billion, subject to annual 
company-run stress tests.
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    Estimated annual reporting hours: 223,200 hours, one-time 
implementation; 28,768 hours, ongoing.
    Estimated average hours per response: 3,600 hours, one-time 
implementation; 464 hours, ongoing.
    Number of respondents \3\: BHCs, 43; SLHCs, 8; and SMBs, 11.
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    \3\ Correction to the number of respondents noted in the initial 
Federal Register notice: BHCs, 44; SLHCs, 8; and SMBs, 10.
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    General description of report: This information collection is 
authorized pursuant Section 165(i)(2) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) that specifically 
authorizes the Board to issue regulations implementing the annual 
stress testing requirements for its supervised institutions. 12 U.S.C. 
5365(i)(2)(C). More generally, with respect to BHCs, Section 5(c) of 
the Bank Holding Company Act, 12 U.S.C. 1844(c), authorizes the Board 
to require a BHC and any subsidiary ``to keep the Board informed as 
to--(i) its financial condition, [and] systems for monitoring and 
controlling financial and operating risks. . . .'' Section 9(6) of the 
Federal Reserve Act, 12 U.S.C. 324, requires SMBs to make reports of 
condition to their supervising Reserve Bank in such form and containing 
such information as the Board may require. Finally, with respect to 
SLHCs, under Section 312 of the Dodd-Frank Act, 12 U.S.C. 5412, the 
Board succeeded to all powers and authorities of the OTS and its 
Director, including the authority to require SLHCs to ``file . . . such 
reports as may be required . . . in such form and for such periods as 
the [agency] may prescribe.'' 12 U.S.C. 1467a(b)(2).
    Obligation to Respond is Mandatory: Section 165(i)(2)(A) provides 
that ``financial companies that have total consolidated assets [meeting 
the asset thresholds] . . . and are regulated by a primary Federal 
financial regulatory agency shall conduct annual stress tests.'' 
Section 165(i)(2)(B) provides that a company required to conduct annual 
stress tests ``shall submit a report to the Board of Governors and to 
its primary financial regulatory agency at such time, in such form, and 
containing such information as the primary financial regulatory agency 
shall require.'' 12 U.S.C. Sec.  5365(i)(2)(B).
    Confidentiality: As noted under Section 165(i)(2)(C)(iv), companies 
conducting annual stress tests under these provisions are ``require[d] 
. . . to publish a summary of the results of the required stress 
tests.'' 12 U.S.C. 5365(i)(2)(C)(iv). Regarding the information 
collected by the Board, however, as such information will be collected 
as part of the Board's supervisory process, it may be accorded 
confidential treatment under Exemption 8 of the Freedom of Information 
Act (FOIA), 5 U.S.C. 552(b)(8). This information also is the type of 
confidential commercial and financial information that may be withheld 
under Exemption 4 of FOIA, 5 U.S.C. 552(b)(4). As required information, 
it may be withheld under Exemption 4 only if public disclosure could 
result in substantial competitive harm to the submitting institution, 
under National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. 
Cir. 1974).
    Abstract: In October 2012, the Federal Reserve Board approved two 
final rules for capital stress testing requirements pursuant to the 
Dodd-Frank Act. The final rules implemented the Dodd-Frank Act Stress 
Testing (DFAST) requirements, one for ``covered companies'' and one for 
``other financial companies.'' The Federal Deposit Insurance 
Corporation (FDIC) \4\ and the Office of the Comptroller of the 
Currency (OCC) \5\ also issued final rules for DFAST in October 2012 
that are nearly identical to the requirements for ``other financial 
companies'' issued by the Federal Reserve Board.
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    \4\ October 15, 2012 (77 FR 62417).
    \5\ October 9, 2012 (77 FR 61238).
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    Current Actions: On March 15, 2013, Federal Reserve published a 
notice in the Federal Register (78 FR 16502) requesting public comment 
for 60 days on the implementation of the FR Y-16. The comment period 
expired on May 14, 2013. The Federal Reserve received four comment 
letters addressing the proposed implementation of this information 
collection. The comments are summarized and addressed below.

Summary of Public Comments

    The Federal Reserve received four comment letters on the proposed 
implementation of the FR Y-16: two from financial holding companies, 
one from a trade organization, and one from a modeling service 
provider. Some general comments were received regarding the report 
format, instructions, and the timing of implementation. In addition, 
the commenters focused on specific data items proposed for collection 
on the results schedules. In some cases, commenters compared the level 
of detail required in the proposed FR Y-16 to the requirements of the 
Capital Assessments and Stress Testing information collection (FR Y-
14A/Q/M; OMB No. 7100-0341) applicable to BHCs with $50 billion or more 
in total assets.\6\ Lastly, one commenter asked for clarification 
regarding whether to incorporate changes from the Federal Reserve's 
revised approach to risk-based and leverage capital requirements for 
banking organizations (Revised Approach) into their capital projections 
under the supervisory scenarios.\7\
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    \6\ The FR Y-16 reporting requirements are tailored to the $10-
$50 billion companies and require significantly less granular 
reporting segmentation relative to the FR Y-14A Summary Schedule 
that companies with greater than $50 billion in assets use to report 
the results of their company-run stress tests.
    \7\ http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.
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    As noted in the initial Federal Register notice, the Federal 
Reserve, the OCC, and the FDIC (the agencies) each developed and 
requested public

[[Page 59932]]

comment on nearly identical reporting forms \8\ to implement the 
mandatory Dodd-Frank reporting requirements for the $10-$50 billion 
companies. Accordingly, the Federal Reserve has continued to work 
closely with these agencies in considering all public comments 
received. The following is a detailed discussion of the comments 
received.
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    \8\ There are no material differences among the agencies' 
proposed reporting forms.
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Detailed Discussion of Public Comments

A. General Comments

    In order to ensure data consistency, the Federal Reserve proposed 
to define or map the FR Y-16 reporting requirements to the mandatory 
Consolidated Financial Statements for Holding Companies (FR Y-9C; OMB 
No. 7100-0128) and the Consolidated Report of Condition and Income 
(Call Report) (FFIEC 031/041; OMB No. 7100-0036) line items and 
organize the data in a similar (but not identical) fashion to the FR Y-
9C or Call Report, wherever possible. Other reporting conventions, such 
as technical reporting instructions, were also designed to be 
consistent with the FR Y-9C or Call Report.
    Two commenters indicated that many firms do not currently conduct 
stress test exercises using the FR Y-9C or Call Report segmentation of 
data and format. These commenters asserted that it would be a 
significant challenge to map their current internal stress testing 
processes to the FR Y-9C or Call Report format. Accordingly, these 
commenters requested the Federal Reserve and the other agencies 
consider further delaying implementation of their respective reporting 
requirements and limiting the data submission requirements to only the 
12 line items requested for each scenario in the proposed FR Y-16 
summary schedule. Another commenter supported the FR Y-9C or Call 
Report segmentation, asserting that using the proposed FR Y-16 
segmentation and reporting format is consistent with its internal 
approach to modeling.
    The Federal Reserve believes that the proposed reporting forms and 
timeframe would not place undue burden on institutions. Notably, 
implementation of the stress test requirements has already been delayed 
for the vast majority of $10-$50 billion companies.\9\ Furthermore, the 
FR Y-16 report will follow the precedent established by the FR Y-14 
with respect to utilizing the FR Y-9C reporting as the basis for data 
segmentation requirements.
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    \9\ October 12, 2012 (77 FR 62396)-(12 CFR 252.153, 252.157).
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    The consistent application of data definitions is an overarching FR 
Y-16 requirement in order to ensure that the Federal Reserve, the other 
agencies, FR Y-16 report filers, and the public would be able to 
interpret and understand the data sources and results, particularly 
when mandatory company disclosure of the summary results under the 
severely adverse scenario becomes effective in 2015. The existing FR Y-
9C and Call Report formats provide a format that is well-understood and 
utilized by Federal Reserve and the industry. Using the FR Y-9C and 
Call Report reporting format would also ensure a high level of 
consistency for the data provided and would facilitate the assessment 
of the results.
    The Federal Reserve will utilize the proposed FR Y-16 reporting 
segmentation of data based broadly on the FR Y-9C and Call Report data 
segmentations and definitions as presented in the proposed reporting 
form and instructions. Further, in order to ensure consistency between 
the proposed FR Y-16 instructions and the instructions for the FR Y-9C 
and Call Report, the Federal Reserve has revised the presentation 
format of the proposed FR Y-16 to provide line-by-line instructions 
consistent with the FR Y-9C and Call Report, wherever practical.
    In addition, one commenter suggested the application of 
generalized, bank-developed loss assumptions for immaterial portfolios. 
The commenter noted that an immaterial portfolio exception is allowed 
for firms with greater than $50 billion in assets for the FR Y-14 
submissions and that this exception would reduce burden on $10-$50 
billion companies. While the FR Y-14 Q/M for BHCs with $50 billion or 
more in total assets allow for optional reporting of immaterial data 
for certain schedules, these data are input data used by the Federal 
Reserve to conduct supervisory stress tests. No materiality reporting 
thresholds have been defined for the output data for company-run stress 
tests for these larger companies.\10\ The Federal Reserve considered 
the burden on institutions for internally calculating losses for 
immaterial portfolios for the $10-$50 billion companies and determined 
that providing a safe harbor that defines immaterial portfolios, where 
no or little consideration of the risk of these portfolios is 
undertaken, would be contrary to the purpose of a company-run stress 
test and could unintentionally mask or cause institutions to 
erroneously conclude that the aggregation of immaterial portfolios 
would always pose little or no risk to an institution. Although stress 
testing should be applied to all exposures, the same level of rigor and 
analysis may not be necessary for lower-risk, immaterial 
portfolios.\11\ For such portfolios, it may be appropriate for a 
company to use a less sophisticated approach for its stress test 
projections, assuming the results of that approach are conservative and 
well-documented. Accordingly, the Federal Reserve notes that immaterial 
portfolios should not be subject to an exemption from the FR Y-16. The 
proposed interagency supervisory guidance on implementing Dodd-Frank 
Act company-run stress tests for the $10-$50 billion companies offers 
suggestions on appropriate methodologies for estimating losses and 
revenues associated with immaterial portfolios.\12\


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    \10\ If a BHC does not complete the schedules for immaterial 
portfolios for the FR Y-14 Q/M collection of data to run supervisory 
stress tests, the Federal Reserve assigns losses to the immaterial 
portfolios in a manner consistent with the given scenario to produce 
supervisory estimates.
    \11\ Immaterial portfolios are defined as those that would not 
present a consequential effect on capital adequacy under any of the 
scenarios provided.
    \12\ http://www.federalreserve.gov/newsevents/press/bcreg/20130730a.htm.
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B. Data Items--Results Schedule

Balance Sheet
    One commenter requested reporting common stock, retained earnings, 
surplus, and other equity components as a single line item. The 
commenter asserted that separately reporting these four elements of 
capital would add no value for the purposes of understanding projected 
regulatory capital or tangible common equity. The Federal Reserve will 
combine the aforementioned capital components into one line item to be 
reported as ``equity capital.''
    Two commenters stated that separating 1-4 family construction loans 
from all other construction loans would require more detailed reporting 
for the FR Y-16 than what is required for the larger firms that report 
using the FR Y-14A. Segmentation of data is particularly relevant to 
these smaller organizations since they have material concentrations in 
this product type and a significant amount of the industry's losses 
during the most recent economic downturn emanated from this product. 
These data would provide necessary information for the institutions to 
effectively manage risk and appropriately assess and plan for their 
capital needs. Therefore, this reporting requirement is being 
implemented as proposed.

[[Page 59933]]

    One commenter stated that gathering available-for-sale (AFS) and 
held-to-maturity (HTM) balances for U.S. government obligations and 
obligations of government sponsored entities (GSE) would require more 
detailed reporting for the FR Y-16 than what is required for the FR Y-
14A. Another commenter suggested separating GSE obligations from other 
government obligations on the FR Y-16 balance sheet consistent with the 
treatment on the FR Y-9C and Call Report income statement.
    While the FR Y-14A collects only total AFS and HTM balances on the 
balance sheet schedule, the FR Y-14 reporting series requires more 
granular data than proposed for the FR Y-16 on government securities 
and GSE exposures through other schedules within the report. In 
addition, the reporting requirements for the FR Y-9C and Call Report 
balance sheet require more detailed information on AFS and HTM GSE 
obligations relative to the reporting requirements for the FR Y-16. 
Further, the FR Y-14A also collects other than temporary impairment 
(OTTI) at the Committee on Uniform Security Identification Procedures 
level for GSE obligations that have associated OTTI losses, resulting 
in significantly more granular reporting requirements in these 
instances relative to the proposed FR Y-16 reporting requirements. 
Accordingly, the Federal Reserve will implement as proposed the 
reporting requirements related to AFS and HTM securities and for U.S. 
government obligations and obligations of GSEs. This approach will 
facilitate projections of net income and regulatory capital over the 
planning horizon.
    Several commenters stated that the level of detail required by the 
balance sheet memoranda items were not informative or necessary to the 
loss estimation process, or entailed more detail than what was required 
by the FR Y-14A. Specific memoranda items that were cited by commenters 
included troubled debt restructurings and loans secured by 1-4 family 
residential properties in foreclosure. Based on this comment, the 
Federal Reserve also evaluated the utility of another balance sheet 
memoranda item: loans and leases guaranteed by either U.S. government 
or GSE guarantees (i.e., non-FDIC loss sharing agreements). The Federal 
Reserve agrees that these memoranda data items are already captured 
within the FR Y-16 reporting requirements for loans and leases and that 
eliminating these items from the reporting template would not affect an 
institution's ability to project pre-provision net revenue, net income, 
or regulatory capital in order to assess their capital needs under 
stressed conditions. Accordingly, the Federal Reserve will eliminate 
these three proposed supplemental balance sheet memoranda reporting 
items.
    One commenter requested combining retail and wholesale funding into 
one line item for total funding, suggesting that separating these types 
of deposits from one another would involve a disproportional amount of 
work and would affect other company-run models, thereby adding 
unnecessary complexity and burden.
    The breakdown of deposits between retail and wholesale is 
facilitated through the subsidiary bank Call Report data and the 
proposed FR Y-16 instructions indicate that institutions should use the 
Call Report segmentation definitions to project these line items. In 
addition, retail and wholesale funding have historically reacted 
differently under stressed economic conditions and projecting the 
retail and wholesale deposit structure throughout the planning horizon 
as proposed would provide useful information to the institutions and 
the Federal Reserve with respect to how an institution internally 
assesses capital adequacy, plans for their capital needs, and manages 
risk. Therefore, the Federal Reserve will implement this reporting 
requirement as proposed.
    The same commenter noted that separately modeling average rates for 
each type of deposit would also involve a significant amount of work 
and potentially affect other company-run models. The commenter's 
observation highlighted a departure in the FR Y-16 from the reporting 
format and data segmentation used in the FR Y-9C and Call Report. The 
Federal Reserve agrees that gathering data at a level of granularity in 
order to calculate and project average rates under the three scenarios 
for various asset and liability items (e.g., total loans, securities, 
retail funding, wholesale funding, interest bearing deposits, trading 
liabilities, and other liabilities) could involve a significant amount 
of effort and could potentially affect other models that firms utilize. 
Furthermore, the average rate information is not a necessary data input 
to project losses, pre-provision net revenue, or capital. The 
additional burden placed on institutions to calculate the projected 
average rates could unnecessarily distract institutions from the 
primary goal of the annual company-run stress test--to effectively 
estimate the possible impact of an economic downturn on a firm's 
capital position in order to plan for capital needs and identify and 
manage risk. Therefore, the Federal Reserve will remove all proposed 
average rate memoranda items from the balance sheet schedule of the FR 
Y-16.
Income Statement
    Two commenters requested eliminating the income statement memoranda 
item for net gains (losses) on sales of other real estate owned (OREO). 
One commenter noted that this element could effectively be combined 
with forecasting of other OREO expenses. The other commenter stated 
that the level of detail for this element is more granular than what is 
required for the FR Y-14A report. Gains or losses on OREO are captured 
in the pre-provision net revenue metrics worksheet of the FR Y-14A 
schedule; therefore, this requirement would not be more burdensome for 
the $10-$50 billion companies. Nevertheless, the Federal Reserve 
acknowledges that gains and losses on OREO would already be captured 
within the noninterest income statement memoranda item ``itemize and 
describe amounts greater than 15% of noninterest income'' or in 
``itemize and describe amounts greater than 15% of noninterest 
expense'' when the amount meets the 15% threshold required by the 
proposed FR Y-16. Therefore, the Federal Reserve will remove the 
proposed line item segmentation for ``Net gains (losses) on sales of 
other real estate owned'' memoranda item on the income statement as 
this data item would be appropriately captured under another line item 
when the gain or loss amount exceeds 15% of other income or expense.

C. Regulatory Capital

    One commenter asked for clarification regarding the calculation and 
reporting of regulatory capital and risk-weighted assets (RWAs), noting 
the expectation that capital and RWA calculations and definitions would 
change over the planning horizon as new rules are implemented 
(specifically noting new definitions when the Federal Reserve's Revised 
Approach is adopted). In addition, this commenter also requested 
clarification on the calculation of tier 1 non-common capital elements 
in the proposed reporting form.
    Tier 1 common equity is not defined by regulation or rule for 
institutions with total assets of less than $50 billion. Generally, a 
$10-50 billion company should measure its regulatory capital levels and 
regulatory capital ratios for each quarter in accordance with the rules 
that would be in effect during that quarter. With the Revised Approach, 
companies subject to the Federal Reserve's rules implementing Dodd-
Frank Act stress tests would need to

[[Page 59934]]

measure their regulatory capital levels and regulatory capital ratios 
for each quarter in accordance with the transition arrangements in the 
Revised Approach.\13\ Thus, incorporating the Revised Approach into the 
2014 stress test cycle would require $10-$50 billion companies to 
transition estimated capital levels and ratios to the definitions from 
the Revised Approach in their projection of the last four quarters of 
the planning horizon.
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    \13\ http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.
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    Requiring $10-$50 billion companies to transition to the Revised 
Approach during the planning horizon for the 2014 test and model 
alternative capital calculations in the middle of the planning horizon 
would add operational and regulatory complexity and increase the 
potential or likelihood of erroneous calculations or assumptions. This 
complexity and increased risk of error could distract a $10-$50 billion 
company from focusing on conducting company-run stress tests that 
capture salient risks to the company and provide a meaningful forward-
looking assessment for the purposes of assessing the company's capital 
adequacy under various scenarios. Finally, as the $10-$50 billion 
companies are not required to publicly disclose the results of the 
stress tests conducted in the 2014 stress test cycle, the additional 
burden of implementing the Revised Approach in the 2014 stress test 
cycle will not provide the public with insight into a firm's capital 
adequacy under hypothetical stressful circumstances.
    For these reasons, the Federal Reserve has, in an interim final 
rule, provided $10-$50 billion companies with a one-year delay in 
incorporating the Revised Approach into their Dodd-Frank Act company-
run stress tests. Specifically, $10-$50 billion companies are not 
required to incorporate the changes from the Revised Approach into 
their company-run stress test conducted in the stress test cycle that 
begins on October 1, 2013. Instead, $10-50 billion companies, as 
described under the interim final rule, will be required to estimate 
their pro forma capital levels and ratios over the planning horizon 
using the capital rules in place as of the beginning of the 2014 stress 
testing cycle on October 1, 2013.
    There are three line items in the proposed FR Y-16 report that 
would be specifically affected by the Revised Approach: tier 1 common 
equity capital, non-common capital elements, and RWAs. Consistent with 
the requirements of the proposed interim final rule, the Federal 
Reserve will remove the tier 1 common and non-common capital line 
items, and the associated equity ratios, from the Results Schedule for 
the initial respondent panel that would be submitting a report for the 
2014 stress test cycle. The Federal Reserve will provide information 
regarding the capital and RWA calculations in the final instructions.

D. Technical Changes/Other Items

    In response to a few technical (non-substantive) comments received, 
some additional minor changes will be made in the final reporting form 
and instructions. These changes include clarified reporting 
instructions for income statement memoranda items; new detailed 
technical reporting instructions and the elimination of the contact 
information schedule as this information will be collected through the 
Results Schedule cover sheet and the Federal Reserve data collection 
application.

    Board of Governors of the Federal Reserve System, September 24, 
2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-23727 Filed 9-27-13; 8:45 am]
BILLING CODE 6210-01-P