[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18230-18240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06753]


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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: The Board of Governors of the Federal Reserve System (Board) 
is adopting a proposal to extend for three years, with revision, the 
Financial Statements for Holding Companies (FR Y-9 reports; OMB No. 
7100-0128). The revisions are applicable as of March 31, 2020, June 30, 
2020, and March 31, 2021.

FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance 
Officer--Nuha Elmaghrabi--Office of the Chief Data Officer, Board of 
Governors of the Federal Reserve System, Washington, DC 20551, (202) 
452-3829. Office of Management and Budget (OMB) Desk Officer--Alex 
Goodenough--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. A 
copy of the Paperwork Reduction Act (PRA) OMB submission, including the 
reporting form and instructions, supporting statement, and other 
documentation will be placed into OMB's public docket files. These 
documents also are available on the Federal Reserve Board's public 
website at https://www.federalreserve.gov/apps/reportforms/review.aspx 
or may be requested from the agency clearance officer, whose name 
appears above.

SUPPLEMENTARY INFORMATION: On June 15, 1984, OMB delegated to the Board 
authority under the PRA to approve and assign OMB control numbers to 
collections of information conducted or sponsored by the Board. Board-
approved collections of information are incorporated into the official 
OMB inventory of currently approved collections of information. Copies 
of the PRA Submission, supporting statements, and approved collection 
of information instrument(s) are placed into OMB's public docket files.

Final Approval Under OMB Delegated Authority of the Extension for Three 
Years, With Revision of the Following Information Collection

    Report Title: Financial Statements for Holding Companies.
    Agency form number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR 
Y-9CS.
    OMB control number: 7100-0128.
    Effective Date: March 31, 2020, June 30, 2020, March 31, 2021.
    Frequency: Quarterly, semiannually, and annually.
    Respondents: Bank holding companies, savings and loan holding 
companies,\1\ securities holding companies, and U.S. intermediate 
holding companies (collectively, HCs).
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    \1\ An SLHC must file one or more of the FR Y-9 series of 
reports unless it is: (1) A grandfathered unitary SLHC with 
primarily commercial assets and thrifts that make up less than 5 
percent of its consolidated assets; or (2) a SLHC that primarily 
holds insurance-related assets and does not otherwise submit 
financial reports with the SEC pursuant to section 13 or 15(d) of 
the Securities Exchange Act of 1934.
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    Estimated number of respondents: FR Y-9C (non-advanced approaches 
HCs CBLR) with less than $5 billion in total assets): 71; FR Y-9C (non-
advanced approaches HCs CBLR) with $5 billion or more in total assets): 
35; FR Y-9C (non-advanced approaches HCs non-CBLR) with less than $5 
billion in total assets): 84; FR Y-9C (non-advanced approaches HCs non-
CBLR) with $5 billion or more in total assets): 154; FR Y-9C (advanced 
approaches HCs): 19; FR Y-9LP: 434; FR Y-9SP: 3,960; FR Y-9ES: 83; FR 
Y-9CS: 236.
    Estimated average hours per response:

Reporting

    FR Y-9C (non-advanced approaches HCs CBLR) with less than $5 
billion in total assets): 29.14 hours; FR Y-9C (non-advanced approaches 
HCs CBLR) with $5 billion or more in total assets): 35.11 hours; FR Y-
9C (non-advanced approaches HCs non-CBLR) with less than $5 billion in 
total assets): 40.98 hours; FR Y-9C (non-advanced approaches HCs non-
CBLR) with $5 billion or more in total assets): 46.95 hours; FR Y-9C 
(advanced approaches HCs): 48.59 hours; FR Y-9LP: 5.27 hours; FR Y-9SP: 
5.40 hours; FR Y-9ES: 0.50 hours; FR Y-9CS: 0.50 hours.

Recordkeeping

    FR Y-9C (non-advanced approaches HCs with less than $5 billion in 
total assets), FR Y-9C (non-advanced approaches HCs with $5 billion or 
more in total assets), FR Y-9C (advanced approaches HCs), and FR Y-9LP: 
1.00 hour; FR Y-9SP, FR Y-9ES, and FR Y-9CS: 0.50 hours.

[[Page 18231]]

    Estimated annual burden hours:

Reporting

    FR Y-9C (non-advanced approaches HCs CBLR) with less than $5 
billion in total assets): 8,276 hours; FR Y-9C (non-advanced approaches 
HCs CBLR) with $5 billion or more in total assets): 4,915 hours; (non-
advanced approaches HCs non-CBLR) with less than $5 billion in total 
assets): 13,769 hours; FR Y-9C (non-advanced approaches HCs non-CBLR) 
with $5 billion or more in total assets): 28,921 hours; FR Y-9C 
(advanced approaches HCs): 3,693 hours; FR Y-9LP: 9,149 hours; FR Y-
9SP: 42,768 hours; FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.

Recordkeeping

    FR Y-9C: 1,452 hours; FR Y-9LP: 1,736 hours; FR Y-9SP: 3,960 hours; 
FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.
    General description of report:
    The FR Y-9C consists of standardized financial statements similar 
to the Call Reports filed by commercial banks.\2\ The FR Y-9C collects 
consolidated data from HCs and is filed quarterly by top-tier HCs with 
total consolidated assets of $3 billion or more.\3\
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    \2\ The Call Reports consist of the Consolidated Reports of 
Condition and Income for a Bank with Domestic Offices Only and Total 
Assets Less Than $5 Billion (FFIEC 051), the Consolidated Reports of 
Condition and Income for a Bank with Domestic Offices Only (FFIEC 
041) and the Consolidated Reports of Condition and Income for a Bank 
with Domestic and Foreign Offices (FFIEC 031).
    \3\ Under certain circumstances described in the FR Y-9C's 
General Instructions, HCs with assets under $3 billion may be 
required to file the FR Y-9C.
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    The FR Y-9LP, which collects parent company only financial data, 
must be submitted by each HC that files the FR Y-9C, as well as by each 
of its subsidiary HCs.\4\ The report consists of standardized financial 
statements.
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    \4\ A top-tier HC may submit a separate FR Y-9LP on behalf of 
each of its lower-tier HCs.
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    The FR Y-9SP is a parent company only financial statement filed 
semiannually by HCs with total consolidated assets of less than $3 
billion. In a banking organization with total consolidated assets of 
less than $3 billion that has tiered HCs, each HC in the organization 
must submit, or have the top-tier HC submit on its behalf, a separate 
FR Y-9SP. This report is designed to obtain basic balance sheet and 
income data for the parent company, and data on its intangible assets 
and intercompany transactions.
    The FR Y-9ES is filed annually by each employee stock ownership 
plan (ESOP) that is also an HC. The report collects financial data on 
the ESOP's benefit plan activities. The FR Y-9ES consists of four 
schedules: A Statement of Changes in Net Assets Available for Benefits, 
a Statement of Net Assets Available for Benefits, Memoranda, and Notes 
to the Financial Statements.
    The FR Y-9CS is a free-form supplemental report that the Board may 
utilize to collect critical additional data deemed to be needed in an 
expedited manner from HCs. The data are used to assess and monitor 
emerging issues related to HCs, and the report is intended to 
supplement the other FR Y-9 reports. The data items included on the FR 
Y-9CS may change as needed.
    Legal authorization and confidentiality: The Board has the 
authority to impose the reporting and recordkeeping requirements 
associated with the Y-9 family of reports on bank holding companies 
(``BHCs'') pursuant to section 5 of the Bank Holding Company Act (``BHC 
Act''), (12 U.S.C. 1844); on savings and loan holding companies 
pursuant to section 10(b)(2) and (3) of the Home Owners' Loan Act, (12 
U.S.C. 1467a(b)(2) and (3)), as amended by sections 369(8) and 
604(h)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (``Dodd-Frank Act''); on U.S. intermediate holding companies 
(``U.S. IHCs'') pursuant to section 5 of the BHC Act, (12 U.S.C. 1844), 
as well as pursuant to sections 102(a)(1) and 165 of the Dodd-Frank 
Act, (12 U.S.C. 511(a)(1) and 5365); \5\ and on securities holding 
companies pursuant to section 618 of the Dodd-Frank Act, (12 U.S.C. 
1850a(c)(1)(A)). The obligation to submit the FR Y-9 series of reports, 
and the recordkeeping requirements set forth in the respective 
instructions to each report, are mandatory.
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    \5\ Section 165(b)(2) of Title I of the Dodd-Frank Act, (12 
U.S.C. 5365(b)(2)), refers to ``foreign-based bank holding 
company.'' Section 102(a)(1) of the Dodd-Frank Act, (12 U.S.C. 
5311(a)(1)), defines ``bank holding company'' for purposes of Title 
I of the Dodd-Frank Act to include foreign banking organizations 
that are treated as bank holding companies under section 8(a) of the 
International Banking Act, (12 U.S.C. 3106(a)). The Board has 
required, pursuant to section 165(b)(1)(B)(iv) of the Dodd-Frank 
Act, (12 U.S.C. 5365(b)(1)(B)(iv)), certain foreign banking 
organizations subject to section 165 of the Dodd-Frank Act to form 
U.S. intermediate holding companies. Accordingly, the parent 
foreign-based organization of a U.S. IHC is treated as a BHC for 
purposes of the BHC Act and section 165 of the Dodd-Frank Act. 
Because Section 5(c) of the BHC Act authorizes the Board to require 
reports from subsidiaries of BHCs, section 5(c) provides additional 
authority to require U.S. IHCs to report the information contained 
in the FR Y-9 series of reports.
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    With respect to the FR Y-9C report, Schedule HI's item 7(g) ``FDIC 
deposit insurance assessments,'' Schedule HC-P's item 7(a) 
``Representation and warranty reserves for 1-4 family residential 
mortgage loans sold to U.S. government agencies and government 
sponsored agencies,'' and Schedule HC-P's item 7(b) ``Representation 
and warranty reserves for 1-4 family residential mortgage loans sold to 
other parties'' are considered confidential commercial and financial 
information. Such treatment is appropriate under exemption 4 of the 
Freedom of Information Act (``FOIA''), (5 U.S.C. 552(b)(4)), because 
these data items reflect commercial and financial information that is 
both customarily and actually treated as private by the submitter, and 
which the Board has previously assured submitters will be treated as 
confidential. It also appears that disclosing these data items may 
reveal confidential examination and supervisory information, and in 
such instances, this information would also be withheld pursuant to 
exemption 8 of the FOIA, (5 U.S.C. 552(b)(8)), which protects 
information related to the supervision or examination of a regulated 
financial institution.
    In addition, for both the FR Y-9C report and the FR Y-9SP report, 
Schedule HC's memorandum item 2.b., the name and email address of the 
external auditing firm's engagement partner, is considered confidential 
commercial information and protected by exemption 4 of the FOIA, (5 
U.S.C. 552(b)(4)), if the identity of the engagement partner is treated 
as private information by HCs.
    Aside from the data items described above, the remaining data items 
on the FR Y-9C report and the FR Y-9SP report are generally not 
accorded confidential treatment. The data items collected on FR Y-9LP, 
FR Y-9ES, and FR Y-9CS \6\ reports, are also generally not accorded 
confidential treatment. As provided in the Board's Rules Regarding 
Availability of Information (12 CFR part 261), however, a respondent 
may request confidential treatment for any data items the respondent 
believes should be withheld pursuant to a FOIA exemption. The Board 
will review any such request to determine if confidential treatment is 
appropriate, and will inform the respondent if the request for 
confidential treatment has been denied.
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    \6\ The FR Y-9CS is a supplemental report that may be utilized 
by the Board to collect additional information that is needed in an 
expedited manner from HCs. The information collected on this 
supplemental report is subject to change as needed. Generally, the 
FR Y-9CS report is treated as public. However, where appropriate, 
data items on the FR Y-9CS report may be withheld under exemptions 4 
and/or 8 of the Freedom of Information Act, (5 U.S.C. 552(b)(4) and 
(8)).
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    To the extent that the instructions, to the FR Y-9C, FR Y-9LP, FR 
Y-9SP, and FR Y-9ES reports, each respectively direct a financial 
institution to retain the workpapers and related materials

[[Page 18232]]

used in preparation of each report, such material would only be 
obtained by the Board as part of the examination or supervision of the 
financial institution. Accordingly, such information may be considered 
confidential pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)). 
In addition, the financial institution's workpapers and related 
materials may also be protected by exemption 4 of the FOIA, to the 
extent such financial information is treated as confidential by the 
respondent (5 U.S.C. 552(b)(4)).

Current Actions

Overview

    On December 27, 2019, the Board published an initial notice in the 
Federal Register (84 FR 71414) requesting public comment for 60 days on 
the extension for three years, with revision, of the FR Y-9 reports. 
The comment period for this notice expired on February 25, 2020. The 
Board proposed revisions to the FR Y-9 reports that would have 
implemented, for regulatory reporting purposes, various recent changes 
to the Board's regulatory capital rule.\7\ The changes to the Board's 
regulatory capital rule included in the December 2019 notice related to 
the capital simplifications rule, the community bank leverage ratio 
(CBLR) rule, the standardized approach for counterparty credit risk 
(SA-CCR) on derivative contracts, and the high volatility commercial 
real estate (HVCRE) land development rule, all discussed further below.
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    \7\ 12 CFR part 217.
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    The Board also proposed, in the December 2019 notice, instructional 
revisions for the reporting of operating lease liabilities and home 
equity lines of credit (HELOCs) that convert from revolving to non-
revolving status.
    The Board received one comment, from a bankers' association, on the 
proposed extension, with revision, of the FR Y-9 reports.
    In connection with the December 2019 notice, the Board also 
considered comments submitted regarding a proposal to make similar 
revisions to the Call Reports \8\ in order to promote consistency 
between the Call Reports and the FR Y-9 reports. The Board, Federal 
Deposit Insurance Corporation (FDIC), and Office of the Comptroller of 
the Currency (OCC) (the agencies) received comments on the proposed 
Call Report changes from four entities: Three bankers' associations and 
one savings association. These comments are addressed in the following 
sections of this notice.
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    \8\ 85 FR 4780 (January 27, 2020)
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    After considering the comments received on the December 2019 
notice, as well as the comments on the recent proposed changes to the 
Call Report, the Board is adopting the reporting changes proposed in 
the December 2019 notice with modifications discussed in the following 
sections of this notice.
    The Board has adopted final rules for all of the regulatory capital 
rulemakings addressed in the December 2019 notice. The capital-related 
reporting changes discussed in the December 2019 notice will be 
effective in the same quarters as the effective dates of the various 
final capital rules.

Proposed Revisions to the FR Y-9C

Simplifications Rule

    The Board proposed to revise the FR Y-9C to implement the Board's 
final rule to simplify certain aspects of the capital rule 
(simplifications rule), which made a number of changes to the 
calculation of common equity tier 1 (CET1) capital, additional tier 1 
capital, and tier 2 capital for non-advanced approaches holding 
companies that do not apply to advanced approaches 
institutions.9 10 The simplifications rule results in 
different calculations for these tiers of regulatory capital for non-
advanced approaches holding companies and advanced approaches HCs. To 
reflect the effects of the simplifications rule for non-advanced 
approaches HCs, the Board proposed to adjust the existing regulatory 
capital calculations reported on Schedule HC-R, Part I. Although the 
proposed report would have included two sets of calculations (for non-
advanced approaches HCs and advanced approaches HCs), a HC would have 
been required to complete only the set applicable to that holding 
company.
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    \9\ 84 FR 35234 (July 22, 2019).
    \10\ In general, an advanced approaches HC, as defined in the 
Board's Regulation Q, has consolidated total assets of $250 billion 
or more, has consolidated total on-balance sheet foreign exposure of 
$10 billion or more, has a subsidiary depository institution that 
uses the advanced approaches to calculate its total risk-weighted 
assets, or elects to use the advanced approaches to calculate its 
total risk-weighted assets. See 12 CFR 217.100.
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    The simplifications rule provides for certain amendments to the 
capital rule, associated with the proposed reporting revisions to the 
FR Y-9C, with an effective date of April 1, 2020. On October 29, 2019, 
the Board issued a final rule that permits non-advanced approaches 
banking organizations to implement the simplifications rule on January 
1, 2020.\11\ As a result, non-advanced approaches HCs have the option 
to implement the simplifications rule on the revised effective date of 
January 1, 2020, or wait until the quarter beginning April 1, 2020. The 
Board proposed revisions to Schedule HC-R, Regulatory Capital, to 
implement the associated changes to the capital rule effective as of 
the March 31, 2020, report date, consistent with the simplifications 
rule's optional effective date.
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    \11\ 84 FR 61804 (November 13, 2019).
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    The Board proposed a number of revisions that would have simplified 
the capital calculations on Schedule HC-R, Part I and Part II, and 
thereby reduced burden. As previously mentioned, the proposed FR Y-9C 
would have included two sets of calculations (one that incorporates the 
effects of the simplifications rule and another that does not); 
therefore, a holding company would have been required to complete only 
the column for the set of calculations applicable to that holding 
company. For the March 31, 2020, report date, non-advanced approaches 
HCs that elect to adopt the simplifications rule on January 1, 2020, 
would have been required to complete the column for the set of 
calculations that incorporates the effects of the simplifications rule. 
Non-advanced approaches HCs that elect to wait to adopt the 
simplifications rule on April 1, 2020, and all advanced approaches 
holding companies would have been required to complete the column for 
the set of calculations that does not reflect the effects of this rule 
(i.e., that reflects the capital calculation in effect for all holding 
companies before this revision). Beginning with the June 30, 2020, 
report date, all non-advanced approaches holding companies would have 
been required to complete the column for the set of calculations that 
incorporates the effects of the simplifications. The advanced 
approaches holding companies would have been required to complete the 
column that does not reflect the effects of the simplifications rule.
    Currently, the regulatory capital calculations in FR Y-9C Schedule 
HC-R provide that a holding company's capital cannot include mortgage 
servicing assets (MSAs), certain temporary difference deferred tax 
assets (DTAs), and significant investments in the common stock of 
unconsolidated financial institutions in an amount greater than 10 
percent of CET1 capital, on an individual basis, and that those three 
data items combined cannot comprise more than 15 percent of CET1 
capital. Under the simplifications rule, the Board increased the 
threshold for MSAs, DTAs that could not be realized

[[Page 18233]]

through net operating loss carrybacks (temporary difference DTAs),\12\ 
and investments in the capital of unconsolidated financial institutions 
for non-advanced approaches HCs. The Board proposed to revise Schedule 
HC-R to permit non-advanced approaches HCs to include as capital MSAs 
and temporary difference DTAs up to 25 percent of CET1 capital, on an 
individual basis. In addition, the 15 percent aggregate limit would 
have been be removed, and, the Board would have revised the capital 
calculation for minority interest included in the various capital 
categories for non-advanced approaches HCs and the calculation of the 
capital conservation buffer.
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    \12\ The Board notes that the Tax Cuts and Jobs Act, Public Law 
115-97, 131 Stat. 2054 (2017), eliminated the concept of net 
operating loss carrybacks for U.S. federal income tax purposes, 
although the concept may still exist in particular jurisdictions for 
state or foreign income tax purposes.
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    The simplifications rule also combined the current three categories 
of investments in financial institutions (non-significant investments 
in the capital of unconsolidated financial institutions, significant 
investments in the capital of unconsolidated financial institutions 
that are in the form of common stock, and significant investments in 
the capital of unconsolidated financial institutions that are not in 
the form of common stock) into a single category: Investments in the 
capital of unconsolidated financial institutions. The simplifications 
rule will apply a limit of 25 percent of CET1 capital on the amount of 
these investments that can be included in capital. Any investments in 
excess of the 25 percent limit would be deducted from capital using the 
corresponding deduction approach.\13\ The Board proposed to revise the 
FR Y-9C to implement this change.
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    \13\ See 84 FR 35234 (July 22, 2019).
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    Consistent with the current capital rule, a holding company must 
risk weight MSAs, temporary difference DTAs, and investments in the 
capital of unconsolidated financial institutions that are not deducted. 
As a result of the simplifications rule, non-advanced approaches 
banking organizations will not be required to differentiate among 
categories of investments in the capital of unconsolidated financial 
institutions. The risk weight for such equity exposures generally will 
be 100 percent, provided the exposures qualify for this risk 
weight.\14\ For non-advanced approaches banking organizations, the 
simplifications rule eliminates the exclusion of significant 
investments in the capital of unconsolidated financial institutions in 
the form of common stock from being eligible for a 100 percent risk 
weight.\15\ The application of the 100 percent risk weight (i) requires 
a banking organization to follow an enumerated process for calculating 
the adjusted carrying value, and (ii) mandates the inclusion of equity 
exposures to determine whether the threshold has been reached. Equity 
exposures that do not qualify for a preferential risk weight will 
generally receive risk weights of either 300 percent or 400 percent, 
depending on whether the equity exposures are publicly traded.\16\ The 
Board proposed to revise the FR Y-9C to implement this change, as 
discussed below.
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    \14\ Note that for purposes of calculating the 10 percent 
nonsignificant equity bucket, the capital rule excludes equity 
exposures that are assigned a risk weight of zero percent or 20 
percent and community development equity exposures and the effective 
portion of hedge pairs, both of which are assigned a 100 percent 
risk weight. In addition, the 10 percent non-significant bucket 
excludes equity exposures to an investment firm that would not meet 
the definition of traditional securitization were it not for the 
application of criterion 8 of the definition of traditional 
securitization, and has greater than immaterial leverage.
    \15\ Equity exposures that exceed, in the aggregate, 10 percent 
of a non-advanced approaches banking organization's total capital 
would then be assigned a risk weight based upon the approaches 
available in sections 217.52 and 217.53 of the capital rule. 12 CFR 
217.52 and .53.
    \16\ See 84 FR 35234 (July 22, 2019).
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    In order to implement these regulatory capital changes, a number of 
revisions were proposed to Schedule HC-R, Part I, for non-advanced 
approaches HCs. Specifically, the Board proposed to create two columns 
for existing items 11 through 19 on the FR Y-9C. Column A would have 
been reported by non-advanced approaches HCs that elect to adopt the 
simplifications rule on January 1, 2020, in the March 31, 2020, FR Y-9C 
report and by all non-advanced approaches HCs beginning in the June 30, 
2020, FR Y-9C report using the definitions under the simplifications 
rule. Column A would not have included items 11 or 16, and items 13 
through 15 would have been designated as items 13.a, column A through 
item 15.a, column A to reflect the new calculation methodology. Column 
B would have been reported by advanced approaches HCs and by non-
advanced approaches HCs that elect to wait to adopt the simplifications 
rule on April 1, 2020, in the March 31, 2020, FR Y-9C report and only 
by advanced approaches HCs beginning in the June 30, 2020, FR Y-9C 
report using the existing definitions. Existing items 13 through 15 
would have been designated as items 13.b, column B through item 15.b, 
column B to reflect continued use of the existing calculation 
methodology.
    With respect to the revisions related to the capital calculation 
for minority interests, the Board proposed to modify the FR Y-9C 
instructions to reflect the ability of non-advanced approaches HCs to 
use the revised method under the simplifications rule to calculate 
minority interest in existing items 4, 22, and 39 (CET1, additional 
tier 1, and tier 2 minority interest, respectively).
    In addition, as a result of certain changes made by the capital 
simplifications rule, the Board proposal would have clarified when a 
holding company must report the amount of distributions and 
discretionary bonus payments in Schedule HC-R, Part I, item 48 (which 
would have been renumbered as item 52). The Board would have clarified 
the instructions for renumbered item 52 to explain that an institution 
must report the amount of distributions and discretionary bonus 
payments made during the calendar quarter ending on the report date, if 
the amount of its capital conservation buffer that it reported for the 
previous calendar quarter-end report date was less than its applicable 
required buffer percentage on that previous calendar quarter-end report 
date. This change would have enhanced the Board's ability to monitor 
compliance with the limitations on distributions and discretionary 
bonus payments. Holding companies would have been required to comply 
with this instructional clarification beginning with the March 31, 
2020, report date.
    The Board received no comments regarding the proposed revisions to 
the FR Y-9C related to the capital simplifications rule, and the 
comments received on the Call Reports were not applicable to these 
proposed revisions. The Board has adopted the proposed revisions to the 
FR Y-9C related to the simplifications rule without modification.

Community Bank Leverage Ratio

    The Board proposed to revise the FR Y-9C to implement a simplified 
alternative measure of capital adequacy, the community bank leverage 
ratio (CBLR), for qualifying HCs with less than $10 billion in total 
consolidated assets. The proposed revisions would have aligned the FR 
Y-9C with the CBLR final rule,\17\ which implemented section 201 of the 
Economic Growth, Regulatory Relief, and Consumer Protection Act 
(EGRRCPA).\18\ The

[[Page 18234]]

proposed revisions to the FR Y-9C would have become effective for the 
March 31, 2020, report date, the first report date in respect of which 
a HC could elect to opt into the framework established by the community 
leverage bank ratio final rule (CBLR framework).
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    \17\ 84 FR 61776 (November 13, 2019).
    \18\ See Public Law 115-174, 132 Stat. 1296 (2018).
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    Under the CBLR final rule, HCs that have less than $10 billion in 
total consolidated assets, meet risk-based qualifying criteria, and 
have a leverage ratio of greater than 9 percent would be eligible to 
opt into the CBLR framework. A HC that opts into the CBLR framework, 
maintains a leverage ratio of greater than 9 percent, and continues to 
meet the other qualifying criteria will be considered to have satisfied 
the generally applicable risk-based and leverage capital requirements 
and any other capital or leverage requirements to which it is 
subject.\19\
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    \19\ 84 FR 61776 (November 13, 2019).
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    Under the CBLR final rule, a holding company that opts into the 
CBLR framework (CBLR HC) may opt out of the CBLR framework at any time, 
without restriction, by reverting to the generally applicable capital 
requirements in the Board's capital rule and reporting its regulatory 
capital information in the FR Y-9C Schedule HC-R, ``Regulatory 
Capital,'' Parts I and II, at the time of opting out.
    As described in the CBLR final rule, a CBLR HC that no longer meets 
the qualifying criteria for the CBLR framework will be required within 
two consecutive calendar quarters (grace period) either to satisfy once 
again the qualifying criteria or demonstrate compliance with the 
generally applicable capital requirements. During the grace period, the 
HC would continue to be treated as a CBLR HC and would be required to 
report its leverage ratio and related components in FR Y-9C Schedule 
HC-R, Part I.\20\ A CBLR HC that ceases to meet the qualifying criteria 
as a result of a business combination (such as a merger) will receive 
no grace period, and will immediately become subject to the generally 
applicable capital requirements. Similarly, a CBLR HC that fails to 
maintain a leverage ratio greater than 8 percent would not be permitted 
to use the grace period and would immediately become subject to the 
generally applicable capital requirements.\21\
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    \20\ For example, if the CBLR HC no longer meets one of the 
qualifying criteria as of February 15, and still does not meet the 
criteria as of the end of that quarter, the grace period for such an 
HC will begin as of the end of the quarter ending March 31. The 
banking organization may continue to use the CBLR framework as of 
June 30, but will need to comply fully with the generally applicable 
rule (including the associated reporting requirements) as of 
September 30, unless the HC once again meets all qualifying criteria 
of the CBLR framework, including a leverage ratio of greater than 9 
percent, by that date.
    \21\ 84 FR 61776 (November 13, 2019).
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    The Board proposed to incorporate revisions related to the CBLR 
framework into Schedule HC-R, Part I. As provided in the CBLR final 
rule, the numerator of the community bank leverage ratio will be tier 1 
capital, which is currently reported on Schedule HC-R, Part I, item 26. 
Therefore, the Board did not propose any changes related to the 
numerator of the CBLR.
    As provided in the planned CBLR final rule, the denominator of the 
community bank leverage ratio will be average total consolidated 
assets. Specifically, average total consolidated assets would be 
calculated in accordance with the existing reporting instructions for 
Schedule HC-R, Part I, items 36 through 39. The Board did not propose 
any substantive changes related to the denominator of the community 
bank leverage ratio. However, the Board proposed to move existing items 
36 through 39 of Schedule HC-R, Part I, and renumber them as items 27 
through 30 of Schedule HC-R, Part I, to consolidate all of the CBLR-
related capital items earlier in Schedule HC-R, Part I.
    As provided in the CBLR final rule, an HC will calculate its 
community bank leverage ratio by dividing tier 1 capital by average 
total consolidated assets (as adjusted), and the community bank 
leverage ratio would be reported as a percentage, rounded to four 
decimal places. Since this calculation is essentially identical to the 
existing calculation of the tier 1 leverage ratio in Schedule HC-R, 
Part I, item 44, the Board did not propose a separate item for the 
community bank leverage ratio in Schedule HC-R, Part I. Instead, the 
Board proposed to move the tier 1 leverage ratio from item 44 of Part I 
and renumber it as item 31, and rename the item to the Leverage Ratio, 
as this ratio would apply to all HCs (as the community bank leverage 
ratio for qualifying HCs or the tier 1 Leverage Ratio for all other 
HCs).
    As provided in the CBLR final rule, a CBLR bank will need to 
satisfy certain qualifying criteria in order to be eligible to opt into 
the CBLR framework. The proposed items identified below would have 
collected information necessary to ensure that a HC continuously meets 
the qualifying criteria for using the CBLR framework.

Qualifying Criteria for Using the CBLR Framework

    A HC will need to satisfy certain qualifying criteria to be 
eligible to opt into the CBLR framework. The proposed items below would 
have collected the information necessary to ensure that an HC 
continuously meets the qualifying criteria for using the CBLR 
framework. Specifically, a qualifying HC must not be an advanced 
approaches HC and must meet the following criteria:
     A leverage ratio of greater than 9 percent;
     Total consolidated assets of less than $10 billion;
     Total trading assets and trading liabilities of 5 percent 
or less of total consolidated assets; and
     Total off-balance sheet exposures (excluding derivatives 
other than sold credit derivatives and unconditionally cancelable 
commitments) of 25 percent or less of total consolidated assets.\22\
---------------------------------------------------------------------------

    \22\ As provided in the CBLR final rule, the Board would reserve 
the authority to disallow the use of the CBLR framework by an HC 
based on the risk profile of the HC. This authority derives from the 
general reservation of authority included in the Board's Regulation 
Q, in which the CBLR framework is codified. See 12 CFR 217.1(d).
---------------------------------------------------------------------------

    Accordingly, the Board proposed to collect the items described 
below from CBLR HCs only:
     In proposed item 32 of Schedule HC-R, Part I, a CBLR HC 
would have reported total assets, as reported in Schedule HC, item 12.
     In proposed item 33, a CBLR HC would have reported the sum 
of trading assets from Schedule HC, item 5, and trading liabilities 
from Schedule HC, item 15, in Column A. The HC would also have reported 
that sum divided by total assets from Schedule HC, item 12, and 
expressed as a percentage in Column B. As provided in the CBLR final 
rule, trading assets and trading liabilities would have been added 
together, not netted, for purposes of this calculation. Also as 
discussed in the CBLR final rule, a HC would not meet the definition of 
a qualifying community banking organization for purposes of the CBLR 
framework if the percentage reported in Column B were greater than 5 
percent.
     In proposed items 34.a through 34.d, a CBLR HC would have 
reported information related to commitments, other off-balance sheet 
exposures, and sold credit derivatives.

--In proposed item 34.a, a CBLR HC would have reported the unused 
portion of conditionally cancellable commitments. This amount would 
have been the amount of all unused commitments less the amount of

[[Page 18235]]

unconditionally cancellable commitments, as discussed in the CBLR final 
rule and defined in the agencies' capital rule.\23\ This item would 
have been calculated consistent with the sum of Schedule HC-R, Part II, 
items 18.a and 18.b, Column A.
---------------------------------------------------------------------------

    \23\ See definition of ``unconditionally cancellable'' in 12 CFR 
217.2.
---------------------------------------------------------------------------

--In proposed item 34.b, a CBLR HC would have reported total securities 
lent and borrowed, which would have been the sum of Schedule HC-L, 
items 6.a and 6.b.
--In proposed item 34.c, a CBLR HC would have reported the sum of 
certain other off-balance sheet exposures and sold credit derivatives. 
Specifically, a CBLR HC would have reported the sum of self-
liquidating, trade-related contingent items that arise from the 
movement of goods; transaction-related contingent items (performance 
bonds, bid bonds, warranties, and performance standby letters of 
credit); sold credit protection in the form of guarantees and credit 
derivatives; credit-enhancing representations and warranties; financial 
standby letters of credit; forward agreements that are not derivative 
contracts; and off-balance sheet securitizations. A CBLR HC would not 
have included derivatives that are not sold credit derivatives, such as 
foreign exchange swaps and interest rate swaps, in proposed item 34.c.
--In proposed item 34.d, a CBLR HC would have reported the sum of 
proposed items 34.a through 34.c in Column A. The HC would also have 
reported that sum divided by total assets from Schedule HC, item 12, 
and expressed as a percentage in Column B. As discussed in the CBLR 
final rule, a HC would not have been eligible to opt into the CBLR 
framework if this percentage is greater than 25 percent.
     In proposed item 35, a CBLR HC would have reported the 
total of unconditionally cancellable commitments, which would have been 
calculated consistent with the instructions for existing Schedule HC-R, 
Part II, item 19. This item would not have been used specifically to 
calculate a HC's eligibility for the CBLR framework. However, the Board 
proposed to collect this information in order to monitor balance sheet 
exposures that are not reflected in the CBLR framework and to identify 
any CBLR HCs with elevated concentrations in unconditionally 
cancellable commitments.
     In proposed item 36, a CBLR HC would have reported the 
amount of investments in the capital instruments of an unconsolidated 
financial institution that would qualify as tier 2 capital. Since the 
CBLR framework does not have a total capital requirement, a CBLR HC is 
neither required to calculate tier 2 capital nor make any deductions 
that would be taken from tier 2 capital. Therefore, if a CBLR HC has 
investments in the capital instruments of an unconsolidated financial 
institution that would qualify as tier 2 capital of the CBLR HC under 
the generally applicable capital requirements (tier 2 qualifying 
instruments), and the CBLR HC's total investments in the capital of 
unconsolidated financial institutions exceed 25 percent of its CET1 
capital, the CBLR HC is not required to deduct the tier 2 qualifying 
instruments. A CBLR HC is required to make a deduction from CET1 
capital or T1 capital only if the sum of its investments in the capital 
of an unconsolidated financial institution is in a form that would 
qualify as CET1 capital or T1 capital instruments of the CBLR HC and 
the sum exceeds the 25 percent CET1 threshold. However, the Board 
believes it is important to continue collecting information on the 
amount of investments in these capital instruments in order to identify 
any instances where such activity potentially creates an unsafe or 
unsound practice or condition.
    Because a CBLR HC would not be subject to the generally applicable 
capital requirements, a CBLR HC would not have been required to 
complete any of the items in Schedule HC-R, Part I, after proposed item 
36, nor would the holding company have been required to complete 
Schedule HC-R, Part II, Risk-Weighted Assets.
    In connection with moving the leverage ratio calculations and 
inserting items for the CBLR qualifying criteria in Schedule HC-R, Part 
I, existing items 27 through 35 of Schedule HC-R, Part I, would have 
been renumbered as items 37 through 45. Existing items 40 through 43 
would have been renumbered as items 46 through 49, while existing items 
46 through 48 would have been renumbered as items 50 through 52. For 
advanced approaches HCs, existing item 45 for total leverage exposure 
and the supplementary leverage ratio, would have been renumbered as 
item 53.
    A CBLR HC would have indicated that it has elected to apply the 
CBLR framework by completing Schedule HC-R, Part I, items 32 through 
36. HCs not subject to the CBLR framework would have been required to 
report all data items in Schedule HC-R, Part I, except for items 32 
through 36.

Comments Received and Final CBLR Rule Reporting Revisions

    The Board did not receive any comments on the FR Y-9C report 
related to the CBLR changes. However, the Board considered comments 
received on the Call Report proposal, and adopted changes on the FR Y-
9C to maintain consistency with the Call Report. Several comments were 
received on the Call Report proposal related to the CBLR proposed 
changes. One commenter supported the proposed line item additions to 
Schedule RC-R, Part I, to support changes to the leverage ratio, but 
another commenter recommended removing proposed items 35 through 38.c 
(items 37 through 38.c are not applicable to the FR Y-9C) of Part I 
because the data to be reported are not qualifying criteria under the 
CBLR framework. Two commenters did not favor the proposal to move 
existing items 36 through 39 of Schedule RC-R, Part I, which are used 
to measure total assets for the leverage ratio, and existing item 44, 
``Tier 1 leverage ratio,'' from their present locations in Part I of 
the schedule to an earlier position in Part I where all of the CBLR-
related items would have been reported, with these five items 
renumbered as items 27 through 31. One of the commenters stated that, 
although this proposed change in the presentation of Part I of Schedule 
RC-R would not affect the results of individual items in Part I, the 
proposed new presentation could be confusing to end users of the 
schedule. The second commenter expressed concern about inserting the 
data items for the CBLR framework within existing Schedule RC-R, Part 
I, rather than in a separate version of the schedule, as had been 
originally proposed in April 2019, because the insertion of these data 
items would be confusing and could lead to reporting errors. Thus, this 
commenter suggested a break-up of the proposed revised structure of 
Part I of Schedule RC-R into three separate parts, with existing Part 
II of Schedule RC-R becoming the fourth part of the schedule. In 
addition, this commenter noted that an institution that is eligible to 
opt into the CBLR framework may opt into and out of the framework at 
any time, and that there is a grace period for an institution that no 
longer meets the qualifying criteria for the CBLR framework.
    The Board has considered these comments on the Call Report and will 
retain proposed FR Y-9C items 35 through 36 for reporting by CBLR

[[Page 18236]]

holding companies in Schedule HC-R, Part I, as proposed for the reasons 
cited in the December 2019 notice. While these items are not used 
specifically to calculate a holding company's eligibility for the CBLR 
framework, the Board considers collecting information on 
unconditionally cancellable commitments or investments in the tier 2 
capital instruments important for identifying instances where such 
activity potentially creates an unsafe or unsound practice or 
condition.
    The Board will also retain the proposed movement of the data items 
related to the leverage ratio to a position immediately after the 
calculation of tier 1 capital (designated items 27 through 31 of 
Schedule HC-R, Part I, as it would be revised) as well as the placement 
of the proposed data items to be completed only by CBLR holding 
companies, including those within the grace period (designated items 32 
through 36 of Schedule HC-R, Part I, as it would be revised). Because 
all holding companies are subject to a leverage ratio requirement, all 
institutions must calculate and report the ratio's numerator, which is 
tier 1 capital, and its denominator, which is based on average total 
assets. As a consequence, items 1 through 31 of Part I would be 
applicable to and completed by all institutions. Moving the leverage 
ratio data items as proposed would allow CBLR holding companies to 
avoid completing the remainder of Schedule HC-R after item 36 of Part 
I. The Board considers this option less confusing for CBLR holding 
companies than having to complete the leverage ratio items in their 
current location, which is after numerous items that will not be 
applicable to CBLR holding companies.
    Furthermore, the Board will modify the formatting of Schedule HC-R, 
Part I, to better distinguish the data items that should be completed 
only by CBLR holding companies and those that should be completed only 
by those institutions applying the generally applicable capital 
requirements. This will be accomplished by improving the captioning 
before Schedule HC-R, Part I, item 32, which is the first data item to 
be completed only by CBLR holding companies, and between items 36, 
which is the final data item only for CBLR holding companies banks, and 
item 37, which is the first data item applicable only to other 
institutions subject to the generally applicable capital requirements. 
The portion of Schedule HC-R, Part I, applicable only to CBLR holding 
companies also will be marked by bordering. These modifications to the 
formatting of Part I should functionally achieve an outcome similar to 
the comment suggesting that Part I be split into Parts 1, 2, and 3 with 
existing Part II then renumbered as Part 4.
    In addition, the Board acknowledges that, under the CBLR final 
rule, a holding company that is eligible to opt into the CBLR framework 
may choose to opt into or out of this framework at any time and for any 
reason. Accordingly, the Board agrees with the commenter's 
recommendation that an institution should report its status as of the 
report date regarding the use of the CBLR framework. Therefore, the 
Board will add a ``yes/no'' item 31.a to Schedule HC-R, Part I, after 
item 31, ``Leverage ratio,'' in which each holding company would report 
whether it has a CBLR framework election in effect as of the quarter-
end report date. An institution would answer ``yes'' if it qualifies 
for the CBLR framework (even if it is within the grace period) and has 
elected to adopt the framework as of that report date. Otherwise, the 
institution would answer ``no.'' Captioning after the ``yes/no'' 
response to item 31.a would indicate which of the subsequent data items 
in Schedule HC-R should be completed based on the response to item 
31.a. This ``yes/no'' response should assist a holding company in 
understanding which specific data items it should complete in the rest 
of Schedule HC-R. The response also should assist users of Schedule HC-
R in understanding the regulatory capital regime an institution is 
following as of the report date. The Board is not adopting a 
commenter's recommendation to add additional data items relating to use 
of the CBLR, for example by differentiating between holding companies 
that currently meet the CBLR qualifying criteria and those that are 
within the grace period, as the Board does not need this additional 
level of detail in the FR Y-9C report.
    The Board is adopting modifications to the format and structure of 
Part I of Schedule HC-R to limit the burden on reporting institutions 
and lessen possible confusion for both qualifying community 
institutions that elect to adopt the CBLR framework and other data 
users.
    Aside from these changes, the Board has adopted the proposed 
revisions to the FR Y-9C related to the CBLR.

Standardized Approach for Counterparty Credit Risk on Derivatives

    The Board proposed to revise the FR Y-9C instructions to implement 
changes to the capital rule regarding how to calculate the exposure 
amount of derivative contracts (the standardized approach for 
counterparty credit risk, or ``SA-CCR'') that were implemented by final 
rule (the ``SA-CCR final rule'').\24\
---------------------------------------------------------------------------

    \24\ 85 FR 4362 (January 24, 2020).
---------------------------------------------------------------------------

    The SA-CCR final rule amends the capital rule by replacing the 
current exposure methodology (CEM) with SA-CCR for advanced approaches 
HCs. The final rule requires holding companies subject to Category I 
and II standards (Category I and II holding companies) under the 
Board's tailoring final rule \25\ to use SA-CCR to calculate their 
standardized total risk-weighted assets and permits non-advanced 
approaches banking organizations the option of using SA-CCR in place of 
CEM to calculate the exposure amount of their noncleared and cleared 
derivative contracts.
---------------------------------------------------------------------------

    \25\ 84 FR 59230 (November 1, 2019).
---------------------------------------------------------------------------

    Category I and II banking organizations will have to choose either 
SA-CCR or the internal models methodology (IMM) to calculate the 
exposure amount of their noncleared and cleared derivative contracts in 
connection with calculating their risk-based capital under the advanced 
approaches. The SA-CCR final rule provides for the eventual elimination 
of the current methods for Category I and II banking organizations to 
determine the risk-weighted asset amount for their default fund 
contributions to a central counterparty (CCP) or a qualifying central 
counterparty (QCCP) and implements a new and simpler method that would 
be based on the banking organization's pro rata share of the CCP's and 
QCCP's default fund. However, the final rule allows banking 
organizations that elect to use SA-CCR to continue to use method 1 and 
method 2 under CEM to calculate the risk-weighted asset amount for 
default fund contributions until January 1, 2022.
    Under the SA-CCR final rule, a non-advanced approaches HC will be 
able to use either CEM or SA-CCR to calculate the exposure amount of 
any noncleared and cleared derivative contracts and to determine the 
risk-weighted asset amount of any default fund contributions under the 
standardized approach. A HC that meets the criteria for a banking 
organization subject to Category III standards \26\ will also use

[[Page 18237]]

SA-CCR for calculating its supplementary leverage ratio if it chooses 
to use SA-CCR to calculate its derivative and default fund exposures.
---------------------------------------------------------------------------

    \26\ The Board's final tailoring rule, approved on October 10, 
2019, describes a Category III banking organization generally as a 
banking organization with $250 billion or more in total consolidated 
assets that is not a global systemically important bank (GSIB) nor 
has significant international activity, or a banking organization 
with total consolidated assets of $100 billion or more, but less 
than $250 billion, that meets or exceeds other specified risk-based 
indicators. See ``Prudential Standards for Large Bank Holding 
Companies, Savings and Loan Holding Companies, and Foreign Banking 
Organizations,'' 84 FR 59032 (November 1, 2019).
---------------------------------------------------------------------------

    Accordingly, the Board proposed to revise the instructions for HC-R 
Part II, consistent with the SA-CCR final rule. Generally, the proposed 
revisions to the reporting of derivatives elements in Schedule HC-R, 
Part II, were driven by differences in the methodology for determining 
the exposure amount of a derivative contract under SA-CCR relative to 
CEM. The General Instructions for Schedule RC-R, Part II, and the 
instructions for Schedule RC-R, Part II, items 20, 21, and Memorandum 
items 1 through 3 would have been revised. These proposed revisions 
would have been effective for the June 30, 2020, report date, the same 
quarter as the effective date of the SA-CCR final rule, with a 
mandatory compliance date of January 1, 2022.

Comments Received and Instructions for Reporting Derivatives

    The Board received a comment from a bankers' association requesting 
additional clarification to the FR Y-9C instructions that conform to 
changes on the Call Report related to certain derivatives reporting 
issues. The Call Report commenters sought clarification as to whether, 
for purposes of reporting derivatives referred to as settled-to-market 
contracts in Memorandum item 3, the remaining maturity of such 
derivatives should be the remaining maturity used to determine the 
conversion factor for the calculation of the potential future exposures 
(PFE) of these contracts or the contractual remaining maturity of these 
contracts. The derivatives information reported in Memorandum items 1 
through 3 of Schedule HC-R, Part II, is collected to assist the Board 
in understanding, and assessing the reasonableness of, the credit 
equivalent amounts of the over-the-counter derivatives and the 
centrally cleared derivatives reported in Schedule HC-R, Part II, items 
20 and 21, column B. Accordingly, when reporting settled-to-market 
centrally cleared derivative contracts in Memorandum item 3, the 
remaining maturity used to determine the applicable conversion factor 
should be the basis for reporting. The Board revised the instructions 
for Schedule HC-R, Part II, Memorandum item 3, to clarify the reporting 
of settled-to-market centrally cleared derivative contracts.
    The commenter on the Call Report proposal also expressed concerns 
related to the reporting of notional amounts in Schedule HC-R by 
institutions that use SA-CCR. The commenter recommended that the 
notional amounts for institutions that use SA-CCR should be based on 
the contractual notional amount, i.e., the notional amount as defined 
in U.S. generally accepted accounting principles, consistent with 
current practice in Schedule HC-R. Institutions report the notional 
amounts of over-the-counter and centrally cleared derivative contracts 
by remaining maturity in Schedule HC-R, Part II, Memorandum items 2 and 
3. After considering this comment, the Board will clarify the 
instructions for Schedule HC-R, Part II, Memorandum items 2 and 3, to 
indicate that all institutions, including those that use SA-CCR to 
calculate exposure amounts, should report contractual notional amounts. 
The Board also clarified the reporting instructions to Schedule HC-L 
that all notional amounts should be based on U.S. GAAP contractual 
notional amounts.
    The commenter recommended that the Board revise the FR Y-9C 
instructions on reporting of notional amounts in Schedule HC-L, 
Derivatives and Off-Balance Sheet Items, and Schedule HC-R, Part II, 
Risk-Weighted Assets, for derivatives that have matured, but have 
associated unsettled receivables or payables that are reported as 
assets or liabilities, respectively, on the balance sheet as of the 
quarter-end report date. In seeking clarification of the reporting 
requirements for such situations, the commenter recommended not 
reporting the notional amounts for derivatives that have matured. The 
Board agrees and has clarified the FR Y-9C, Schedule HC-L and Schedule 
HC-R, instructions to exclude reporting of the notional amounts of 
derivatives that have matured. The Board considered another comment 
received on the Call Report regarding clarification on whether the 
client facing leg of a derivative cleared through a central 
counterparty or a qualified central counterparty should be reported as 
an OTC or centrally cleared derivative. The Board has clarified the FR 
Y-9C instructions for HC-R, Part II, items 20 and 21 to clarify that 
such derivatives should be reported in HC-R, Part II, item 20, as an 
over-the-counter derivative.
    Two Call Report commenters addressed the reporting of the fair 
value of collateral held against over-the-counter (OTC) derivative 
exposures by type of collateral and type of derivative counterparty in 
Schedule RC-L, item 16.b, and questioned whether this information is 
meaningful. One commenter requested clarification of the purpose for 
collecting this information while the other recommended no longer 
collecting this information. The data items for reporting the fair 
value of collateral are applicable to institutions with total assets of 
$10 billion or more. In general, the Board uses this information 
collected on the FR Y-9C in its oversight and supervision of holding 
companies engaging in OTC derivative activities. The breakdown of the 
fair value of collateral posted for OTC derivative exposures in 
Schedule HC-L, item 15.b provides the Board with important insights 
into the extent to which collateral is used as part of the credit risk 
management practices associated with derivative credit exposures to 
different types of counterparties and changes over time in the nature 
and extent of the collateral protection.
    Aside from the changes discussed above, the Board has adopted the 
proposed revisions to the FR Y-9C relating to SA-CCR.

High Volatility Commercial Real Estate (HVCRE)

    The Board proposed to revise the FR Y-9C instructions to implement 
changes to the HVCRE exposure definition in section 2 of the capital 
rule \27\ to conform to the statutory definition of an HVCRE 
Acquisition, Development, or Construction (ADC) loan (HVCRE final 
rule).\28\ The revisions align the capital rule with section 214 of the 
EGRRCPA to exclude from the definition of HVCRE exposure credit 
facilities that finance the acquisition, development, or construction 
of one- to four-family residential properties.\29\
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    \27\ 12 CFR part 217.2.
    \28\ 84 FR 68019 (December 13, 2019).
    \29\ Section 214 became effective upon enactment of the EGRRCPA. 
Accordingly, on July 6, 2018, the Board, along with the Office of 
the Comptroller of the Currency (OCC) and the Federal Deposit 
Insurance Corporation (FDIC), issued a statement advising 
institutions that, when determining which loans should be subject to 
a heightened risk weight, they may choose to continue to apply the 
current regulatory definition of HVCRE exposure, or they may choose 
to apply the heightened risk weight only to those loans they 
reasonably believe meet the definition of ``HVCRE ADC loan'' set 
forth in section 214 of the EGRRCPA. See Board, FDIC, and OCC, 
Interagency statement regarding the impact of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act (EGRRCPA). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180706a1.pdf.
    The Board temporarily implemented this revision to the FR Y-9C 
through an emergency PRA clearance that permitted, but did not 
require, a HC to use the definition of HVCRE ADC loan in place of 
the existing definition of HVCRE loan.
---------------------------------------------------------------------------

    The HVCRE final rule also clarifies the definition of HVCRE 
exposure in the capital rule by adding a new paragraph that provides 
that the exclusion for one-

[[Page 18238]]

to four-family residential properties would not include credit 
facilities that solely finance land development activities, such as the 
laying of sewers, water pipes, and similar improvements to land, 
without any construction of one- to four-family residential structures. 
In order for a loan to be eligible for this exclusion, the credit 
facility is required to include financing for construction of one- to 
four-family residential structures.
    The Board proposed to make conforming revisions to the instructions 
for Schedule HC-R, Part II, items 4.b and 5.b in order to implement the 
HVCRE final rule for all reporting HCs.
    The Board received no comments on these proposed revisions for 
HVCRE and will implement them as proposed.

Operating Lease Liabilities

    In February 2016, the FASB issued ASU No. 2016-02, ``Leases,'' 
which added Topic 842, Leases, to the Accounting Standards Codification 
(ASC). Once ASU 2016-02 is effective for a holding company, the ASU's 
accounting requirements, as amended by certain subsequent ASUs, 
supersede ASC Topic 840, Leases.
    The most significant change that ASC Topic 842 makes to the 
previous lease accounting requirements is to lessee accounting. Under 
the lease accounting standards in ASC Topic 840, lessees recognize 
lease assets and lease liabilities on the balance sheet for capital 
leases, but do not recognize operating leases on the balance sheet. The 
lessee accounting model under Topic 842 retains the distinction between 
operating leases and capital leases, which the new standard labels 
finance leases. However, the new standard requires lessees to record a 
right-of-use (ROU) asset and a lease liability on the balance sheet for 
operating leases. (For finance leases, a lessee's lease asset also is 
designated an ROU asset.) In general, the new standard permits a lessee 
to make an accounting policy election to exempt leases with a term of 
one year or less at their commencement date from on-balance sheet 
recognition.
    For HCs that are public business entities, as defined under U.S. 
GAAP, ASU 2016-02 is effective for fiscal years beginning after 
December 15, 2018, including interim reporting periods within those 
fiscal years. For HCs that are not public business entities, at 
present, the new standard is effective for fiscal years beginning after 
December 15, 2019, and interim reporting periods within fiscal years 
beginning after December 15, 2020. Early application of the new 
standard is permitted for all HCs.
    The Board proposed to revise the FR Y-9C instructions to implement 
changes for operating leases to be reported as other liabilities 
instead of other borrowings for regulatory reporting purposes. The 
proposed changes would have better aligned the reporting of the single 
noninterest expense item for operating leases in the income statement 
(which is the presentation required by ASC Topic 842) with their 
balance sheet classification.
    The FR Y-9C Report Supplemental Instructions for March 2019 \30\ 
stated that a lessee should report lease liabilities for operating 
leases and finance leases, including lease liabilities recorded upon 
adoption of the ASU, in Schedule HC-M, item 14, ``Other borrowings,'' 
which is consistent with the current FR Y-9C instructions for reporting 
a lessee's obligations under capital leases under ASC Topic 840. In 
response to this instructional guidance, the Board received questions 
from HCs concerning the reporting of a bank lessee's lease liabilities 
for operating leases. These HCs indicated that reporting operating 
lease liabilities as other liabilities instead of other borrowings 
would better align the reporting of the single noninterest expense item 
for operating leases in the income statement (which is the presentation 
required by ASC Topic 842) with their balance sheet classification and 
would be consistent with how these HCs report operating lease 
liabilities internally.
---------------------------------------------------------------------------

    \30\ https://www.federalreserve.gov/reportforms/supplemental/SI_FRY9_201903.pdf.
---------------------------------------------------------------------------

    The Board agrees with the views expressed by these HCs and proposed 
to require that operating lease liabilities be reported on the FR Y-9C 
balance sheet in Schedule HC, item 20, ``Other liabilities.'' In 
Schedule HC-G, Other Liabilities, operating lease liabilities would be 
reported in item 4, ``Other'' effective March 31, 2020. The Board 
received no comments on these proposed revisions for operating lease 
liabilities and will implement them as proposed.

Reporting Home Equity Lines of Credit That Convert From Revolving to 
Non-Revolving Status

    Holding companies report the amount outstanding under revolving, 
open-end lines of credit secured by 1-4 family residential properties 
(commonly known as home equity lines of credit or HELOCs) in item 
1.c.(1) of Schedule HC-C, Loans and Lease Financing Receivables. The 
amounts of closed-end loans secured by 1-4 family residential 
properties are reported in Schedule HC-C, item 1.c.(2)(a) or (b), 
depending on whether the loan is a first or a junior lien.\31\
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    \31\ Holding companies report additional information on open-end 
and closed-end loans secured by 1-4 family residential properties in 
certain other FR Y-9C schedules in accordance with the loan category 
definitions in Schedule HC-C, items 1.c.(1), 1.c.(2)(a), and 
1.c.(2)(b).
---------------------------------------------------------------------------

    A HELOC is a line of credit secured by a lien on a 1-4 family 
residential property that generally provides a draw period followed by 
a repayment period. During the draw period, a borrower has revolving 
access to unused amounts under a specified line of credit. During the 
repayment period, the borrower can no longer draw on the line of 
credit, and the outstanding principal is either due immediately in a 
balloon payment or repaid over the remaining loan term through monthly 
payments. The FR Y-9C instructions previously did not address the 
reporting treatment for a home equity line of credit when it reaches 
its end-of-draw period and converts from revolving to nonrevolving 
status. This led to inconsistency in how these credits were reported in 
Schedule HC-C, items 1.c.(1), 1.c.(2)(a), and 1.c.(2)(b), and in other 
holding company items that use the definitions of these three loan 
categories.
    To address this absence of instructional guidance and promote 
consistency in reporting, the Board proposed to clarify the 
instructions for reporting loans secured by 1-4 family residential 
properties by specifying that after a revolving open-end line of credit 
has converted to non-revolving closed-end status, the loan should be 
reported as closed-end in Schedule HC-C, item 1.c.(2)(a) or (b), as 
appropriate.
    The Board believes that it is important to collect accurate data on 
loans secured by 1-4 family residential properties in the FR Y-9C 
report. Consistent classification of HELOCs based on the status of the 
draw period is particularly important for the Board's safety and 
soundness monitoring. Due to the structure of HELOCs discussed above, 
borrowers generally are not required to make principal repayments 
during the draw period, which may create a financial shock for 
borrowers when they must make a balloon payment or begin regular 
monthly repayments after the draw period. Some HCs have reported HELOCs 
past the draw period as revolving, and this practice increases the 
amounts outstanding, charge-offs, recoveries, past dues, and 
nonaccruals reported in the open-end category relative to the amounts 
reported by HCs that treat HELOCs past the draw period

[[Page 18239]]

as closed-end, which makes the data less useful for analysis and safety 
and soundness monitoring. In addition, in Accounting Standards Update 
No. 2019-04,\32\ the FASB amended ASC Subtopic 326-20 on credit losses 
to require that, when presenting credit quality disclosures in notes to 
financial statements prepared in accordance with U.S. GAAP, an entity 
must separately disclose line-of-credit arrangements that are converted 
to term loans from line-of-credit arrangements that remain in revolving 
status. The Board determined that there would be little or no impact to 
the regulatory capital calculations or other regulatory reporting 
requirements as a result of this clarification. Therefore, the Board 
proposed to clarify the FR Y-9C instructions for Schedule HC-C, items 
1.c.(1), 1.c.(2)(a), and 1.c.(2)(b), to state that revolving open-end 
lines of credit that have converted to non-revolving closed-end status 
should be reported as closed-end loans. The effect of this 
clarification would have extended to the instructions for numerous data 
items elsewhere in the FR Y-9C that reference the Schedule HC-C, Part 
I, loan category definitions for open-end and closed-end loans secured 
by 1-4 family residential properties and were identified in the 
December 2019 notice.
---------------------------------------------------------------------------

    \32\ Accounting Standards Update No. 2019-04, ``Codification 
Improvements to Topic 326, Financial Instruments--Credit Losses, 
Topic 815, Derivatives and Hedging, and Topic 825, Financial 
Instruments,'' issued in April 2019.
---------------------------------------------------------------------------

    In light of prior comments regarding the time needed for any 
systems changes, the Board proposed that compliance with the clarified 
instructions would not have been required until the March 31, 2021, 
report date. The Board's December 2019 notice further proposed that 
institutions not currently reporting in accordance with the clarified 
instructions would have been permitted, but not required, to report in 
accordance with the clarified instructions before that date.

Comments Received and Final Reporting Revisions

    The Board received a comment from a bankers' association requesting 
that the Board ensure consistency across regulatory reports by 
modifying the proposed reporting of HELOCs in line with comments on 
proposed Call Report changes. In connection with the Call Report 
proposal, three commenters opposed the proposal to require that HELOCs 
that have converted to non-revolving closed-end status should be 
reported as closed-end loans. Commenters cited the numerous data items 
in multiple Call Report schedules that would be affected by this 
proposed instructional clarification and the reconfiguration of systems 
that would need to be undertaken as well as a definitional conflict 
between the Call Report instructions as proposed for clarification and 
the instructions for the Board's FR Y-14M report filed by holding 
companies with total consolidated assets of $100 billion or more.\33\ 
In addition, one commenter stated that the proposed Call Report 
instructional clarification may lead to inconsistencies between the 
reporting of HELOCs in open-end and closed-end status in the Call 
Report and disclosures of HELOCs made in filings with the Securities 
and Exchange Commission under the federal securities laws. Another 
commenter cited differences in the risk profiles of loans underwritten 
as HELOCs and those underwritten as closed-end loans at origination and 
indicated that the proposed instructional clarification could distort 
performance trends for loans secured by 1-4 family residential 
properties as HELOCs migrate between the open-end and closed-end loan 
categories in the Call Report. Two of the commenters opposing the 
proposed instructional clarification instead recommended the creation 
of a memorandum item in the Call Report loan schedule (Schedule RC-C, 
Part I) to identify for supervisory purposes the amount of HELOCs that 
have converted to non-revolving closed-end status. The other commenter 
suggested segregating closed-end HELOCs using a separate loan category 
code, which may also imply separate reporting and disclosure of such 
HELOCs.
---------------------------------------------------------------------------

    \33\ Capital Assessments and Stress Testing Report (FR Y-14M), 
OMB Number 7100-0341.
---------------------------------------------------------------------------

    One Call Report commenter also requested that the agencies clarify 
the reporting treatment for ``drawdowns of a HELOC Flex product that 
contain `lock-out' features,'' which was described as the borrower's 
exercise of an option to convert a draw on the line of credit to ``a 
fixed rate interest structure with defined payments and term.''
    After considering the comments received on the FR Y-9C proposal and 
the Call Report comments, the Board will not implement the proposed 
clarification to the instructions for Schedule HC-C, Part I, items 
1.c.(1), 1.c.(2)(a), and 1.c.(2)(b) that would have resulted in 
revolving, open-end lines of credit secured by 1-4 family residential 
properties that have converted to non-revolving closed-end status being 
reported as closed-end loans. In light of the guidance in the 
instructions for the Board's FR Y-14M report that directs reporting 
entities to continue to report HELOCs that are no longer revolving 
credits in the Home Equity schedule, the Board will adopt this 
treatment for FR Y-9C purposes. However, recognizing the existing 
diversity in practice in which some institutions report HELOCs that 
have converted from revolving to non-revolving status as closed-end 
loans in the FR Y-9C while other institutions continue to report such 
HELOCs as open-end loans, the Board will instruct institutions to 
report all HELOCs that convert to closed-end status on or after January 
1, 2021, as open-end loans in Schedule HC-C, Part I, item 1.c.(1). A 
holding company that currently reports HELOCs that have converted to 
non-revolving closed-end status as open-end loans in Schedule HC-C, 
Part I, item 1.c.(1), should not change its reporting practice for 
these loans and should continue to report these loans in item 1.c.(1) 
regardless of their conversion date. A holding company that currently 
reports HELOCs that convert to non-revolving closed-end status as 
closed-end loans in Schedule HC-C, Part I, item 1.c.(2)(a) or 
1.c.(2)(b), as appropriate, may continue to report HELOCs that convert 
on or before December 31, 2020, as closed-end loans in FR Y-9C for 
report dates after that date. Alternatively, the institution may choose 
to begin reporting some or all of these closed-end HELOCs as open-end 
loans in item 1.c.(1) as of the March 31, 2020, or any subsequent 
report date, provided this reporting treatment is consistently applied. 
With respect to HELOC Flex products, the proposed reporting treatment 
described above would mean that amounts drawn on a HELOC during its 
draw period that a borrower converts to a closed-end amount before the 
end of this period also should be reported as open-end loans in 
Schedule HC-C, Part I, item 1.c.(1), subject to the transition guidance 
above.
    The Board also agrees with commenter's suggestion to create a 
memorandum item in Schedule HC-C, Part I, in which institutions would 
report the amount of HELOCs that have converted to non-revolving 
closed-end status that are included in item 1.c.(1), ``Revolving, open-
end loans secured by 1-4 family residential properties and extended 
under lines of credit.'' This new Memorandum item 15 in Schedule HC-C, 
Part I, would enable the Board to monitor the proportion of an 
institution's home equity credits in revolving and non-revolving status 
and changes therein and assess whether changes in this proportion in 
relation to

[[Page 18240]]

changes in past due and nonaccrual home equity credits and charge-offs 
and recoveries of such credits warrant supervisory follow-up. To 
provide time needed for any systems changes, the Board will implement 
this new memorandum item as of the March 31, 2021.

Timing

    As stated in the December 2019 notice, the Board planned to make 
the capital-related reporting changes described above to be effective 
the same quarters as the effective dates of the various final capital 
rules discussed in this notice. Thus, the reporting revisions to the FR 
Y-9C, as applicable, will take effect March 31, 2020, for the capital 
simplifications rule and the community bank leverage ratio rule. Non-
advanced approaches institutions may elect to wait to adopt the capital 
simplifications rule for reporting purposes until the June 30, 2020, 
report date. The reporting revisions to the FR Y-9C, as applicable, 
will take effect June 30, 2020, for the standardized approach for 
counterparty credit risk on derivative contracts final rule and the 
high volatility commercial real estate exposures final rule. However, 
the mandatory compliance date for reporting in accordance with the 
standardized approach for counterparty credit risk final rule is the 
March 31, 2022, report date.
    In addition, the reporting of operating lease liabilities as ``All 
other liabilities'' in FR Y-9C will take effect March 31, 2020, and the 
change in the reporting of construction, land development, and other 
land loans with interest reserves in FR Y-9 Schedule HC-C, Part I, will 
take effect March 31, 2021. The requirement to continue reporting 
HELOCs that convert to closed-end status as open-end loans in Schedule 
HC-C, Part I, will apply to those HELOCs that convert on or after 
January 1, 2021, with pre-2021 conversions subject to the transition 
guidance described in Section II.I. above; new Memorandum item 15 in 
Schedule HC-C, for HELOCs in non-revolving closed-end status that are 
reported as open-end loans will take effect March 31, 2021.
    The specific wording of the captions for the new or revised FR Y-9C 
data items discussed in this notice and the numbering of these data 
items should be regarded as preliminary, and may be changed prior to 
the effective date of these items.

Proposed Revisions to the FR Y-9CS

    The Board proposed to revise the FR Y-9CS to clarify that response 
to the report is voluntary. No comments were received during the 
comment period.

    Board of Governors of the Federal Reserve System, March 27, 
2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-06753 Filed 3-31-20; 8:45 am]
 BILLING CODE 6210-01-P