[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Notices]
[Pages 63553-63559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22275]


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FEDERAL RESERVE SYSTEM


Proposed Agency Information Collection Activities; Comment 
Request

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Notice and request for comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
invites comment on a proposal to extend for three years, with revision, 
the Financial Statements for Holding Companies (FR Y-9 reports; OMB 
Control Number 7100-0128) and the Consolidated Report of Condition and 
Income for Edge and Agreement Corporations (FR 2886b; OMB Control 
Number 7100-0086).

DATES: Comments must be submitted on or before December 7, 2020.

ADDRESSES: You may submit comments, identified by FR Y-9 or FR 2886b, 
by any of the following methods:
     Agency website: https://www.federalreserve.gov/. Follow 
the instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Email: [email protected]. Include the OMB 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments are available from the Board's website at 
https://www.federalreserve.gov/apps/foia/proposedregs.aspx as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, 
between 9:00 a.m. and 5:00 p.m. on weekdays. For security reasons, the 
Board requires that visitors make an appointment to inspect comments. 
You may do so by calling (202) 452-3684. Upon arrival, visitors will be 
required to present valid government-issued photo identification and to 
submit to security screening in order to inspect and photocopy 
comments.
    Additionally, commenters may send a copy of their comments to the 
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.

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.

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. In 
exercising this delegated authority, the Board is directed to take 
every reasonable step to solicit comment. In determining whether to 
approve a collection of information, the Board will consider all 
comments received from the public and other agencies.
    A copy of the Paperwork Reduction Act (PRA) OMB submission, 
including the reporting form and instructions, supporting statement, 
and other documentation will be available at https://www.reginfo.gov/public/do/PRAMain, if approved. These documents will also be made 
available on the 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.

Request for Comment on Information Collection Proposals

    The Board invites public comment on the following information 
collections, which are being reviewed under authority delegated by the 
OMB under the PRA. Comments are invited on the following:
    a. Whether the proposed collections of information are necessary 
for the proper performance of the Board's functions, including whether 
the information has practical utility;
    b. The accuracy of the Board's estimate of the burden of the 
proposed information collections, including the

[[Page 63554]]

validity of the methodology and assumptions used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    At the end of the comment period, the comments and recommendations 
received will be analyzed to determine the extent to which the Board 
should modify the proposal.

Proposal To Approve Under OMB Delegated Authority the Extension for 
Three Years, With Revision, of the Following Information Collections

    (1) Report title: Financial Statements for Holding Companies.
    Agency form numbers: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR 
Y-9CS.
    OMB control number: 7100-0128.
    Frequency: Quarterly, semiannually, and annually.
    Respondents: Bank holding companies (BHCs), savings and loan 
holding companies (SLHCs), securities holding companies (SHCs), and 
U.S. intermediate holding companies (IHCs) (collectively, holding 
companies (HCs)).\1\
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    \1\ An SLHC must file one or more of the FR Y-9 family of 
reports unless it is: (1) A grandfathered unitary SLHC with 
primarily commercial assets and thrifts that make up less than five 
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 
(AA) HCs) with less than $5 billion in total assets--124, FR Y-9C (non 
AA HCs) with $5 billion or more in total assets--218, FR Y-9C (AA 
HCs)--9, FR Y-9LP--416, FR Y-9SP--3,739, FR Y-9ES--78, FR Y-9CS--236.
    Estimated average hours per response:

Reporting

    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
40.65, FR Y-9C (non AA HCs) with $5 billion or more in total assets--
46.62, FR Y-9C (AA HCs)--48.93, FR Y-9LP--5.27, FR Y-9SP--5.40, FR Y-
9ES--0.50, FR Y-9CS--0.50.

Recordkeeping

    FR Y-9C--1, FR Y-9LP--1, FR Y-9SP--0.50, FR Y-9ES--0.50, FR Y-9CS--
0.50.
    Estimated annual burden hours:

Reporting

    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
20,162, FR Y-9C (non AA HCs) with $5 billion or more in total assets--
40,653, FR Y-9C (AA HCs)--1,761, FR Y-9LP--8,769, FR Y-9SP--40,381, FR 
Y-9ES--39, FR Y-9CS--472.

Recordkeeping

    FR Y-9C--1,404, FR Y-9LP--1,664, FR Y-9SP--3,739, FR Y-9ES--39, FR 
Y-9CS--472.
    General description of report: The FR Y-9 family of reporting forms 
continues to be the primary source of financial data on HCs that 
examiners rely on in the intervals between on-site inspections. The 
Board requires HCs to provide standardized financial statements to 
fulfill the Board's statutory obligation to supervise these 
organizations. Financial data from these reporting forms are used to 
detect emerging financial problems, to review performance and conduct 
pre-inspection analysis, to monitor and evaluate capital adequacy, to 
evaluate HC mergers and acquisitions, and to analyze a HC's overall 
financial condition to ensure the safety and soundness of its 
operations. The FR Y-9C, FR Y-9LP, and FR Y-9SP serve as standardized 
financial statements for the HCs. The FR Y-9ES is a financial statement 
for HCs that are Employee Stock Ownership Plans. The Board uses the 
voluntary FR Y-9CS (a free-form supplement) to collect additional 
information deemed to be critical and needed in an expedited manner. 
HCs file the FR Y-9C on a quarterly basis, the FR Y-9LP quarterly, the 
FR Y-9SP semiannually, the FR Y-9ES annually, and the FR Y-9CS on a 
schedule that is determined when this supplement is used.
    Legal authorization and confidentiality: The reporting and 
recordkeeping requirements associated with the Y-9 series of reports 
are authorized for BHCs pursuant to section 5 of the Bank Holding 
Company Act (``BHC Act''); \2\ for SLHCs 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''); for IHCs 
pursuant to section 5 of the BHC Act, as well as pursuant to sections 
102(a)(1) and 165 of the Dodd-Frank Act; \3\ and for securities holding 
companies pursuant to section 618 of the Dodd-Frank Act.\4\ Except for 
the FR Y-9CS report, which is expected to be collected on a voluntary 
basis, the obligation to submit the remaining reports in the FR Y-9 
series of reports and to comply with the recordkeeping requirements set 
forth in the respective instructions to each of the other reports, is 
mandatory.
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    \2\ 12 U.S.C. 1844.
    \3\ 12 U.S.C. 5311(a)(1) and 5365; 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.
    \4\ 12 U.S.C. 1850a(c)(1)(A).
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    With respect to the FR Y-9C report, Schedule HI's Memoranda 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\ 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, the 
information also would be withheld pursuant to exemption 8 of the 
FOIA,\6\ which protects information related to the supervision or 
examination of a regulated financial institution.
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    \5\ 5 U.S.C. 552(b)(4).
    \6\ 5 U.S.C. 552(b)(8).
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    In addition, for both the FR Y-9C report and the FR Y-9SP report,

[[Page 63555]]

Schedule HC's Memoranda 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,\7\ if 
the identity of the engagement partner is treated as private 
information by HCs. The Board has assured respondents that this 
information will be treated as confidential since the collection of 
this data item was proposed in 2004.
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    \7\ 5 U.S.C. 552(b)(4).
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    Additionally, items on the FR Y-9C, Schedule HC-C for loans 
modified under Section 4013, data items Memorandum items 16.a, ``Number 
of Section 4013 loans outstanding''; and Memorandum items 16.b, 
``Outstanding balance of Section 4013 loans'' are considered 
confidential. While the Board generally makes institution-level FR Y-9C 
report data publicly available, the Board is collecting Section 4013 
loan information as part of condition reports for the impacted HCs and 
the Board considers disclosure of these items at the HC level would not 
be in the public interest.\8\ Such information is permitted to be 
collected on a confidential basis, consistent with 5 U.S.C. 
552(b)(8).\9\ In addition, holding companies may be reluctant to offer 
modifications under Section 4013 if information on these modifications 
made by each holding company is publicly available, as analysts, 
investors, and other users of public FR Y-9C report information may 
penalize an institution for using the relief provided by the CARES Act. 
The Board may disclose Section 4013 loan data on an aggregated basis, 
consistent with confidentiality or as otherwise required by law.
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    \8\ See 12 U.S.C. 1464(v)(2).
    \9\ Exemption 8 of the Freedom of Information Act (FOIA) 
specifically exempts from disclosure information ``contained in or 
related to examination, operating, or condition reports prepared by, 
on behalf of, or for the use of an agency responsible for the 
regulation or supervision of financial institutions.''
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    Aside from the data items described above, the remaining data items 
collected 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 \10\ reports, are also generally not 
accorded confidential treatment. As provided in the Board's Rules 
Regarding Availability of Information,\11\ 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 granted or denied.
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    \10\ 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 
or 8 of the FOIA, 5 U.S.C. 552(b)(4) and (8).
    \11\ 12 CFR part 261.
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    To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP, 
and FR Y-9ES reports each respectively direct the financial institution 
to retain the workpapers and related materials 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 is considered confidential pursuant to 
exemption 8 of the FOIA.\12\ In addition, the 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.\13\
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    \12\ 5 U.S.C. 552(b)(8).
    \13\ 5 U.S.C. 552(b)(4).
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    (2) Report title: Consolidated Report of Condition and Income for 
Edge and Agreement Corporations.
    Agency form number: FR 2886b.
    OMB control number: 7100-0086.
    Frequency: Quarterly and annually.
    Reporters: Edge and agreement corporations.
    Estimated annual reporting hours: Banking: Edge and agreement 
corporations (quarterly): 568; Banking: Edge and agreement corporations 
(annually): 16; Investment: Edge and agreement corporations 
(quarterly): 992; Investment: Edge and agreement corporations 
(annually): 76.
    Estimated average hours per response: Banking: Edge and agreement 
corporations (quarterly): 15.77; Banking: Edge and agreement 
corporations (annually): 15.87; Investment: Edge and agreement 
corporations (quarterly): 11.81; Investment: Edge and agreement 
corporations (annually): 10.82.
    Number of respondents: Banking: Edge and agreement corporations 
(quarterly): 9; Banking: Edge and agreement corporations (annually): 1; 
Investment: Edge and agreement corporations (quarterly): 21; 
Investment: Edge and agreement corporations (annually): 7.
    General description of report: The FR 2886b reporting form is filed 
quarterly and annually by banking Edge and agreement corporations and 
investment (nonbanking) Edge and agreement corporations (collectively, 
``Edges or Edge corporations''). The mandatory FR 2886b comprises a 
balance sheet, an income statement, two schedules reconciling changes 
in capital and reserve accounts, and 11 supporting schedules. The Board 
uses the FR 2886b data to help plan and target the scope of 
examinations of Edges and to evaluate applications from Edge 
corporations. Data from the FR 2886b are also used to monitor aggregate 
institutional trends, such as growth in assets and the number of 
offices, changes in leverage, and the types and locations of customers 
and to monitor and identify present and potential problems with Edge 
corporations.
    Legal authorization and confidentiality: Sections 25 and 25A of the 
Federal Reserve Act authorize the Federal Reserve to collect the FR 
2886b (12 U.S.C. 602, 625). The obligation to report this information 
is mandatory. The information collected on the FR 2886b is generally 
not considered confidential, but certain data may be exempt from 
disclosure pursuant to exemptions (b)(4) and (b)(7)(C) of FOIA, (5 
U.S.C. 552(b)(4) and (b)(7)(C)). The information exempt from disclosure 
pursuant to (b)(4) consists of information provided on Schedule RC-M 
(with the exception for item 3) and on Schedule RC-V, both of which 
pertain to claims on and liabilities to related organizations.

I. Proposed Revisions

A. Revisions Related to Regulation D

    In response to recent economic disruptions and volatility in U.S. 
financial markets caused by the spread of Coronavirus Disease 2019 
(COVID-19), the Board adopted the Regulation D interim final rule. The 
interim final rule amended the ``savings deposit'' definition in 
Regulation D by deleting the six-transfer-limit provisions in this 
definition that required depository institutions either to prevent 
transfers and withdrawals in excess of the limit or to monitor savings 
deposits ex post for violations of the limit. The interim final rule 
also made conforming changes to other definitions in Regulation D that 
refer to ``savings deposit'' as necessary.
    The interim final rule permits, but does not require, depository 
institutions to immediately suspend enforcement of the six-transfer 
limit and to allow their customers to make an unlimited number of 
convenient transfers and withdrawals from their savings deposits. The 
interim final rule did not amend the Regulation D provisions regarding 
the reporting of deposits by depository institutions.

[[Page 63556]]

    In connection with the interim final rule, the Board published 
supplemental instructions to the FR Y-9C, which included temporary 
revisions to the General Instructions for FR Y-9C Schedule HC-E, as 
well as the Glossary entries for ``Deposits,'' to remove references to 
the six-transfer limit. In addition, the supplemental instructions 
included temporary revisions to the General Instructions for FR Y-9C 
Schedule HC-E to state that if a depository institution chooses to 
suspend enforcement of the six-transfer limit on a ``savings deposit,'' 
the depository institution may continue to report that account as a 
``savings deposit'' or may instead choose to report that account as a 
``transaction account'' based on an assessment of certain 
characteristics of the account. Similar temporary revisions were 
applied to the General Instructions of FR 2886b Schedule RC-E to remove 
references of the six-transfer limit and to state that if a depository 
institution chooses to suspend enforcement of the six-transfer limit on 
a ``savings deposit,'' the depository institution may continue to 
report that account as a ``savings deposit'' or may instead choose to 
report that account as a ``transaction account'' based on an assessment 
of certain characteristics of the account. The temporarily revised 
instructions are published on the FR 2886b report form and instructions 
website.
    However, the Board recognizes that the adopted temporary revisions 
to the instructions for the FR Y-9C and FR 2886b created a reporting 
option that could result in the collection of ambiguous data by 
allowing a depository institution to report a savings deposit as either 
a ``savings deposit'' or a ``transaction account'' if the institution 
suspends enforcement of the six-transfer limit. To resolve this 
potential issue, the Board proposes to revise the General Instructions 
for FR Y-9C Schedule HC-E and FR 2886b Schedule RC-E, effective 
beginning with reports as of December 31, 2020, to state that where the 
reporting institution has suspended the enforcement of the six-transfer 
limit rule on an account that otherwise meets the definition of a 
savings deposit, the institution must report such deposits as a 
``savings deposit'' (and as a ``nontransaction account'') or a 
``transaction account'' based on an assessment of the following 
characteristics:
    (i) If the reporting institution does not retain the reservation of 
right to require at least seven days' written notice before an intended 
withdrawal, the account must be reported as a demand deposit (and as a 
``transaction account'').
    (ii) If the reporting institution retains the reservation of right 
to require at least seven days' written notice before an intended 
withdrawal and the depositor is eligible to hold a Negotiable Order of 
Withdrawal (NOW) account, the account must be reported as an Automatic 
Transfer Service (ATS) account, NOW account, or a telephone and 
preauthorized transfer account (and as a ``transaction account'').
    (iii) If the reporting institution retains the reservation of right 
to require at least seven days' written notice before an intended 
withdrawal and the depositor is ineligible to hold a NOW account, the 
account must be reported as a savings deposit (and as a 
``nontransaction account'').
    The proposed revisions to the FR Y-9C and FR 2886b would be 
consistent with corresponding proposed revisions, related to the 
Regulation D amendments, to the Consolidated Reports of Condition and 
Income (Call Reports) (FFIEC 031, FFIEC 041and FFIEC 051; OMB No. 7100-
0036) and the Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks (FFIEC 002; OMB Control Number: 7100-0032).
    The proposed FR Y-9C and FR 2886b revisions related to Regulation D 
would be effective as of the December 31, 2020, report date. The Board 
may consider further modifying the treatment of ``savings deposits'' 
and ``transaction accounts'' in the instructions for the FR Y-9C and FR 
2886b after a review of the reported data. Any such changes would be 
proposed by the Board through a separate Federal Register notice 
pursuant to the Paperwork Reduction Act.

B. Proposed Revisions Related to U.S. GAAP

    The Board proposes to make a number of revisions to the FR Y-9C, FR 
Y-9LP and FR Y-9SP related to U.S. GAAP effective for reports with a 
March 31, 2021, as-of date, except for last-of-layer hedging, which 
would be implemented following the Financial Accounting Standards Board 
(FASB)'s adoption of a final standard.
1. Provisions for Credit Losses on Off-Balance-Sheet Credit Exposures
    On June 16, 2016, the FASB issued Accounting Standards Update (ASU) 
No. 2016-13, Topic 326, Financial Instruments--Credit Losses (ASU 2016-
13). Within Topic 326, paragraph 326-20-30-11 states: ``An entity shall 
report in net income (as a credit loss expense) the amount necessary to 
adjust the liability for credit losses for management's current 
estimate of expected credit losses on off-balance-sheet credit 
exposures.'' Off-balance-sheet credit exposures include unfunded loan 
commitments, financial standby letters of credit, and financial 
guarantees not accounted for as insurance, and other similar 
instruments except for those within the scope of Accounting Standards 
Codification (ASC) Topic 815 on derivatives and hedging.
    Throughout Topic 326, the FASB refers to provisions for credit 
losses as ``credit loss expense.'' For example, paragraph 326-20-30-1 
states: ``An entity shall report in net income (as a credit loss 
expense) the amount necessary to adjust the allowance for credit losses 
(ACL) for management's current estimate of expected credit losses on 
financial assets(s).'' Thus, Topic 326 does not prohibit recording the 
adjustment to the liability for expected credit losses on off-balance-
sheet credit exposures within the provisions for credit losses reported 
in the income statement.
    The FR Y-9C income statement instructions currently direct HCs that 
have adopted Topic 326 to report provisions for expected credit losses 
on off-balance-sheet credit exposures in Schedule HI, item 7.d, ``Other 
noninterest expense,'' and prohibit its inclusion in Schedule HI, item 
4, ``Provision for loan and lease losses.'' \14\ Therefore, to align 
regulatory reporting to the guidance within Topic 326, the Board 
proposes to change the FR Y-9C instructions to direct HCs that have 
adopted Topic 326 to report provisions for expected credit losses on 
off-balance-sheet credit exposures as part of the total amount of HCs' 
provisions for credit losses in Schedule HI, item 4.\15\ These 
instructional changes would apply only to HCs that have adopted Topic 
326.
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    \14\ A footnote to Schedule HI, item 4, on the FR Y-9C forms 
currently states, ``Institutions that have adopted ASU 2016-13 
should report in item 4 the provisions for credit losses on all 
financial assets that fall within the scope of the standard.''
    \15\ The existing footnote to Schedule HI, item 4, also would be 
revised in the same manner.
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    The inclusion of provisions for expected credit losses on off-
balance-sheet credit exposures in the provisions for credit losses 
presented in item 4 of the FR Y-9C income statement will cause a loss 
of transparency within the overall reported amount of provisions for 
credit losses between provisions attributable to on- and off-balance-
sheet credit exposures. To enhance transparency and differentiate these 
provisions, the Board proposes adding a new Memorandum item 7, 
``Provisions for credit losses on off-balance-sheet

[[Page 63557]]

credit exposures,'' to Schedule HI-B, Part II, Changes in Allowances 
for Credit Losses, which would identify the portion of the overall 
amount of the provisions for credit losses reported in Schedule HI, 
item 4, attributable to the provisions for expected credit losses on 
off-balance-sheet credit exposures. Adding the new memorandum item to 
Schedule HI-B, Part II, would enable the Board to monitor the 
underlying components of the total amount of a HC's provisions for 
credit losses (i.e., the separate provisions for expected credit losses 
attributable to loans and leases held for investment, held-to-maturity 
debt securities, available-for-sale (AFS) debt securities, other 
financial assets measured at amortized cost, and off-balance-sheet 
credit exposures) and how these components change over time in relation 
to the amounts of the various categories of financial assets and off-
balance-sheet credit exposures within the scope of ASC Topic 326.
    In addition, footnote 5 on Schedule HI-B, Part II, item 5, 
``Provisions for credit losses,'' would be updated to reflect that 
``For institutions that have adopted ASU 2016-13, the sum of item 5, 
Column A through Column C, plus Schedule HI-B, Part II, Memorandum 
items 5 and 7 below, must equal Schedule HI, item 4.''
    Lastly, footnote 2 on Schedule SI of the FR Y-9SP report form for 
item 7, ``Other expenses'' and footnote 1 on Schedule PI of the FR Y-
9LP, report form for item 2.c., ``Provision for loan and lease losses'' 
would be updated to direct HCs that have adopted ASU 2016-13 to report 
provisions for expected credit losses on off-balance-sheet credit 
exposures as part of their total amount of provisions for credit 
losses.
2. Expected Recoveries of Amounts Previously Charged Off Included 
Within the Allowances for Credit Losses
    As noted above, the FASB issued ASU 2016-13 on June 16, 2016, and 
it has been amended by subsequent FASB ASUs. Within Topic 326, 
paragraph 326-20-30-1 states, ``The ACL is a valuation account that is 
deducted from, or added to, the amortized cost basis of the financial 
asset(s) to present the net amount expected to be collected on the 
financial asset. Expected recoveries of amounts previously written off 
and expected to be written off shall be included in the valuation 
account and shall not exceed the aggregate of amounts previously 
written off and expected to be written off by an entity.'' The terms 
``written off'' as used in Topic 326 and ``charged off'' as used in FR 
Y-9C instructions are used interchangeably in this discussion.
    Under GAAP, before an institution's adoption of Topic 326, expected 
recoveries of amounts previously written off would not be included in 
the measurement of the allowance for loan and lease losses; recoveries 
would be recorded only when received. Under Topic 326, including 
expected recoveries of amounts previously written off within ACL 
reduces the overall amount of these allowances. Amounts related to an 
individual asset are written off or charged off when deemed 
uncollectible. However, under ASC Topic 326, institutions can, in some 
circumstances, reduce the amount of the ACL that would otherwise be 
calculated for a pool of assets with similar risk characteristics that 
includes charged-off assets on the same day the charge-offs were taken 
by the estimated amount of expected recoveries of amounts written off 
on these assets. Reducing the ACL by amounts of expected recoveries 
prior to collection effectively ``reverses'' a charge-off. Therefore, 
to provide transparency for expected recoveries of amounts with 
inherently higher risk that, before an HC's adoption of ASC Topic 326, 
were not allowed to be recorded until they were received, the Board 
proposes to add new Memorandum item 8 to Schedule HI-B, Part II, 
Changes in Allowances for Credit Losses, to capture the ``Estimated 
amount of expected recoveries of amounts previously written off 
included within the ACL on loans and leases held for investment 
(included in item 7, column A, `Balance end of current period,' 
above).'' This new item would be applicable to HCs only after they have 
adopted Topic 326.
    Not including the proposed memorandum item for expected recoveries 
of amounts previously written off within the ACL on loans and leases 
would cause a loss of transparency within the reported amount of this 
allowance between the portions of the allowance attributable to (1) 
expected credit losses on the amortized cost basis of loans and leases 
held for investment net of expected recoveries of amounts expected to 
be charged off in the future and (2) expected recoveries of loan and 
lease amounts previously charged off. Proposed new Memorandum item 8 
would enhance transparency and differentiate these amounts within the 
period-end balance of the ACL on loans and leases by separately 
identifying the estimated amount within this allowance attributable to 
expected recoveries of amounts previously written off. This proposed 
new memorandum item would enable Board data users, including its 
examiners, and the public to better understand key components 
underlying HCs' ACL on loans and leases (i.e., amounts for expected 
credit losses on the amortized cost basis of loans and leases held for 
investment and amounts for expected recoveries of amounts previously 
written off on such loans and leases) and how these components change 
over time. This information would assist Board data users in monitoring 
amounts with inherently higher credit risk and changes therein that 
contribute to reductions in the overall amount of the ACL on loans and 
leases. This proposed new memorandum item would apply to loans and 
leases held for investment because this is the FR Y-9C category of 
financial assets that is expected to have the greatest amount of 
estimated expected recoveries of amounts previously written off.
3. Nonaccrual Treatment of Purchased Credit-Deteriorated Assets
    ASU 2016-13 introduced the concept of purchased credit-deteriorated 
(PCD) assets. PCD assets are acquired financial assets that, at 
acquisition, have experienced more-than-insignificant deterioration in 
credit quality since origination. When recording the acquisition of PCD 
assets, the amount of expected credit losses as of the acquisition date 
is recorded as an allowance and added to the purchase price of the 
assets rather than recording these acquisition date expected credit 
losses through provisions for credit losses. The sum of the purchase 
price and the initial ACL establishes the amortized cost basis of the 
PCD assets at acquisition. Any difference between the unpaid principal 
balance of the PCD assets and the amortized cost basis of the assets as 
of the acquisition date is a noncredit discount or premium. The initial 
ACL and any noncredit discount or premium determined on a collective 
basis at the acquisition date are allocated to the individual PCD 
assets.
    After acquisition, any noncredit discount or premium is accreted or 
amortized into interest income, as appropriate, over the remaining 
lives of the PCD assets on a level-yield basis. However, if a PCD asset 
is placed in nonaccrual status, institutions must cease accreting the 
noncredit discount or amortizing the noncredit premium into interest 
income consistent with the guidance in ASC paragraph 310-20-35-17.
    The current instructions for FR Y-9C Schedule HC-N, Past Due and 
Nonaccrual Loans, Leases, and Other Assets, provide an exception to the

[[Page 63558]]

general rule for placing financial assets in nonaccrual status set 
forth in the FR Y-9C Glossary entry for ``Nonaccrual status'' for 
purchased credit-impaired (PCI) assets. Topic 326 replaces the concept 
of PCI assets in previous GAAP with the concept of PCD assets.\16\ 
Although there is some similarity between the concepts of PCI and PCD 
assets, these two concepts are not identical. Nevertheless, ASU 2016-13 
provides that, upon adoption of Topic 326, all PCI assets will be 
deemed to be, and accounted for prospectively as, PCD assets. However, 
the Schedule HC-N instructions indicate that the nonaccrual exception 
for PCI assets was not extended to PCD assets by stating that ``For 
purchased credit-deteriorated loans, debt securities, and other 
financial assets that fall within the scope of ASU 2016-13, nonaccrual 
status should be determined and subsequent nonaccrual treatment, if 
appropriate, should be applied in the same manner as for other 
financial assets held by an institution.''
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    \16\ According to ASC paragraph 310-30-15-2, PCI assets, in 
general, are loans and debt securities with evidence of 
deterioration of credit quality since origination acquired by 
completion of a transfer for which it is probable, at acquisition, 
that the investor will be unable to collect all contractually 
required payments receivable.
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    As described in the FR Y-9C Supplemental Instructions for March 
2020, if an HC has adopted ASU 2016-13 and has a PCD asset, including a 
PCD asset that was previously a PCI asset or part of a pool of PCI 
assets, that would otherwise be required to be placed in nonaccrual 
status (see the Glossary entry for ``Nonaccrual status''), the HC may 
elect to continue accruing interest income and not report the PCD asset 
as being in nonaccrual status if the following criteria are met:
    (1) The HC reasonably estimates the timing and amounts of cash 
flows expected to be collected, and
    (2) the HC did not acquire the asset primarily for the rewards of 
ownership of the underlying collateral, such as use of collateral in 
operations of the institution or improving the collateral for resale.
    Additionally, these FR Y-9C Supplemental Instructions state that 
when a PCD asset that meets the criteria above is not placed in 
nonaccrual status, the asset should be subject to other alternative 
methods of evaluation to ensure that the HC's net income is not 
materially overstated. Further, an HC is not permitted to accrete the 
credit-related discount embedded in the purchase price of a PCD asset 
that is attributable to the acquirer's assessment of expected credit 
losses as of the date of acquisition (i.e., the contractual cash flows 
the acquirer did not expect to collect at acquisition). Interest income 
should no longer be recognized on a PCD asset to the extent that the 
net investment in the asset would increase to an amount greater than 
the payoff amount. If an HC is required or has elected to carry a PCD 
asset in nonaccrual status, the asset must be reported as a nonaccrual 
asset at its amortized cost basis in FR Y-9C Schedule HC-N, column 
C.\17\ For PCD assets for which the HC has made a policy election to 
maintain a previously existing pool of PCI assets as a unit of account 
for accounting purposes upon adoption of ASU 2016-13, the determination 
of nonaccrual or accrual status should be made at the pool level, not 
at the individual asset level.
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    \17\ Similarly, in the FFIEC 002, any PCD loans in nonaccrual 
status would be reported in Schedule N, column C.
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    For a PCD asset that is not reported in nonaccrual status, the 
delinquency status of the PCD asset should be determined in accordance 
with its contractual repayment terms for purposes of reporting the 
amortized cost basis of the asset as past due in Schedule HC-N, column 
A or B, as appropriate. If the PCD asset that is not reported in 
nonaccrual status consists of a pool of loans that were previously PCI 
assets that is being maintained as a unit of account after the adoption 
of ASU 2016-13, delinquency status should be determined individually 
for each loan in the pool in accordance with the individual loan's 
contractual repayment terms.
    The Board is proposing to update the FR Y-9C instructions to revise 
the nonaccrual treatment for PCD assets to provide HCs the option to 
not report PCD assets in nonaccrual status if they meet the criteria 
described above. The instructions also would incorporate the other 
reporting guidance for PCD assets in the FR Y-9C Supplemental 
Instructions for March 2020 described above.
4. Last-of-Layer Hedging
    In ASU No. 2017-12, Derivatives and Hedging (Topic 815)--Targeted 
Improvements to Accounting for Hedging Activities, the FASB added the 
last-of-layer method to its hedge accounting standards to lessen the 
difficulties institutions encountered under existing accounting rules 
when seeking to enter into a fair value hedge of the interest rate risk 
of a closed portfolio of prepayable financial assets or one or more 
beneficial interests secured by a portfolio of prepayable financial 
instruments. Typically, prepayable financial assets would be loans and 
available-for-sale debt securities.\18\ Under ASU 2017-12, there are no 
limitations on the types of qualifying assets that could be grouped 
together in a last-of-layer hedge other than meeting the following two 
criteria: (1) They must be prepayable financial assets that have a 
contractual maturity date beyond the period being hedged and (2) they 
must be eligible for fair value hedge accounting of interest rate risk 
(for example, fixed-rate instruments). For example, fixed-rate 
residential mortgages, auto loans, and collateralized mortgage 
obligations could all be grouped and hedged together in a single last-
of-layer closed portfolio. For a last-of-layer hedge, ASC paragraph 
815-10-50-5B states that an institution may need to allocate the 
related fair value hedge basis adjustment (FVHBA) ``to meet the 
objectives of disclosure requirements in other Topics.'' This ASC 
paragraph then explains that the institution ``may allocate the basis 
adjustment on an individual asset basis or on a portfolio basis using a 
systematic and rational method.'' Due to the aggregation of assets in a 
last-of-layer closed portfolio, institutions may find it challenging to 
allocate the related FVHBA to the individual loan or AFS debt security 
level when necessary for financial reporting purposes.
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    \18\ Prepayable held-to-maturity debt securities do not qualify 
for last-of-layer hedging.
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    In March 2018, the FASB added a project to its agenda to expand 
last-of-layer hedging to multiple layers, thereby providing more 
flexibility to entities when applying hedge accounting to a closed 
portfolio of prepayable assets. In connection with this project, the 
FASB anticipated that there would be diversity in practice if entities 
were required to allocate portfolio-level, last-of-layer FVHBAs to more 
granular levels, which in turn could potentially hamper data quality 
and comparability. In addition, the allocation would increase 
operational burden on institutions with little, if any, added value to 
risk management or to users of the financial statements. Therefore, for 
financial reporting purposes, the FASB Board has tentatively decided 
that it would require these FVHBAs to be presented as a reconciling 
item, i.e., in the aggregate for loans and AFS debt securities, in 
disclosures required by other areas of GAAP.\19\
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    \19\ The tentative decision was made at the FASB Board meeting 
on October 16, 2019. The FASB Board meeting minutes are available at 
https://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176173617941. Currently, no exposure draft or ASU 
associated with this project has been issued.

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[[Page 63559]]

    For regulatory reporting purposes, the Board is proposing similar 
treatment for last-of-layer FVHBAs on FR Y-9C Schedule HC-C, Loans and 
Lease Financing Receivables, and Schedule HC-B, Securities. As such, 
following the FASB's adoption of a final last-of-layer hedge accounting 
standard, the instructions for Schedule HC-C, item 11, ``LESS: Any 
unearned income on loans reflected in items 1-9 above,'' would be 
revised to explicitly state that last-of-layer FVHBAs associated with 
the loans reported in Schedule HC-C, should be included in this item.
    In addition, the Board is proposing on Schedule HC-B, Securities, 
to rename existing item 7, ``Investments in mutual funds and other 
equity securities with readily determinable fair values,'' as 
``Unallocated last-of-layer fair value hedge basis adjustments.'' HCs 
would report amounts for last-of-layer FVHBAs on AFS debt securities 
only in item 7, column C, ``Available-for-sale: Amortized Cost.'' Only 
a small number of HCs that have not have yet adopted ASU 2016-01, which 
includes provisions governing the accounting for investments in equity 
securities, continue to report amounts in item 7. Because all 
institutions are required to adopt ASU 2016-01 for FR Y-9C purposes by 
the December 31, 2020, report date, the Board had previously determined 
that existing item 7 in Schedule HC-B would no longer be applicable to 
institutions for reporting purposes and could be removed as of that 
report date.\20\ For these reasons, the Board is proposing to 
redesignate existing item 7, column C, on Schedule HC-B, as a new item 
for reporting unallocated FVHBAs applicable to AFS debt securities 
following the FASB's adoption of a final last-of-layer hedge accounting 
standard.
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    \20\ See 83 FR 945-946 (January 8, 2018).

    Board of Governors of the Federal Reserve System, October 2, 
2020.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2020-22275 Filed 10-7-20; 8:45 am]
BILLING CODE 6210-01-P