[Federal Register: December 24, 2002 (Volume 67, Number 247)]
[Notices]
[Page 78467-78473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de02-90]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Agency Information Collection Activities: Proposed Collection;
Comment Request
AGENCY: Board of Governors of the Federal Reserve System
SUMMARY: Background. On June 15, 1984, the Office of Management and
Budget (OMB) delegated to the Board of Governors of the Federal Reserve
System (Board) its approval authority under the Paperwork Reduction
Act, as per 5 CFR 1320.16, to approve of and assign OMB control numbers
to collection of information requests and requirements conducted or
sponsored by the Board under conditions set forth in 5 CFR 1320
Appendix A.1. Board-approved collections of information are
incorporated into the official OMB inventory of currently approved
collections of information. Copies of the OMB 83-I's and supporting
statements and approved collection of information instruments are
placed into OMB's public docket files. The Federal Reserve may not
conduct or sponsor, and the respondent is not required to respond to,
an information collection that has been extended, revised, or
implemented on or after October 1, 1995, unless it displays a currently
valid OMB control number.
Request for Ccomment on Information Collection Proposal.
The following information collection, which is being handled under
this delegated authority, has received initial Board approval and is
hereby published for comment. At the end of the comment period, the
proposed information collection, along with an analysis of comments and
recommendations received, will be submitted to the Board for final
approval under OMB delegated authority. Comments are invited on the
following:
a. whether the proposed collection of information is necessary for
the proper performance of the Federal Reserve's functions; including
whether the information has practical utility;
b. the accuracy of the Federal Reserve's estimate of the burden of
the proposed information collection, including the validity of the
methodology and assumptions used;
c. ways to enhance the quality, utility, and clarity of the
information to be collected; and
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.
DATES: Comments must be submitted on or before February 24, 2003.
ADDRESSES: Comments may be mailed to Ms. Jennifer J. Johnson,
Secretary, Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, N.W., Washington, DC 20551. However,
because paper mail in the Washington area and at the Board of Governors
is subject to delay, please consider submitting your comments by e-mail
to regs.comments@federalreserve.gov, or
[[Page 78468]]
faxing them to the Office of the Secretary at 202-452-3819 or 202-452-
3102. Comments addressed to Ms. Johnson may also be delivered to the
Board's mail facility in the West Courtyard between 8:45 a.m. and 5:15
p.m., located on 21st Street between Constitution Avenue and C Street,
N.W. Members of the public may inspect comments in Room MP-500 between
9:00 a.m. and 5:00 p.m. on weekdays pursuant to 261.12, except as
provided in 261.14, of the Board's Rules Regarding Availability of
Information, 12 CFR 261.12 and 261.14.
A copy of the comments may also be submitted to the OMB desk
officer for the Board: Joseph Lackey, Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, Washington, DC 20503.
FOR FURTHER INFORMATION CONTACT: A copy of the proposed form and
instructions, the Paperwork Reduction Act Submission (OMB 83-I),
supporting statement, and other documents that will be placed into
OMB's public docket files once approved may be requested from the
agency clearance officer, whose name appears below. Cindy Ayouch,
Federal Reserve Board Clearance Officer (202-452-3829), Division of
Research and Statistics, Board of Governors of the Federal Reserve
System, Washington, DC 20551. Telecommunications Device for the Deaf
(TDD) users may contact (202-263-4869), Board of Governors of the
Federal Reserve System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Proposals to approve under OMB delegated authority the extension for
three years, with revision, of the following reports:
1. Report title: The Weekly Report of Eurodollar Liabilities Held
by Selected U.S. Addressees at Foreign Offices of U.S. Banks.
Agency form number: FR 2050.
OMB control number: 7100-0068.
Frequency: Weekly.
Reporters: Foreign branches and banking subsidiaries of U.S.
depository institutions.
Annual reporting hours: 1,872 burden hours.
Estimated average hours per response: 1.0 hour.
Number of respondents: 36.
Small businesses are not affected.
General description of report: This information collection is
voluntary (12 U.S.C.Sec. Sec. 248(a)(2), 353 et seq., 461, 602, and
625). Individual respondent's data are confidential under section
(b)(4) of the Freedom of Information Act (5 U.S.C. 552(b)(4)).
Abstract: The report collects data on Eurodollar deposits payable
to nonbank U.S. addressees from foreign branches and subsidiaries of
U.S. commercial banks and Edge and agreement corporations. The data are
used for the construction of the Eurodollar component of the monetary
aggregates and for analysis of banks' liability management practices.
Current Actions: The Federal Reserve proposes that the reporting
cutoff be raised from a weekly average of $500 million to $550 million
in Eurodollar liabilities.
2. Report title: The Quarterly Report of Assets and Liabilities of
Large Foreign Offices of U.S. Banks.
Agency form number: FR 2502q.
OMB control number: 7100-0079.
Frequency: Quarterly.
Reporters: Large foreign branches and banking subsidiaries of U.S.
depository institutions.
Annual reporting hours: 32,662 hours.
Estimated average hours per response: 3.5 hours.
Number of respondents: 2,333.
Small businesses are not affected.
General description of report: This information collection is
required (12 U.S.C.Sec. Sec. 248(a)(2), 353 et seq., 461, 602, and 625)
and is given confidential treatment (5 U.S.C. 552(b)(4)).
Abstract: The report collects gross assets and liability positions
from foreign branches and subsidiaries of U.S. commercial banks and
Edge and agreement corporations vis-a-vis individual countries. A
separate schedule collects information on Eurodollar liabilities
payable to certain U.S. addressees.
Current Actions: The Federal Reserve proposes to revise the country
list in the body of the reporting form to conform to the Department of
State's official country list. Claims and liabilities that are not
allocated by country of customer would be further broken out into that
portion that is attributable to the fair value of derivatives
contracts. Claims on and liabilities to other non-U.S. offices of the
parent bank would be further broken out into that portion that is
attributable to unallocated claims and liabilities. In addition, the
instructions would be clarified with respect to the year-end panel
review process and the definition of unallocated claims. Finally, the
single data item collected on Schedule A would be reported as a seven-
day average (one number) instead of daily (five numbers).
Proposal to approve under OMB delegated authority the revision, without
extension, of the following reports:
Report title: Financial Statements for Bank Holding Companies
Agency form numbers: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9CS, and FR
Y-9ES
OMB control number: 7100-0128.
Frequency: Quarterly, semiannually, and annually
Reporters: Bank holding companies (BHCs).
Annual reporting hours: 349,800.
Estimated average hours per response: FR Y-9C: 34.95 hours, FR Y-
9LP: 4.85 hours, FR Y-9SP: 4.19 hours, FR Y-9CS: 30 minutes, FR Y-9ES:
30 minutes
Number of respondents: FR Y-9C: 1,959, FR Y-9LP: 2,320, FR Y-9SP:
3,541, FR Y-9CS: 600; FR Y-9ES: 100.
Small businesses are affected.
General description of report: This information collection is
mandatory (12 U.S.C. 1844(c)). Confidential treatment is not routinely
given to the data in these reports. However, confidential treatment for
the reporting information, in whole or in part, can be requested in
accordance with the instructions to the form.
Abstract: The FR Y-9C consists of standardized consolidated
financial statements similar to the Federal Financial Institutions
Examination Council (FFIEC) Consolidated Reports of Condition and
Income (Call Reports) (FFIEC 031 & 041; OMB No.7100-0036). The FR Y-9C
is filed quarterly by top-tier BHCs that have total assets of $150
million or more and by lower-tier BHCs that have total consolidated
assets of $1 billion or more. In addition, multibank holding companies
with total consolidated assets of less than $150 million with debt
outstanding to the general public or engaged in certain nonbank
activities must file the FR Y-9C.
The FR Y-9LP includes standardized financial statements filed
quarterly on a parent company only basis from each BHC that files the
FR Y-9C. In addition, for tiered BHCs, a separate FR Y-9LP must be
filed for each lower tier BHC.
The FR Y-9SP is a parent company only financial statement filed
semiannually by one-bank holding companies with total consolidated
assets of less than $150 million, and multibank holding companies with
total consolidated assets of less than $150 million that meet certain
other criteria. This report, an abbreviated version of the more
extensive FR Y-9LP, is designed to obtain basic balance sheet and
income statement information for the parent company, information on
intangible assets, and information on intercompany transactions.
The FR Y-9CS is a free form supplement that may be utilized to
[[Page 78469]]
collect any additional information deemed to be critical and needed in
an expedited manner. It is intended to supplement the FR Y-9C and FR Y-
9SP reports.
The FR Y-9ES, effective for December 31, 2002, is filed annually by
BHCs that are Employee Stock Ownership Plans (ESOPs). These BHCs
previously filed either the FR Y-9LP or the FR Y-9SP reports.
Current Actions: Many of the proposed reporting revisions that
pertain to the FR Y-9 reports are being requested to parallel revisions
to the Federal Financial Institutions Examination Council (FFIEC)
Commercial bank Consolidated Reports of Condition and Income (Call
Reports) (FFIEC 031 & 041; OMB No.7100-0036). However, there are other
revisions not directly related to the Call Report. A detailed
description of the proposed changes follows.
FR Y-9C
Revisions to parallel proposed changes to the Call Report
Charge-offs of Accrued Fees and Finance Charges on Credit Card
Accounts
The Federal Reserve proposes to add the following items related to
charge-offs of accrued fees and finance charges on credit card
accounts.
(1) Add to Schedule HI-B, Part I, a new Memorandum item 3,
``Uncollectable credit card fees and finance charges reversed against
income (i.e., not included in charge-offs against the allowance for
loan and lease losses)'' to collect the amount of credit card fees and
finance charges that the BHC reversed against either interest and fee
income or a separate contra- asset account during the calendar year-to-
date. This item would exclude credit card fees and finance charges
reported as charge-offs against the allowance for loan and lease losses
reported in Schedule HI-B, Part I, item 5.a, column A.
(2) Add to Schedule HI-B, Part II, a new Memorandum item 1,
``Separate valuation allowance for uncollectable credit card fees and
finance charges'' to collect the amount of any valuation allowance or
contra-asset account that the BHC maintains separate from the allowance
for loan and lease losses to account for uncollectable credit card fees
and finance charges. Because this amount is separate from the amount
included in Schedule HC, item 4.c, and Schedule HI-B, Part II, item 7,
this Memorandum item is only applicable for those BHCs that maintain an
allowance or contra-asset account separate from the allowance for loan
and lease losses.
(3) Add to Schedule HI-B, Part II, a new Memorandum item 2,
``Amount of allowance for loan and lease losses attributable to credit
card fees and finance charges,'' to collect the amount of the allowance
for loan and lease losses that is attributable to outstanding credit
card fees and finance charges. This amount is included in the amount
reported in Schedule HC, item 4.c, and Schedule HI-B, Part II, item 7.
(4) Add to Schedule HC-C a new Memorandum item 4, ``Outstanding
credit card fees and finance charges,'' to collect the amount of fees
and finance charges included in the amount of credit card receivables
reported in Schedule HC-C, item 6.a.
(5) Add to Schedule HC-S, a new Memorandum item 4, ``Outstanding
credit card fees and finance charges,'' to collect the amount of fees
and finance charges included in the credit card receivables that the
BHC has reported as securitized and sold in Schedule HC-S, item 1,
column C.
Many institutions engaged in credit card lending have adopted the
practice of ``purifying'' charge-offs for financial reporting purposes.
``Purification'' refers to the practice of reversing uncollectable
accrued fees and finance charges against earnings rather than
accounting for them as charge-offs against the allowance for loan and
lease losses. This practice obscures charge-off ratios (i.e., charge-
offs divided by loan balances) because the charged-off amount does not
include the accrued fees and finance charges while the aggregate loan
balance does include them. Thus, the transparency of financial reports
is diminished.
Further, the effect of this practice on credit card lending
institutions' financial statements has become more material as the
level of accrued but uncollected finance charges and fees have become
more significant during the past several years. Most if not all of the
accrued fees and finance charges reversed under the purification
practice are included in credit card loan balances, or in other words,
have been capitalized into the credit card loan balances.
The proposed additional items would collect information on
reversals of credit card fees and finance charges that are not reported
as charge-offs against the loan loss allowance. The proposed additions
would also collect information on the outstanding amount of fees and
finance charges included in credit card receivables and the related
allowance, whether it is a component of the allowance for loan and
lease losses or a separate contra-asset account. These new items would
cover both bank holding company-owned portfolios and securitized
portfolios of credit cards. Additionally, these proposed changes would
include clarifications to the instructions for three items: Schedule
HC-S, items 1, 5.a, and 8, column C, as discussed below.
The proposed changes would improve financial reporting transparency
for losses on credit card accounts and permit users of FR Y-9C data to
calculate loss rates for credit card loan receivables that are
comparable across credit card lending institutions. Users of FR Y-9C
data would have more complete loss information relating to credit card
fees and finance charges that are written off as uncollectable.
Furthermore, the changes would provide better information regarding the
composition of and level of credit risk in credit card loan receivables
that the institution manages both for its own account and in
securitizations. The items regarding outstanding credit card fees and
finance charges would provide useful information to facilitate the
agencies' supervision of credit card lending activities.
The proposed new items would be completed only by those BHCs that:
(1) either individually or on a combined basis with their affiliated
depository institutions report outstanding credit card receivables that
exceed, in the aggregate, $500 million as of the report date.
Outstanding credit card receivables will be measured as the sum of
Schedule HC-C, Part I, item 6.a; Schedule HC-S, item 1, column C; and
Schedule HC-S, item 6.a, column C.
OR
(2) are BHCs that on a consolidated basis are considered credit
card specialty holding companies, defined as those that exceed 50
percent for the following two criteria:
(a) credit card loans (HC-C, Part I, item 6.a) plus securitized and
sold credit card loans (HCS, item 1, column C) divided by total loans
(HC-C, item 12, column A) plus securitized and sold credit card loans;
(b) total loans plus securitized and sold credit card loans divided
by total assets (HC, item 12) plus securitized and sold credit card
loans.
Breakdown of Seller-provided Credit Enhancements to the Bank's
Securitization Structures
The Federal Reserve proposes to revise Schedule HC-S as follows.
(1) Revise item 2.b, ``Maximum amount of credit exposure arising
from recourse or other seller provided credit enhancements provided to
structures reported in item 1 in the form of standby letters of credit,
subordinated securities, and other enhancements,'' to
[[Page 78470]]
collect the carrying value of ``Subordinated securities and other
residual interests'' carried as on- balance-sheet assets that have been
retained in connection with the securitization structures reported in
Schedule HC-S, item 1, ``Outstanding principal balance of assets sold
and securitized with servicing retained or with recourse or other
seller-provided credit enhancements.''
(2) Add a new item 2.c, ``Standby letters of credit and other
enhancements,'' to collect the unused portion of standby letters of
credit and the maximum contractual amount of recourse or other credit
exposure not in the form of an on-balance-sheet asset that have been
provided or retained in connection with the securitization structures
reported in Schedule HC-S, item 1.
(3) Clarify item 2.a, ``Retained interest-only strips,'' by
changing the item description to ``Credit enhancing interest-only
strips.''
These proposed revisions would distinguish between the amount of a
BHC's seller-provided credit enhancements that are on-balance-sheet
assets (other than credit-enhancing interest-only strips) and those
that are not, and to better understand the types of credit support that
BHCs are providing to their securitizations, including which types are
typically used for different types of securitized loans. BHCs currently
report the maximum amount of credit exposure from seller provided
credit enhancements to securitization structures (other than credit-
enhancing interest-only strips, which are reported separately) in
Schedule HC-S, item 2.b. These credit enhancements include both on-
balance-sheet assets (such as subordinated securities, spread accounts,
and cash collateral accounts) and enhancements that are not assets
(such as recourse liabilities and standby letters of credit). When
credit enhancements are in the form of assets, credit losses on the
securitized loans result in reduced cash inflows to the asset holder.
In contrast, when seller-provided credit enhancements take some other
form, cash outflows from the seller are required to cover credit losses
on the securitized loans. In addition, under the risk-based capital
standards that were revised as of January 1, 2002, seller-provided
credit enhancements that are on-balance-sheet assets are ``residual
interests'' subject to a dollar-for-dollar capital charge unless they
qualify for the ratings-based approach. The capital charge for
enhancements that are not assets generally is capped at 8 percent of
the assets enhanced.
Income from Insurance Activities
The Federal Reserve proposes to split Schedule HI, item 5.h,
``Insurance commissions and fees'', into two new items, ``Insurance and
reinsurance underwriting income'' and ``Income from other insurance and
reinsurance activities.'' In new item 5.h.(1), ``Insurance and
reinsurance underwriting income,'' BHCs would report all income from
insurance and reinsurance underwriting, including the amount of
premiums earned by property-casualty insurers and the amount of
premiums written by life and health insurers. This item would also
include the BHC's proportionate share of the income or loss before
extraordinary items and other adjustments from its investments in
equity method investees that are principally engaged in insurance and
reinsurance underwriting. In new item 5.h.(2), ``Income from other
insurance and reinsurance activities,'' BHCs would report income from
insurance agency and brokerage operations (including sales of annuities
and supplemental contracts); service charges, commissions, and fees
from the sale of insurance (including credit life insurance),
reinsurance, and annuities; and management fees from separate accounts,
deferred annuities, and universal life products. This item would also
include the BHC's proportionate share of the income or loss before
extraordinary items and other adjustments from its investments in
equity method investees that are principally engaged insurance
activities other than insurance underwriting.
The risks arising from insurance underwriting are significantly
different from those arising from other insurance activities. Given
this distinction in risk, splitting the current single income statement
item for insurance-related income into two items to separately identify
underwriting income would enable the Federal Reserve to more clearly
identify institutions engaged in underwriting and to better monitor the
results of these underwriting activities.
Proposed Revisions to the FR Y-9C Instructions
(1)Modify the reporting instructions to include the ``Provision for
allocated transfer risk'' with the ``Provision for loan and lease
losses'' in item 4 of Schedule HI, Income Statement. In addition, in
order for the end-of-period allowance in the reconciliation of the
``Allowance for loan and lease losses'' in Schedule HI-B, Part II, to
equal the loan loss allowance on the balance sheet (Schedule HC, item
4.c), which excludes the - the instructions for Schedule HI-B, Part II,
item 6, ``Adjustments,'' would also be revised to direct respondents to
report as a negative number in item 6 the amount of any ``Provision for
allocated transfer risk'' included in the amount of ``Provision for
loan and lease losses'' reported in item 4 of the Income Statement
(Schedule HI).
Prior to 2001, Schedule HI included a specific line item for
``Provision for allocated transfer risk,'' but amounts were reported in
this item only infrequently and only by a small number of BHCs. This
separate item was removed from the face of the income statement in 2001
and respondents were instructed to include these provisions in ``Other
noninterest expense'' on Schedule HI, item 7.d. However, in reviewing
the continuing merits of this instructional change, the Federal Reserve
has found that institutions exposed to transfer risk generally view
these provisions more like provisions for loan losses than a
noninterest expense.
(2) Revise the Glossary entry for ``Trading Account'' to provide
guidance for regulatory reporting purposes on the use of the trading
account designation for loans. Conforming changes would be made
elsewhere in the instructions where appropriate. A new second paragraph
of the ``Trading Account'' Glossary entry would read as follows:
``There is a rebuttable presumption that loans and leases
(hereafter, loans) should not be reported as trading assets. In order
to overcome this presumption for particular loans, a BHC must
demonstrate, from the pattern and practice of its activity, that it is
acquiring these loans principally for the purpose of selling them in
the near term with the objective of generating profits on short-term
differences in price. Thus, such loans are held for only a short period
of time (generally not months or years). This presumption is not
overcome if a BHC acquires loans (through origination or purchase) with
the intent or expectation that they may or will be sold at some date in
the future. In addition, loans acquired and held for securitization
purposes should not be reported as trading assets, but should be
reported as loans held for sale.''
(3) Modify Schedule HC-S, item 1, ``Outstanding principal balance
of assets sold and securitized by the reporting BHC with servicing
retained or with recourse or other seller- provided credit
enhancements'' to add the following sentence to the instructions for
this item: -For credit card receivables, include in column C any fees
and finance charges capitalized into the credit card receivable
balances that the
[[Page 78471]]
reporting BHC has securitized and sold.''
(4) Modify Schedule HC-S, item 5.a, ``Charge-offs'' [on assets sold
and securitized with servicing retained or with recourse or other
seller-provided credit enhancements (calendar year-to-date)] to add the
following sentence to the instructions for this item: ``Include in
column C charge-offs or reversals of uncollectable credit card fees and
finance charges that had been capitalized into the credit card
receivable balances that have been securitized and sold.''
(5)Modify Schedule HC-S, item 8.a, ``Charge-offs'' [on loan amounts
included in interests reported as securities in item 6.a (calendar
year-to-date)] to add the following sentence to the instructions for
this item: ``Include in column C the amount of credit card fees and
finance charges written off as uncollectable that were attributable to
the credit card receivables included in ownership interests reported as
securities in item 6.a, column C.''
Other Proposed Revisions Not Directly Related to Call Report
Changes
The following proposed revisions are not directly related to the
proposed Call Report changes for March 2003. Some of these changes are
proposed to provide greater consistency with current Call Report items
that are not part of the March 2003 revisions.
Accelerated Filing Deadline
The Federal Reserve proposes to require the filing of FR Y-9C
reports within 35 days after the quarter-end reporting date. This
proposed change is consistent with the Call Report proposal to require
all banks to file no later than 30 days after the quarter-end report
date, effective with the June 30, 2003 reporting date, and the Security
and Exchange Commission's (SEC's) final rule to accelerate the filing
of quarterly reports from 45 days to 35 days after the quarter-end. In
recognition of respondents' time and resource needs to modify reporting
systems and review procedures, the proposed implementation date would
be delayed until June 30, 2004.
The Federal Reserve seeks more timely filing of bank holding
company information to obtain more immediate feedback about the risks
and financial condition of these institutions, allowing the Federal
Reserve to make evaluations and develop plans of action more quickly to
address supervisory concerns. Accelerated disclosure of bank holding
company information would also enhance data transparency and market
discipline. Market discipline relies on market participants having
timely information about the risks and financial condition of banking
organizations. The FR Y-9C, in particular, is widely used by securities
analysts, rating agencies, and large institutional investors as sources
of bank holding company-specific data. Disclosure that increases
transparency leads to more accurate market assessments of risk and
value. This, in turn, should result in more effective market discipline
on BHCs.
Schedule HI - Income Statement
The Federal Reserve proposes to revise Schedule HI as follows.
(1) Add two new items to the memoranda section, item 14, ``Stock-
based employee compensation expense (net of tax effects)'' and item 15,
``Stock-based employee compensation expense (net of tax effects)
calculated for all awards under the fair value method.'' Stock-based
employee compensation plans include all arrangements by which employees
receive shares of stock or other equity instruments of the employer or
the employer incurs liabilities to employees in amounts based on the
price of the employer's stock. Stock-ased employee compensation is used
by many BHCs as a mechanism to provide substantial compensation to
executives. Information on both the stock options expense and the
amount of stock options expense related to all awards under the fair
value method would provide an indication of the magnitude and the speed
with which options are recognized as a cost of doing business. The
information collected would be used in the analysis of the quality of
earnings and comparability of profitability across BHCs.
The Financial Accounting Standards Board (FASB) recently proposed
amendments to the disclosure provisions of FASB Statement 123,
``Accounting for Stock-Based Compensation'' to require more prominent
disclosures about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results in
both annual and interim financial statements. The proposed new items
are captioned consistently with these disclosure requirements.\1\
Currently; companies are not required to present stock option
disclosures in interim financial statements. The proposed amendments
prescribe transition provisions for companies that voluntarily adopt a
fair value based method. For institutions choosing a fair value method,
amendments to Statement 123 will be effective for financial statements
with fiscal years ending after December 15, 2002.
---------------------------------------------------------------------------
\1\ See FASB Financial Accounting Series Exposure Draft,
``Accounting for Stock-Based Compensation-Transition and Disclosure:
an amendment of FASB Statement No. 123,'' Section 3.j.(2) and
Section 3.j.(3).
---------------------------------------------------------------------------
(2) Modify the instructions for the Notes to the Income Statement
to accommodate the collection of selected income information of large
predecessor institutions for a reporting BHC engaged in a merger. The
one-time reporting of this information would be event-driven and
submitted only during the quarter in which the business combination(s)
occur. The income statement items requested (26 items reported on
Schedule HI) would refer to the financial performance of an acquired
entity prior to a business combination, which otherwise would not be
incorporated in the consolidated financial statements of the combined
entity. Collection of predecessor information would be reported for
acquired entities with total consolidated assets of $150 million or
more.
In January 2001, FASB Statement No. 141, ``Business Combinations''
took effect prescribing that all business combinations are to be
accounted for by the purchase method which instructs that the operating
results of the acquired entity are to be included in the income and
expenses of the acquiring entity only from the date of acquisition.
The current lack of information in this area is a significant
problem for analysts attempting to achieve consistent comparisons of
BHC financial trends. Because predecessor company information is not
currently captured in the FR Y-9C for BHCs involved in purchase
transactions, analysts currently must extract data from SEC filings,
when available, and through manual entry manipulate the pro forma data.
In addition, all classifications (items) requested are not necessarily
available in SEC filings. With the collection of new predecessor data
the Federal Reserve analysis of BHC data and overall market
transparency would be improved by incorporating more meaningful
financial measures, especially those that relate to earnings
performance.
Schedule HC - Balance Sheet
The Federal Reserve proposes to modify the instructions for the
Notes to the Balance Sheet to accommodate the collection of selected
quarterly average information of large predecessor institutions for a
reporting BHC engaged in a merger. The one-time reporting of this
information would be event driven and only submitted during the quarter
in which the business combination(s) occur. The balance sheet items
requested (4 items reported on Schedule HC-K) would refer to the
financial
[[Page 78472]]
performance of an acquired entity prior to a business combination,
which otherwise would not be incorporated in the consolidated financial
statements of the combined entity. Collection of predecessor
information would be reported for acquired entities with total
consolidated assets of $150 million or more.
Schedule HC-F - Other Assets
The Federal Reserve proposes to add a new item 5, ``Cash surrender
value of life insurance'' to collect the amount of cash surrender value
of life insurance that exceeds 25 percent of current item 5, ``Other''
assets. Items 5 and 6 would be renumbered as items 6 and 7. Many
banking organizations have substantial holdings of life insurance that
may expose the companies to credit, liquidity and market risks. In
addition, the utility of these products could be adversely affected by
tax law changes. Collection of this item is proposed to allow the
Federal Reserve to identify companies with concentrations in these
assets and to assess, where warranted, company management of these
risks. This item is presently collected on the bank Call Report and on
the FR Y-9SP when it represents more than 25 percent of ``other
assets.'' It will also be collected on the FR Y-9ES (ESOP) as of year-
end 2002.
Schedule HC-M - Memoranda
The Federal Reserve proposes to revise item 20, ``Net assets of
broker-dealer subsidiaries engaged in underwriting or dealing
securities pursuant to Section 4(k)(4)(E) of the Bank Holding Company
Act as amended by the Gramm-Leach-Bliley Act'' to collect additional
items for balances due from related institutions and balances due to
related institutions. This item is completed only by top-tier BHCs who
have made an effective election to become a financial holding company.
Item 20 would be recaptioned with the heading ``Balances of broker-
dealer subsidiaries engaged in underwriting or dealing in securities
pursuant to Section 4(k)(4)(E) of the Bank Holding Company Act as
amended by the Gramm-Leach-Bliley Act'', and ``net assets'' would be
renumbered as item 20.a. The following new items would be added: under
the heading 20.b, ``Balances due from related institutions, gross''
item 20.b.(1), ``Due from the bank holding company (parent company
only), gross,'' item 20.b.(2), ``Due from subsidiary banks of the bank
holding company, gross,'' and item 20.b.(3), ``Due from nonbank
subsidiaries of the bank holding company, gross;'' under the heading
20.c, ``Balances due to related institutions, gross'' item 20.c.(1),
``Due to bank holding company (parent company only), gross,'' item
20.c.(2), ``Due to subsidiary banks of the bank holding company,
gross,'' and item 20.c.(3), ``Due to nonblank subsidiaries of the bank
holding company, gross;'' and item 20.d, ``Intercompany liabilities
reported in items 20.c.(1), 20.c.(2) and 20.c.(3) above that qualify as
liabilities subordinated to claims of general creditors.''
The Federal Reserve proposes to collect these additional items to
restore the Federal Reserve's ability to monitor the potential impact
of intercompany transactions as a source of funds to affiliate banks
and BHCs, and the ability to monitor the degree to which financial
transactions at the broker-dealer subsidiary are funded internally
within the banking organization. In addition to eliminating the
provisions of former section 20 of the Glass-Steagall Act, the Gramm-
Leach-Bliley Act mandated a number of changes in the Federal Reserve's
supervision of broker-dealers, including Section 20 subsidiaries,
affiliated with BHCs. The Federal Reserve was advised to rely, to the
fullest extent possible, on the supervisory activities and regulatory
reports required by functional regulators (in this instance the SEC and
the self-regulatory organizations under its auspices).
The Federal Reserve has also ceased collection of the Financial
Statements for a Bank Holding Company Subsidiary Engaged in Bank-
Ineligible Securities Underwriting and Dealing (FR Y-20) collected from
broker-dealers that operate under new authority granted to financial
holding companies to engage in unlimited underwriting, dealing and
market making in securities pursuant to section 4(k)(4)(E) of the BHC
Act as amended by GLBA. Federal Reserve supervisors now rely upon the
SEC Financial and Operational Combined Uniform Single report (FOCUS)
report, internal management reports and publicly available financial
reports for off-site monitoring the activities of these broker-dealers.
However, none of these reports contain information formerly collected
on the FR Y-20 for intercompany assets and liabilities.
By recapturing this vital intercompany financial data, supervisors
would have an enhanced ability to monitor and understand changes in
affiliated broker-dealer funding and capital structures and their
effect on the banking organization. Also intercompany liabilities that
are derived from subordinated debt agreements are considered capital
under SEC net capital rules (Rule 15c3-1), and collection of proposed
item 20.d (also formerly collected on the FR Y-20) would allow Federal
Reserve to track this source of capital.
Schedule HC-N - Past Due and Nonaccrual Loans, Leases, and Other
Assets
The Federal Reserve proposes to add the following two items to the
memoranda section: item 7, ``Additions to nonaccrual assets,'' and item
8, ``Nonaccrual assets sold during the quarter.'' Although the overall
quarter-to-quarter change in nonaccrual assets could be easily
calculated based on end-of-values, collection of information relating
to inflows and outflows of nonaccrual loans would enhance the Federal
Reserve System's ability to track shifts in credit quality within a
portfolio and their impact on an institution's credit costs and
earnings. In aggregate, the information provided would facilitate the
evaluation of fundamental trends underlying a credit cycle. Data on the
outflow of nonaccrual loans would further reveal alternative management
approaches to the resolution of problem assets.
Information on new additions to the level of nonaccrual assets
during the period would indicate the extent of erosion or improvement
in a BHC's portfolio. Aggregated data on the trend in new inflows of
problem assets would aid in analyzing underlying credit cycle trends.
For example, a slowdown in new inflows of problem assets may indicate
an approaching peak level of nonperforming assets after the end of a
recession.
Information on the volume of nonaccrual asset sales would enable
the Federal Reserve System to track the growth of problem asset sales
within an institution's portfolio. The new data collection would
provide further insight into a banking organization's ability to manage
credit risks and approaches in dealing with credit problems. In
addition, the new data would lead to the identification of significant
sales of nonaccrual or problem assets that have been a subject of
supervisory and analytical interest. This interest is primarily
oriented to the liquidity of the secondary markets in problem loans.
Moreover, the information on problem loan sales would increase the
Federal Reserve System's understanding of the evolution of financial
markets. In particular, the secondary market for distressed loan sales,
an avenue that was not available toBHCs in the past, has become
prevalent only in recent years.
Instructions
Instructional revisions and clarifications would be done in
accordance with changes made to the Call Report instructions or will
[[Page 78473]]
correspond to existing Call Report instructions. In addition,
instructional revisions and clarifications would be made as necessary
with respect to proposed revisions not directly related to the proposed
Call Report changes for March 2003.
FR Y-9LP
The Federal Reserve proposes to make the following changes to the
FR Y-9LP regarding the accelerated filing deadline and information on
nonbank subsidiaries.
Accelerated Filing Deadline
The Federal Reserve proposes to require the filing of FR Y-9LP
reports within 35 days after the quarter-end reporting date. This
proposed change is consistent with the proposed change to the FR Y-9C
described above, with the Call Report proposal to require all banks to
file no later than 30 days after the quarter-end report date, and with
the SEC's final rule to accelerate the filing of quarterly reports from
45 days to 35 days after the quarter-end. In recognition of
respondents' time and resource needs to modify reporting systems and
review procedures, the proposed implementation date would be delayed
until June 30, 2004.
Schedule PC-B - Memoranda
The Federal Reserve proposes to add two new subitems to item 15 to
collect additional information on nonbank subsidiaries of top-tier
BHCs, item 15.b, ``Total combined loans and leases of nonbank
subsidiaries,'' and 15.c, ``Total aggregate operating revenue of
nonbank subsidiaries.'' Current items 15.b through 15.f would be
renumbered accordingly. Operating revenue would be defined as the sum
of total interest income and total noninterest income (before deduction
of expenses and extraordinary items.)
Under Federal Reserve supervision procedures, complex BHCs with
assets of $1 billion or less are subject to more extensive reviews than
noncomplex BHCs with assets of $1 billion or less. In particular, they
are assigned complete BOPEC (Banks, Other nonbank subsidiaries, Parent
Company, Earnings, Capital) ratings, while their noncomplex peers are
assigned only composite ratings based on the condition of their lead
depository institutions. The Federal Reserve identifies complex
companies based on a number of factors, including the nature and scale
of any nonbank activities. In order to assist to ensure that complexity
designations are up to date and accurate, the Federal Reserve has
monitored aggregate nonbank revenue and nonbank loans using data
reported by nonbank subsidiaries on the Financial Statements of Nonbank
Subsidiaries of Bank Holding Companies (FR Y-11). Recent revisions made
to these reporting forms will significantly reduce the panel of
companies filing detailed (or any) Y-11s on an annual basis,
eliminating a key source of data for identifying complex BHCs.
Instructions
The FR Y-9LP instructions would be revised and clarified in
accordance with changes made to the FR Y-9C instructions.
FR Y-9SP
The Federal Reserve proposes to make the following changes to the
FR Y-9SP in a manner consistent with the previously described changes
to the FR Y-9C or FR Y-9LP.
Accelerated Filing Deadline
The Federal Reserve proposes to require the filing of FR Y-9SP
reports within 35 days after the June 30 and December 31 reporting
dates. This proposed change is consistent with the proposed change to
the FR Y-9C described above, with the Call Report proposal to require
all banks to file no later than 30 days after the quarter-end report
date, and with the SEC's final rule to accelerate the filing of
quarterly reports from 45 days to 35 days after the quarter-end. In
recognition of respondents' time and resource needs to modify reporting
systems and review procedures, the proposed implementation date would
be delayed until June 30, 2004.
Balance Sheet
The Federal Reserve proposes to add two new subitems to Memorandum
item 17 to collect additional information on top-tier BHC nonbank
subsidiaries, item 17.b, ``Total combined loans and leases of nonbank
subsidiaries,'' and 17.c, ``Total aggregate operating revenue of
nonbank subsidiaries.'' Current items 17.b through 17.d would be
renumbered accordingly. Operating revenue would be defined as the sum
of total interest income and total noninterest income (before deduction
of expenses and extraordinary items.) As described above for the
proposed addition of similar items to the FR Y-9LP, the Federal Reserve
proposes to add these items to the FR Y-9SP to retain information
formerly available on the Annual Financial Statements of Nonbank
Subsidiaries of Bank Holding Companies (FR Y-11I) needed to identify
small complex BHCs.
Instructions
The FR Y-9SP instructions would be revised and clarified in
accordance with changes made to the FR Y-9C instructions.
Board of Governors of the Federal Reserve System, December 18,
2002.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-32275 Filed 12-23-02; 8:45 am]
BILLING CODE 6210-01-S