FDIC Federal Register Citations

[Federal Register: November 8, 2002 (Volume 67, Number 217)]

[Notices]

[Page 68229-68238]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr08no02-155]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION

Proposed Agency Information Collection Activities; Comment

Request

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;

Board of Governors of the Federal Reserve

[[Page 68230]]

System (Board); and Federal Deposit Insurance Corporation (FDIC).

ACTION: Joint notice and request for comment.

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SUMMARY: In accordance with the requirements of the Paperwork Reduction

Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC

(the ``agencies'') may not conduct or sponsor, and the respondent is

not required to respond to, an information collection unless it

displays a currently valid Office of Management and Budget (OMB)

control number. The Federal Financial Institutions Examination Council

(FFIEC), of which the agencies are members, has approved the agencies'

publication for public comment of proposed revisions to the

Consolidated Reports of Condition and Income (Call Report), which are

currently approved collections of information. At the end of the

comment period, the comments and recommendations received will be

analyzed to determine the extent to which the FFIEC should modify the

proposed revisions prior to giving its final approval. The agencies

will then submit the revisions to OMB for review and approval.

DATES: Comments must be submitted on or before January 7, 2003.

ADDRESSES: Interested parties are invited to submit written comments to

any or all of the agencies. All comments, which should refer to the OMB

control number(s), will be shared among the agencies.

OCC: Comments should be sent to the Public Information Room, Office

of the Comptroller of the Currency, Mailstop 1-5, Attention: 1557-0081,

250 E Street, SW., Washington, DC 20219. Due to disruptions in the

OCC's mail service since September 11, 2001, commenters are encouraged

to submit comments by fax or e-mail. Comments may be sent by fax to

(202) 874-4448, or by e-mail to regs.comments@occ.treas.gov. You can

inspect and photocopy the comments at the OCC's Public Information

Room, 250 E Street, SW., Washington, DC 20219. You can make an

appointment to inspect the comments by calling (202) 874-5043.

Board: Written comments, which should refer to ``Consolidated

Reports of Condition and Income, 7100-0036,'' may be mailed to Ms.

Jennifer J. Johnson, Secretary, Board of Governors of the Federal

Reserve System, 20th and C Streets, NW., Washington, DC 20551. Due to

temporary disruptions in the Board's mail service, commenters are

encouraged to submit comments by electronic mail to

regs.comments@federalreserve.gov, or by fax to the Office of the

Secretary at 202-452-3819 or 202-452-3102. Comments addressed to Ms.

Johnson also may be delivered to the Board's mailroom between 8:45 a.m.

and 5:15 p.m. weekdays, and to the security control room outside of

those hours. Both the mailroom and the security control room are

accessible from the Eccles Building courtyard entrance on 20th Street

between Constitution Avenue and C Street, NW. Comments received may be

inspected in room M-P-500 between 9 a.m. and 5 p.m. on weekdays

pursuant to sections 261.12 and 261.14 of the Board's Rules Regarding

Availability of Information, 12 CFR 261.12 and 261.14.

FDIC: Written comments should be addressed to Robert E. Feldman,

Executive Secretary, Attention: Comments/Legal, Federal Deposit

Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. All

comments should refer to ``Consolidated Reports of Condition and

Income, 3064-0052.'' Commenters are encouraged to submit comments by

fax or electronic mail [Fax number: (202) 898-3838; Internet address:

comments@fdic.gov]. Comments also may be hand-delivered to the guard

station at the rear of the 550 17th Street Building (located on F

Street) on business days between 7 a.m. and 5 p.m. Comments may be

inspected and photocopied in the FDIC Public Information Center, Room

100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m.

on business days.

A copy of the comments may also be submitted to the OMB desk

officer for the agencies: Joseph F. Lackey, Jr., Office of Information

and Regulatory Affairs, Office of Management and Budget, New Executive

Office Building, Room 10235, Washington, DC 20503 or electronic mail to

jlackeyj@omb.eop.gov.

FOR FURTHER INFORMATION CONTACT: Draft copies of the proposed revisions

to the Call Report forms may be requested from any of the agency

clearance officers whose names appear below.

OCC: Jessie Dunaway, OCC Clearance Officer, or Camille Dixon, (202)

874-5090, Legislative and Regulatory Activities Division, Office of the

Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.

Board: Cynthia M. Ayouch, Board Clearance Officer, (202) 452-2204,

Division of Research and Statistics, Board of Governors of the Federal

Reserve System, 20th and C Streets, NW., Washington, DC 20551.

Telecommunications Device for the Deaf (TDD) users may call (202) 263-

4869.

FDIC: Tamara R. Manly, Management Analyst (Regulatory Analysis),

(202) 898-7453, Legal Division, Federal Deposit Insurance Corporation,

550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Proposal to revise the following currently

approved collections of information:

The effect of the proposed revisions in reporting requirements will

vary from bank to bank depending on (1) the bank's involvement with the

types of activities or transactions to which proposed new items relate,

(2) whether the bank has or has had more than one foreign office, and

(3) the number and type of edit exceptions the agencies' validation

process identifies in the bank's Call Report. The agencies estimate

that, on average for all 8,700 banks, each bank would need

approximately an additional 0.5 to 1.5 hours to complete its Call

Report each quarter if the revisions were implemented as proposed.

However, the proposed revisions may result in a significantly larger

increase in burden, perhaps as much as 40 hours, for about 40 banks,

including the very largest banks in the U.S. The following burden

estimates include the proposed revisions.

Report Title: Consolidated Reports of Condition and Income (Call

Report)

Form Number: FFIEC 031 (for banks with domestic and foreign

offices) and FFIEC 041 (for banks with domestic offices only).

Frequency of Response: Quarterly.

Affected Public: Business or other for-profit.

For OCC:

OMB Number: 1557-0081.

Estimated Number of Respondents: 2,200 national banks.

Estimated Time per Response: 43.29 burden hours.

Estimated Total Annual Burden: 381,000 burden hours.

For Board:

OMB Number: 7100-0036.

Estimated Number of Respondents: 978 state member banks.

Estimated Time per Response: 49.50 burden hours.

Estimated Total Annual Burden: 193,644 burden hours.

For FDIC:

OMB Number: 3064-0052.

Estimated Number of Respondents: 5,480 insured state nonmember

banks.

Estimated Time per Response: 33.91 burden hours.

Estimated Total Annual Burden: 743,393 burden hours.

The estimated time per response for the Call Report is an average,

which varies by agency because of differences in the composition of the

banks under each agency's supervision (e.g., size

[[Page 68231]]

distribution of institutions, types of activities in which they are

engaged, and number of banks with foreign offices). For the Call

Report, the time per response for a bank is estimated to range from 15

to 600 hours, depending on individual circumstances.

General Description of Reports

These information collections are mandatory: 12 U.S.C. 161 (for

national banks), 12 U.S.C. 324 (for state member banks), 12 U.S.C. 1817

(for insured state nonmember commercial and savings banks, and for all

banks for deposit information). Except for selected items, this

information collection is not given confidential treatment. Small

businesses (i.e., small banks) are affected.

Abstract

Banks file Call Reports with the agencies each quarter for the

agencies' use in monitoring the condition, performance, and risk

profile of reporting banks and the industry as a whole. In addition,

Call Reports provide the most current statistical data available for

evaluating bank corporate applications such as mergers, for identifying

areas of focus for both on-site and off-site examinations, and for

monetary and other public policy purposes. Call Reports are also used

to calculate all banks' deposit insurance and Financing Corporation

assessments and national banks' semiannual assessment fees.

Current Action

I. Overview

The agencies' request for comment addresses a number of different

types of changes to the Call Report requirements. These changes relate

to the content of the Call Report itself, the submission deadline for

certain banks, and the agencies' process for validating and releasing

the data that banks report. First, the agencies are proposing several

revisions to the content of the Call Report that are focused on

improving the information they collect from banks that engage in

certain specific activities. This focus means that the proposed new or

revised Call Report items that pertain to each of these activities will

be applicable to small percentages of banks rather than to most or all

banks. The agencies also would clarify an instruction and the scope of

one group of items. This first group of proposed revisions, which would

take effect as of March 31, 2003, include:

[sbull] adding five items dealing with accrued fees and finance charges

on credit card accounts, allowances for uncollectible accrued fees and

finance charges, and charge-offs of such accrued amounts, which would

be reported by banks with a significant volume of credit card activity;

[sbull] breaking down the existing item in the securitization schedule

(Schedule RC-S) for seller-provided credit enhancements to the bank's

securitization structures (other than credit-enhancing interest-only

strips) into separate items for those enhancements that are in the form

of on-balance sheet assets and those enhancements that are in some

other form;

[sbull] splitting the current income statement (Schedule RI) item for

income from insurance activities into separate items for insurance

underwriting income and income from other insurance activities;

[sbull] adding a yes/no question asking whether any of the bank's

Internet Web sites has transactional capability, i.e., allows the

bank's customers to execute transactions on their accounts;

[sbull] eliminating the exemption from disclosing the fair values of

derivative contracts for banks with less than $100 million in assets in

Schedule RC-L - Derivative and Off-Balance Sheet Items, because

accounting standards require derivatives to reported on the balance

sheet as assets or liabilities at fair value;

[sbull] changing the income statement (Schedule RI) item in which banks

report any provisions for allocated transfer risk, which also affects

the reconciliation of the allowance for loan and lease losses in

Schedule RI-B, part II, and a related disclosure in the explanations

schedule (Schedule RI-E);

[sbull] creating a supplement to the Call Report, in which the

agencies, in response to a future event giving rise to an immediate and

critical need for specific information, would be authorized to collect

a limited amount of data from certain banks;

[sbull] clarifying the instructions to describe the limited

circumstances in which loans may be reported as held for trading

purposes; and

[sbull] explaining on both the report form and in the instructions

that, for the Memorandum items in the insurance assessments schedule

(Schedule RC-O) on the number and amount of deposit accounts by size of

account, the dollar amount for the size of an account (currently

$100,000) represents the deposit insurance limit in effect on the

report date.

Second, the agencies are proposing to shorten the Call Report

submission deadline for certain banks with foreign offices so that the

same submission deadline applies to all banks. In general, banks with

more than one foreign office currently are permitted to take an

additional 15 days beyond the standard 30 days applicable to all other

banks for filing their Call Reports. The agencies are proposing a

reduction in the filing period to 30 days effective June 30, 2003, for

banks with more than one foreign office. In a related change, the

agencies are proposing to authorize the FDIC, in connection with its

responsibility to set insurance premium assessment rates semiannually,

to obtain certain deposit data from those banks with foreign offices

whose March 2003 Call Reports have not been filed within the standard

30-day filing period. The FDIC would contact these banks in early May

2003 and direct them to disclose to the agency the amounts then

available from their Call Report preparation process for two Call

Report items: total domestic office deposits and estimated uninsured

deposits.

Third, beginning perhaps as early as the March 31, 2003, Call

Reports, the agencies would begin to make individual bank Call Reports

available to the public on the FDIC's Web site as soon as the data

validation process for a bank's report had been completed. At present,

all of the Call Reports for a specific report date are released to the

public simultaneously some 60-75 days after the quarter-end report

date. Under this proposal, after the edit exceptions, if any, in an

individual bank's Call Report have been resolved and the analysis of

the report has been completed, the report will be made publicly

available. This will make individual bank data available to the public

on a more timely basis than at present.

Finally, the agencies' currently plan to implement a new business

model for collecting and validating Call Reports in March 2004. In

connection with the introduction of this new business model, the

agencies are proposing that a bank's Call Report must pass all validity

edits and must include an explanatory comment addressing each quality

edit exception identified in the bank's report in order for the

agencies to accept the bank's Call Report submission. Otherwise, the

bank's report will not be accepted and the bank will need to make

appropriate corrections to its report data, add any required

explanatory comments, and resubmit its data file by the submission

deadline.

Type of Review: Revision of a currently approved collection.

The proposed revisions to the Call Report have been approved for

publication by the FFIEC. Unless otherwise indicated, the agencies

would implement these proposed Call Report changes as of the March 31,

2003, report date. Nonetheless, as is customary for Call Report

changes, banks are advised that, for the March 31, 2003, report date

only, reasonable estimates may be provided for any new or revised item

[[Page 68232]]

taking effect as of that date for which the requested information is

not readily available. The specific wording of the captions for the new

and revised Call Report items discussed in this proposal and the

numbering of these items in the report forms should be regarded as

preliminary.

The agencies note that on July 12, 2002, they requested comment on

the addition of a proposed new Call Report schedule that would collect

data on consumer loans in subprime lending programs beginning March 31,

2003 (67 FR 46250). The agencies are currently reviewing the comments

received on this separate proposal.

II. Discussion of Proposed Revisions

A. Charge-offs of Accrued Fees and Finance Charges on Credit Card

Accounts

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 uncollectible

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 Call Report items will 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 will 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

will cover both bank-owned portfolios and securitized portfolios of

credit cards. The five proposed items would be included as memorandum

items in Schedule RI-B, parts I and II, Schedule RC-C, part I, and

Schedule RC-S. Additionally, these proposed changes to the Call Report

include clarifications to the instructions for four items: Schedule RC-

S, items 1, 5.a, and 8, column C, and Schedule RI, item 1.a.(3)(a) on

the FFIEC 041 (item 1.a.(1)(d)(1) on the FFIEC 031). The proposed items

with their instructions and the instructional clarifications are

presented at the end of this section.

The proposed changes will improve financial reporting transparency

for losses on credit card accounts and permit Call Report users to

calculate loss rates for credit card loan receivables that are

comparable across credit card lending institutions. Users of Call

Report data will have more complete loss information relating to credit

card fees and finance charges that are written off as uncollectible.

Furthermore, the changes will 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 will provide useful information to facilitate the

agencies' supervision of credit card lending activities.

The proposed new items would be completed only by those banks 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 RC-C, part I, item 6.a (column B on the FFIEC 041, column A on

the FFIEC 031); Schedule RC-S, item 1, column C; and Schedule RC-S,

item 6.a, column C. (Include comparable data on managed credit card

receivables for any affiliated savings association.) or

(2) are credit card specialty banks as defined for purposes of the

Uniform Bank Performance Report (UBPR). According to the UBPR Users

Guide, credit card specialty banks are currently defined as those that

exceed 50% for the following two criteria:

(a) Credit Cards plus Securitized and Sold Credit Cards divided by

Total Loans plus Securitized and Sold Credit Cards.

(b) Total Loans plus Securitized and Sold Credit Cards divided by

Total Assets plus Securitized and Sold Credit Cards.

Based on these reporting criteria, the agencies estimate that fewer

than 100 banks will be subject to this proposed new reporting

requirement.

The proposed new items, with their instructions, are as follows:

(1) Schedule RI-B, part I, Memorandum item 4, ``Uncollectible credit

card fees and finance charges reversed against income (i.e., not

included in charge-offs against the allowance for loan and lease

losses).'' Report the amount of credit card fees and finance charges

that the bank reversed against either interest and fee income or a

separate contra-asset account during the calendar year-to-date. Exclude

from this item credit card fees and finance charges reported as charge-

offs against the allowance for loan and lease losses in Schedule RI-B,

part I, item 5.a, column A.

(2) Schedule RI-B, part II, Memorandum item 1, ``Separate valuation

allowance for uncollectible credit card fees and finance charges.''

Report the amount of any valuation allowance or contra-asset account

that the bank maintains separate from the allowance for loan and lease

losses to account for uncollectible credit card fees and finance

charges. Because this amount is separate from the amount included in

Schedule RC, item 4.c, and Schedule RI-B, part II, item 7, this

Memorandum item is only applicable for those banks that maintain an

allowance or contra-asset account separate from the allowance for loan

and lease losses.

(3) Schedule RI-B, part II, Memorandum item 2, ``Amount of allowance

for loan and lease losses attributable to credit card fees and finance

charges.'' Report in this item the amount of the allowance for loan and

lease losses that is attributable to outstanding credit card fees and

finance charges. This amount should have been included within the

amount reported in Schedule RC, item 4.c, and Schedule RI-B, part II,

item 7.

(4) Schedule RC-C, part I, Memorandum item 6, ``Outstanding credit card

fees and finance charges.'' Report the amount of fees and finance

charges included in the amount of credit card receivables reported in

Schedule RC-C, part I, item 6.a (column A on the FFIEC 031; column B on

the FFIEC 041).

(5) Schedule RC-S, Memorandum item 4, ``Outstanding credit card fees

and finance charges.'' Report the amount of fees and finance charges

included in the credit card receivables that the bank has reported as

securitized and sold in Schedule RC-S, item 1, column C.

As proposed, these five new items would be added to four separate

schedules. However, as indicated above, the agencies will collect this

information from a limited number of banks, i.e., banks with a

significant volume of credit card lending. The agencies therefore

request comment on whether it would be preferable to group these items

together in a separate Call Report schedule that would be

[[Page 68233]]

completed only by these credit card banks rather than having the five

items appear at scattered locations in the Call Report.

The proposed clarifications to existing instructions are as

follows:

(1) Schedule RI, item 1.a.(3)(a) on the FFIEC 041, item 1.a.(1)(d)(1)

on the FFIEC 031, ``Interest and fee income on credit cards.'' The

following sentence would be added to the instructions for this item:

Include in this item, as a reduction of income, the amount of

uncollectible credit card fees and finance charges the bank has

reversed against interest and fee income and the amount charged to

earnings for additions to any contra-asset account for uncollectible

credit card fees and finance charges that the bank maintains and

reports separately from its allowance for loan and lease losses.

(2) Schedule RC-S, item 1, ``Outstanding principal balance of assets

sold and securitized by the reporting bank with servicing retained or

with recourse or other seller-provided credit enhancements.'' The

following sentence would be added 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

reporting bank has securitized and sold.

(3) Schedule RC-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)]. The following

sentence would be added to the instructions for this item: Include in

column C charge-offs or reversals of uncollectible credit card fees and

finance charges that had been capitalized into the credit card

receivable balances that have been securitized and sold.

(4) Schedule RC-S, item 8.a, ``Charge-offs'' [on loan amounts included

in interests reported as securities in item 6.a (calendar year-to-

date)]. The following sentence would be added to the instructions for

this item: Include in column C the amount of credit card fees and

finance charges written off as uncollectible that were attributable to

the credit card receivables included in ownership interests reported as

securities in item 6.a, column C.

B. Breakdown of Seller-provided Credit Enhancements to the Bank's

Securitization Structures

Banks 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 RC-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

agencies' 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.

To distinguish between the amount of a bank's seller-provided

credit enhancements that are on-balance sheet assets (other than

credit-enhancing interest-only strips) and those that are not, item 2.b

would be split into two items. This proposed revision will enable the

agencies to better understand the types of credit support that banks

are providing to their securitizations, including which types are

typically used for different types of securitized loans. In revised

item 2.b, banks would disclose 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 RC-S, item 1. In new item 2.c,

``Standby letters of credit and other enhancements,'' banks would

disclose 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 RC-S, item 1.

C. Income from Insurance Activities

In Schedule RI, item 5.h, ``Insurance commissions and fees,'' banks

report their income from insurance and reinsurance underwriting, sales

of insurance and annuities, insurance agency and brokerage operations,

and management fees for insurance products. The risks arising from

insurance and reinsurance underwriting are significantly different from

those arising from other insurance activities. Given this distinction

in risk, the agencies are proposing to split the current single income

statement item for insurance-related income into two items so that

underwriting income can be separately identified. This will enable the

agencies to more clearly identify institutions engaged in underwriting

and to better monitor the results of these underwriting activities.

In new item 5.h.(1), ``Insurance and reinsurance underwriting

income,'' banks 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 bank'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,'' banks 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 bank'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 agencies request comment on whether the instructional language

in the two preceding paragraphs clearly describes insurance activities,

including underwriting, and the types of income to be reported in each

item.

D. Transactional Capability of Bank Web Sites

An increasing number of banks' Internet Web sites allow customers

to execute transactions on their accounts at the bank. These

transactional Web sites present greater security risks to a bank than

sites that provide only information to customers and the public. For

examination planning and risk scoping purposes and to monitor industry

trends in this area, the agencies are proposing to add a yes/no

question to the Call Report (as new item 8 of Schedule RC-M) asking

``Do any of the bank's Internet Web sites have transactional

capability, i.e., allow the bank's customers to execute transactions on

their accounts through the Web site.''

E. Disclosure of the Fair Value of Derivative Contracts

[[Page 68234]]

Schedule RC-L, item 15, collects data on the fair values of

derivatives, with gross positive and negative fair values reported

separately by type of exposure for contracts held for trading (items

15.a.(1) and (2)) and for those held for purposes other than trading

(items 15.b.(1) and (2)). At present, banks with domestic offices only

and less than $100 million in assets are exempt from this disclosure

requirement. This exemption originated when derivative contracts were

considered off-balance sheet items and predates FASB Statement No. 133,

Accounting for Derivative Instruments and Hedging Activities (FAS 133),

which took effect in 2001. FAS 133 requires all derivatives to be

measured at fair value and reported on the balance sheet as assets or

liabilities. Because banks with less than $100 million in assets that

have derivatives now have to regularly determine their fair value for

balance sheet purposes, these banks have the information necessary to

disclose the fair value of their derivatives in Schedule RC-L.

Accordingly, the agencies are proposing to eliminate this disclosure

exemption. The fair value data on derivatives will complement the data

that banks with less than $100 million in assets currently report on

the notional amount of their derivative contracts. The number of banks

in this size range that have derivative contracts and will therefore be

affected by this proposed change is less than 200.

F. Provisions for Allocated Transfer Risk

Prior to 2001, the Call Report income statement (Schedule RI)

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 banks. This separate item was removed from

the face of the income statement in 2001 and banks were instructed to

include these provisions in ``Other noninterest expense'' on Schedule

RI (item 7.d). However, in reviewing the continuing merits of this

instructional change, the agencies found that institutions exposed to

transfer risk generally view these provisions more like provisions for

loan losses than a noninterest expense. As a result, the agencies

concluded that it would be preferable for banks to include the

``Provision for allocated transfer risk'' with the ``Provision for loan

and lease losses'' in item 4 on the Call Report income statement and

are proposing to make this change.

In addition, in order for the end-of-period allowance in the

reconciliation of the ``Allowance for loan and lease losses'' in

Schedule RI-B, part II, to equal the loan loss allowance on the balance

sheet (Schedule RC, item 4.c), which excludes the ``Allocated transfer

risk reserve,'' the instructions for Schedule RI-B, part II, will also

be revised. More specifically, the instructions for Schedule RI-B, part

II, item 6, ``Adjustments,'' will direct banks 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 RI).

Additionally, as with all items reported in Schedule RI-B, part II,

item 6, ``Adjustments,'' the amount of any ``Provision for allocated

transfer risk'' would need to be itemized and described in item 6 of

the explanations schedule (Schedule RI-E).

G. Call Report Supplement for Future Data Needs

The agencies are proposing to obtain authority to collect a

supplement to the Call Report so that, should there be an immediate

need for the agencies to collect certain critical information from a

segment of the banking industry, the necessary items could be collected

on this supplement to the Call Report at the earliest practicable date.

Such a need could arise, for example, because of a statutory change or

an unexpected market event or change in credit conditions that has a

material effect on certain institutions. While the Paperwork Reduction

Act has emergency procedures for obtaining authority to collect

information on a one-time basis, the agencies believe it would be

preferable to take a proactive approach and establish in advance of a

possible critical future data need their authority to collect such

data. The agencies further note that the Board currently has comparable

authority to collect a supplement to the FR Y-9C bank holding company

report.

The agencies would expect to use their authority to collect a Call

Report supplement infrequently. Furthermore, to ensure that the

exercise of this authority is subject to proper oversight and control,

the agencies would require the members of the Federal Financial

Institutions Examination Council to approve the specific use of the

supplement. Thus, the Examination Council's Reports Task Force would

not have the delegated authority to institute a data collection using

the Call Report supplement.

For purposes of obtaining the authority for this supplement for

future data needs, the agencies estimate that the burden of any data

collection using this supplement would be imposed on no more than 10

percent of the banks under each agencies' supervision. In addition, the

estimated reporting burden imposed on these banks in connection with

reporting the requested data on the supplement would not exceed one

hour per quarter. As a consequence, the burden of any specific

supplemental items that the Examination Council would approve for

collection under this authority in the future could not exceed the

approved burden estimates. The burden estimates disclosed above for the

three agencies include the estimated burden of this proposed

supplement.

H. Loans Held for Trading Purposes

The General Instructions for Schedule RC-C, Part I - Loans and

Leases, advise banks to exclude from Schedule RC-C ``all loans and

leases held for trading purposes'' and to report them instead as

``Trading assets'' on the Call Report balance sheet (Schedule RC, item

5) and in Schedule RC-D - Trading Assets and Liabilities, if this

latter schedule is applicable. However, the instructions for the

balance sheet item for ``Trading assets'' and for Schedule RC-D do not

explicitly refer to loans (and leases) as trading assets, nor does the

Glossary entry for ``Trading Account.'' Accordingly, questions have

been raised concerning the circumstances in which it may be appropriate

to categorize certain loans (and leases) as trading assets. Trading

assets are carried on the balance sheet at fair value, with changes in

fair value (unrealized holding gains and losses) recognized in

earnings.

The agencies have reviewed the accounting literature for guidance

on the financial statement presentation and disclosure of loans

designated as held for trading. This review included consideration of

Financial Accounting Standards Board (FASB) No. 65, Accounting for

Certain Mortgage Banking Activities (FAS 65), as amended; FASB

Statement No. 91, Accounting for Nonrefundable Fees and Costs

Associated with Originating or Acquiring Loans and Initial Direct Costs

of Leases (FAS 91), as amended; FASB Statement No. 115, Accounting for

Certain Investments in Debt and Equity Securities (FAS 115); the FASB

staff's Implementation Guide for FAS 115; and chapters 5, 6, and 8 of

the current (May 2000) edition of Audit and Accounting Guide - Banks

and Savings Institutions (Audit Guide), published by the American

Institute of Certified Public Accountants.

In particular, paragraph 6.74 of the Audit Guide's chapter on loans

explains that ``management's disclosure in the summary of significant

accounting policies should include the basis of accounting for loans

and lease financings, both held in a portfolio and held for sale.'' In

the two introductory paragraphs of the loan chapter's section

[[Page 68235]]

entitled ``Accounting and Financial Reporting'' (paragraphs 6.48 and

6.49), the Audit Guide describes the basis of reporting for

``portfolio'' loans and ``held-for-sale'' loans, neither of which is

the market (fair) value reporting basis applicable to trading assets.

Paragraph 6.01 of the Audit Guide notes that banks ``sell loans or

portions of loans, and securitize loans'' and states that these two

activities are discussed in chapter 8, but does not mention loans held

for trading purposes. A review of chapter 8, ``Mortgage Banking

Activities and Loan Sales,'' also reveals no references to loans held

for trading purposes or carried at market (fair) value.

Question 35 in the FASB staff's Implementation Guide for FAS 115

asks whether an institution that acquires a security without the intent

to sell it in the near term may classify the security in the trading

category. The staff answered this question is in the affirmative,

stating that the ``[c]lassification of a security as trading is not

precluded simply because the enterprise does not intend to sell it in

the near term.'' However, Appendix C (paragraph 137) of FAS 115 defines

both ``security'' and ``debt security'' for purposes of this accounting

standard. The definition of the term ``debt security'' states that

``loans receivable arising from consumer, commercial, and real estate

lending activities of financial institutions are examples of

receivables that do not meet the definition of security; thus, those

receivables are not debt securities (unless they have been securitized,

in which case they would meet the definition).'' Therefore, loans do

not fall within the scope of FAS 115.

Given the relatively extensive amount of guidance in the accounting

literature on accounting for loans as ``portfolio'' loans and ``held-

for-sale'' loans, but the sparse guidance on loans ``carried at market

value'' or designated as trading assets, the agencies believe that,

under generally accepted accounting principles, it is appropriate in

only limited circumstances for banks to designate loans as held for

trading and account for them at fair value, with changes in fair value

recognized in earnings. In this regard, the agencies do not believe

that the trading classification option accorded securities at

acquisition by the FASB's response to Question 35 in the FAS 115

Implementation Guide should be extended to loans.

Accordingly, the agencies propose to provide guidance for

regulatory reporting purposes on the use of the trading account

designation for loans by revising the Glossary entry for ``Trading

Account'' in the Call Report instructions. 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 bank 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 bank

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.

I. Number and Amount of Deposit Accounts

Schedule RC-O, Memorandum item 1, collects information on the

number and amount of deposit accounts of (a) $100,000 or less and (b)

more than $100,000. This information provides the basis for calculating

``simple estimates'' of the amount of insured and uninsured deposits.

The captions for these memorandum items explicitly refer to $100,000,

which is the current deposit insurance limit. Given the purpose of

these memorandum items, the dollar amount cited in the caption would

need to be changed if the deposit insurance limit were to change, which

Congress is considering. To ensure that the dollar amount cited in the

caption changes automatically as a function of the deposit insurance

limit in effect on the report date, the caption for Memorandum item 1

would be footnoted to state that the specific dollar amounts used as

the basis for reporting the number and amount of deposit accounts in

Memorandum items 1.a and 1.b reflect the deposit insurance limits in

effect on the report date. The instructions for this Memorandum item

would be similarly clarified.

J. Reduction in the Filing Period for Banks with More than One Foreign

Office

Banks are required to submit their Call Reports electronically so

that the reported data are received by the banking agencies' electronic

collection agent no later than 30 days after the quarter-end report

date, e.g., by July 30 for the June 30 report. This 30-day filing

period applies to nearly all banks. However, fewer than one half of one

percent of all banks are permitted an additional 15 days to file their

Call Report data, e.g., by August 14 for the June 30 report. The

approxmiately 40 banks that are eligible for this lengthier filing

period are institutions that have more than one foreign office, other

than a ``shell'' branch or an International Banking Facility. Of these

banks, nearly half have only 2 foreign offices and just 6 have more

than 20 foreign offices. The 9 largest banks with more than one foreign

office each have more than $100 billion in total assets, with the

assets of the remaining banks ranging down to less than $5 billion.

The number of banks with between $5 and $100 billion in total

assets that do not have more than one foreign office exceeds the number

in this size range that have more than one foreign office. The banks in

this former group are required to submit their Call Reports within 30

days after quarter-end, while the banks in the latter group have the

additional 15-day filing period available to them.

The longer filing period for banks with more than one foreign

office delays the availability to the agencies, as well as to banks and

the general public, of timely data on the condition and performance of

the banking industry and the direction in which various indicators,

such as deposit flows and earnings, are moving. Critical to the

agencies' analyses of the industry are the data from the largest banks,

nearly all of which have 45 days in which to file their Call Reports

because they have more than one foreign office. With more timely

receipt of Call Report data from all institutions, the agencies can

identify the risks in the banking industry sooner and provide the

results of their analyses back to bankers and the marketplace earlier

when the data may be more useful for decision-making purposes. The

importance of making information available to the marketplace within

shorter timeframes can be seen in the Securities and Exchange

Commission's decision on August 27, 2002, to accelerate the filing

deadlines for the quarterly and annual reports that are required from

larger public companies under the federal securities laws.

Accordingly, the agencies are proposing to eliminate the additional

15-day period that banks with more than one foreign office have for

filing their Call Reports, effective with the reports for June 30,

2003. Thus, the submission deadline for the second quarter 2003 Call

Reports for all banks would be July 30, 2003.

[[Page 68236]]

The agencies acknowledge that banks with foreign offices are asked

to report a larger amount of data in their Call Reports than banks

without foreign offices are required to provide in their reports. The

agencies also recognize, from comments received on previous proposals

to reduce the filing period for banks with more than one foreign office

and from more recent conversations with bankers, that shortening this

period will impose additional costs on the affected institutions. These

banks will need to implement changes in their systems and quality

review processes to ensure that their publicly-available Call Report

data continue to be of high quality despite the reduced amount of time

for completing these reports. Therefore, the agencies believe that

scheduling the effective date for the reduction in the filing period to

be June 30, 2003, rather than March 31, 2003, the quarter when changes

in Call Report requirements are customarily implemented, will provide a

more reasonable amount of time for affected banks to update their

systems and processes in a manner that considers both the burden of

this change and the benefit of expedited collection of the data.

K. Early Collection of Deposit Items from Certain Banks with Foreign

Offices

The FDIC is required to maintain the deposit insurance funds that

it administers at a minimum level known as the Designated Reserve

Ratio, which is set at 1.25 percent of estimated insured deposits.\1\

The insurance fund ratios are calculated by dividing the insurance fund

level by the estimated amount of insured deposits. The FDIC Board of

Directors is required semiannually to set assessment rates for the

premiums to be paid by insured depository institutions to ensure that

the insurance fund ratios are maintained at the Designated Reserve

Ratio. To do this effectively and without burdening institutions with

unnecessary insurance premiums, the FDIC needs a timely and reliably

estimated measure of insurance fund ratios, particularly when those

levels are likely to be near or below the statutory target of 1.25

percent.

---------------------------------------------------------------------------

\1\ See Section 7(b)(2)(A)(iv)(1) of the Federal Deposit

Insurance Act (12 U.S.C. 1817(b)(2)(A)(iv)(1)).

---------------------------------------------------------------------------

Among the information that banks report in the Call Report is the

amount of total deposits in domestic offices (Schedule RC, item 13.a)

and the estimated amount of uninsured deposits (Schedule RC-O,

Memorandum item 2). These amounts are used to calculate the insurance

fund ratio. For most banks, Call Reports must be received not later

than 30 days after the end of the quarter. However, for banks with more

than one foreign office, which includes most of the largest banks in

the United States, the Call Report must be received not later than 45

days after quarter-end until the proposed elimination of this extended

filing period takes effect in June 2003 as discussed above. About 40

banks are eligible for this 45-day submission period.

Because of the timing of the semiannual assessment rate-setting

schedule and the proposed June 2003 effective date for the elimination

of the extended filing period, the FDIC may need insured deposit data

from the banks that have 45 days in which to file their March 2003 Call

Report earlier than the May 15, 2003, submission deadline for these

banks. To meet statutory and regulatory timeframes, which currently

require the FDIC Board to announce the semiannual assessment rate

schedules on approximately May 15 and November 15 each year, the Board

must meet to decide on the rate schedule for the next semiannual period

in early May and November. If any of the banks with more than one

foreign office files its March 2003 Call Report near the 45-day

submission deadline of May 15, 2003, then the most reliable estimate of

the amount of insured deposits available to the FDIC Board when it sets

assessment rates for the next semiannual period early in those months

will include Call Report data that is approximately 4 1/2 months old,

i.e., data as of the preceding December 31.

Using 4 1/2-month old data is problematic for the FDIC when there

is a reasonable likelihood that an insurance fund ratio, such as the

Bank Insurance Fund ratio, could fall below its 1.25 percent Designated

Reserve Ratio, which is a distinct possibility any time that a fund

ratio is near that target ratio. If the data that the FDIC Board uses

to determine an insurance fund ratio suggests that the ratio has fallen

below the Designated Reserve Ratio, the Board may determine that it is

necessary to charge institutions higher insurance premiums to increase

assessment revenue and bring the fund ratio ratio back up to its

statutory requirement.

Using incomplete Call Report data also could lead the FDIC Board to

make improper pricing decisions about insurance premiums. The data on

domestic office deposits and estimated uninsured deposits received from

institutions that file their Call Reports within 30 days of the March

31, 2003, report date may not be representative of the overall

industry-wide trend for that date. Accordingly, the absence of the

March 31, 2003, data from institutions that file their reports within

45 days after this dates could contribute to a decision by the FDIC

Board that results in an overpricing or underpricing of assessment

rates.

Thus, the FDIC proposes to obtain information on the level of

domestic office deposits and estimated uninsured deposits from certain

institutions on or about May 1, 2003, which is approximately two weeks

before the date by which these institutions are required to submit this

information in their Call Reports. This information-gathering effort

would be accomplished via telephone calls from the FDIC to appropriate

staff at these institutions, who would then supply the requested

information over the telephone, by e-mail, or by fax. At that stage in

their Call Report preparation process, the FDIC expects that these

institutions will already have at least preliminary numbers for these

two deposit items. Based on historical experience, fewer than 20

institutions with multiple foreign offices would be directed to provide

the FDIC with the amounts then available for these two items from their

Call Report preparation process. The preliminary information reported

by these institutions will not be provided to the public. Nevertheless,

with this information, the FDIC staff will be able to more confidently

advise the FDIC Board of the insurance fund ratios in early May 2003

and thereby avoid mispricing decisions.

The FDIC has separately requested and received approval from OMB

pursuant to OMB's emergency processing procedures to collect

information in early November 2002 on domestic office deposits and

estimated uninsured deposits as of September 30, 2002, from not more

than 20 large banks with multiple foreign offices. (OMB Control No.

3064-0144, which expires December 31, 2002.) (See 67 Fed. Reg. 60684,

September 26, 2002.) Under these emergency processing procedures,

however, OMB's approval of the FDIC's proposal enables the FDIC to

contact these institutions on a one-time basis in early November 2002.

Accordingly, the FDIC is now seeking the authority to collect these two

items on a preliminary basis in May 2003 from not more than 20 banks

with multiple foreign offices. The FDIC would exercise this authority

only if the insurance fund ratio as of May 31, 2003, is expected to be

at or near the Designated Reserve Ratio level of 1.25 percent.

L. Earlier Release of Individual Bank Call Reports

At present, the agencies wait until they have completed the data

validation

[[Page 68237]]

process for all 8,500 banks that file Call Reports before the Call

Reports for a particular quarter-end report date are made available to

the public. This simultaneous release of all bank Call Reports occurs

some 60-75 days after the report date. However, the data validation

process for most bank Call Reports is generally completed at a much

earlier date. By delaying the release of these reports, the information

about a bank's condition and performance contained in its most recent

quarter-end report is less useful to the public than if the report data

had been made available at an earlier date.

Because the usefulness of a bank's report data goes hand-in-hand

with the timeliness of the data, the agencies are proposing to change

their release date for individual bank Call Reports. Under this

proposal, beginning perhaps as early as the Call Reports for March 31,

2003, the agencies would begin to make each bank's Call Report

available to the public on the FDIC's Internet Web site (www.FDIC.gov)

as soon as they complete the data validation process for that bank's

report. This would mean that, after any edit exceptions identified in a

bank's Call Report have been resolved and the analysis of the report

has been completed, the public would be able to access the report

(except for any confidential information). As a result, individual bank

data would be available to the public on a more timely basis than at

present.

M. Criteria for Acceptance of Call Reports

On August 1, 2002, the FFIEC, on behalf of the agencies, issued a

Request for Proposal for the design and implementation of a new

business model for processing Call Reports with a target effective date

of March 2004. A principal feature of this new model would be a central

data repository to collect, validate, manage and distribute Call Report

information. As part of the introduction of this new business model,

the agencies would change the manner in which Call Reports would be

edited.

Currently, after the agencies receive a bank's electronically

submitted Call Report, the report is subjected to numerous edit checks

to assess the accuracy and reasonableness of the data the bank has

submitted. Validity edits verify the accuracy of reported data, e.g.,

whether the individual items in a report schedule add up to the

reported total and whether an item reported in one schedule agrees with

the amount reported for the same item in another schedule. Validity

edits include both mathematical and logical tests. Quality edits test

the reasonableness of data and include tests against historical

performance and other relational tests, e.g., whether the amount

reported for a year-to-date item is greater than or equal to the amount

reported for the same item in the previous quarter and whether the fair

value reported for a category of securities falls within a specified

range of the amortized cost reported for these securities.

If this validation process identifies any edit exceptions in a

bank's report, an agency Call Report analyst normally contacts the bank

and explains the edit exceptions detected in the bank's report. The

bank then reviews the reported data associated with these edit

exceptions and provides the Call Report analyst with any necessary

corrections and/or describes the underlying facts and circumstances

that explain why the data are correct as reported. The agencies'

follow-up with a bank on edit exceptions typically occurs by telephone

and takes place anywhere from one day to three or four weeks after a

bank has submitted its report.

Under the new business model, the validation process will take

place in conjunction with a bank's submission of its Call Report data

to the agencies. The central data repository will contain all of the

edit criteria and formulas, where they would be publicly available.

This will enable the edits to be incorporated into the Call Report

software a bank uses to prepare and submit its report to the agencies,

which means that edit exceptions will be identified while a bank is

completing its report. The bank will then be able to correct its report

data to eliminate any validity edit exceptions. The bank will also be

provided a method for supplying explanatory comments concerning any

quality edit exceptions.

Once the central data repository is implemented, which is targeted

for March 2004, the agencies are proposing that they will not accept a

bank's Call Report submission if it contains any validity edit

exceptions and lacks explanatory comments for any quality edit

exceptions. Because a bank will be aware of any edit exceptions while

its staff is completing its Call Report, the bank's follow-up on these

exceptions will be immediate rather than after-the-fact as it is under

the agencies' current approach to data validation. Thus, although the

agencies are proposing to change the manner in which banks provide

information to respond to edit exceptions identified in their Call

Reports, including requiring the submission of explanatory comments

concerning quality edit exceptions, this change should produce a net

decrease in reporting burden on banks by reducing subsequent questions

from the agencies. Furthermore, it should result in quicker validation,

acceptance, disclosure and use of individual bank Call Report data.

In anticipation of this change in the data validation process, the

agencies note that they have established a single set of validation

criteria and have published the criteria for the March, June and

September 2002 Call Report data on the FFIEC web site for banks'

reference and use. The agencies also have made this material available

to the Call Report software vendors. Beginning in September 2002, some

Call Report software products will include a feature that enables a

bank, at its option, to provide explanatory comments for edit

exceptions to the banking agencies.

III. Request for Comment

Public comment is requested on all aspects of this proposal. In

addition, comments are invited on:

(a) Whether the proposed revisions to the Call Report collections of

information are necessary for the proper performance of the agencies'

functions, including whether the information has practical utility;

(b) The accuracy of the agencies' estimates of the burden of the

information collections as they are proposed to be revised, including

the validity of the methodology and assumptions used;

(c) Ways to enhance the quality, utility, and clarity of the

information to be collected;

(d) Ways to minimize the burden of information collections on

respondents, including through the use of automated collection

techniques or other forms of information technology; and

(e) Estimates of capital or start up costs and costs of operation,

maintenance, and purchase of services to provide information.

Comments submitted in response to this Notice will be shared among

the agencies and will be summarized or included in the agencies'

requests for OMB approval. All comments will become a matter of public

record. Written comments should address the accuracy of the burden

estimates and ways to minimize burden as well as other relevant aspects

of the information collection request.

Dated: October 23, 2002.

Mark J. Tenhundfeld,

Assistant Director, Legislative and Regulatory Activities

Division,Office of the Comptroller of the Currency.

Board of Governors of the Federal Reserve System, November 4,

2002.

Jennifer J. Johnson,

Secretary of the Board.

Dated at Washington, D.C., this the 23rd day of October, 2002.

[[Page 68238]]

FEDERAL DEPOSIT INSURANCE CORPORATION

Robert E. Feldman,

Executive Secretary

[FR Doc. 02-28435 Filed 11-7-02; 8:45 am]

BILLING CODE: OCC: 4810-33-S 1/3; Board: 6210-01-S; 1/3; FDIC: 6714-01-

S; 1/3