Proposed Agency Information Collection Activities; Comment Request, 67159-67173 [E8-26916]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 73, Number 220 (Thursday, November 13, 2008)]
[Notices]
[Pages 67159-67173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26916]


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FEDERAL RESERVE SYSTEM


Proposed Agency Information Collection Activities; 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 (PRA), 
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 Paperwork Reduction Act 
Submission, 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 Comment on Information Collection Proposals

    The following information collections, which are being handled 
under this delegated authority, have received initial Board approval 
and are hereby published for comment. At the end of the comment period, 
the proposed information collections, 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 January 12, 2009.

ADDRESSES: You may submit comments, identified by FR Y-9C, FR Y-9SP, FR 
Y-11, FR 2314, FR Y-7N, FR 2886b, and FR Y-8, by any of the following 
methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at https://
www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons. Accordingly, your comments will 
not be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets, NW.) between 9 
a.m. and 5 p.m. on weekdays.

[[Page 67160]]

    Additionally, commenters should send a copy of their comments to 
the OMB Desk Officer by mail to the Office of Information and 
Regulatory Affairs, U.S. Office of Management and Budget, New Executive 
Office Building, Room 10235, 725 17th Street, NW., Washington, DC 20503 
or by fax to 202-395-6974.

FOR FURTHER INFORMATION CONTACT: A copy of the PRA OMB submission 
including, the proposed reporting form and instructions, supporting 
statement, and other documentation will be placed into OMB's public 
docket files, once approved. These documents will also be made 
available on the Federal Reserve Board's public Web site at: https://
www.federalreserve.gov/boarddocs/reportforms/review.cfm or may be 
requested from the agency clearance officer, whose name appears below.
    Michelle Shore, 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.

Proposal To Approve Under OMB Delegated Authority the Revision, Without 
Extension, of the Following Reports

    1. Report title: Consolidated Financial Statements for Bank Holding 
Companies, Parent Company Only Financial Statements for Small Bank 
Holding Companies.
    Agency form number: FR Y-9C, FR Y-9SP.
    OMB control number: 7100-0128.
    Frequency: FR Y-9C: quarterly; FR Y-9SP: semi-annually.
    Reporters: Bank holding companies.
    Annual reporting hours: FR Y-9C: 162,602; FR Y-9SP: 48,254.
    Estimated average hours per response: FR Y-9C: 41.65; FR Y-9SP: 
5.40.
    Number of respondents: FR Y-9C: 976; FR Y-9SP: 4,468.
    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, pursuant to sections 
(b)(4), (b)(6) and (b)(8) of the Freedom of Information Act (5 U.S.C. 
552(b)(4), (b)(6) and (b)(8)).
    Abstract: The FR Y-9C and FR Y-9SP are standardized financial 
statements for the consolidated bank holding company (BHC) and its 
parent. The FR Y-9 family of reports historically has been, and 
continues to be, the primary source of financial information on BHCs 
between on-site inspections. Financial information from these reports 
is used to detect emerging financial problems, to review performance 
and conduct pre-inspection analysis, to monitor and evaluate capital 
adequacy, to evaluate BHC mergers and acquisitions, and to analyze a 
BHC's overall financial condition to ensure safe and sound operations.
    The FR Y-9C consists of standardized 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) filed by commercial banks. The FR Y-9C 
collects consolidated data from BHCs. The FR Y-9C is filed by top-tier 
BHCs with total consolidated assets of $500 million or more. (Under 
certain circumstances defined in the General Instructions, BHCs under 
$500 million may be required to file the FR Y-9C.)
    The FR Y-9SP is a parent company only financial statement filed by 
smaller BHCs. Respondents include BHCs with total consolidated assets 
of less than $500 million. This form is a simplified or abbreviated 
version of the more extensive parent company only financial statement 
for large BHCs (FR Y-9LP). This report is designed to obtain basic 
balance sheet and income information for the parent company, 
information on intangible assets, and information on intercompany 
transactions.
    Current Actions: The Federal Reserve proposes to implement a number 
of changes to the FR Y-9C and FR Y-9SP reporting requirements to better 
support the surveillance and supervision of individual BHCs and enhance 
the monitoring of the industry's condition and performance. The 
proposed revisions reflect a thorough and careful review of data needs 
in a variety of areas as BHCs encounter the most turbulent environment 
in more than a decade. Thus, the revisions include new data items 
focusing on areas in which the banking industry is facing heightened 
risk due to market turmoil and illiquidity and weakening economic and 
credit conditions. Also, the Federal Reserve proposes certain revisions 
due to changes in accounting standards and amendments to regulatory 
capital requirements. To minimize reporting burden, where possible, the 
Federal Reserve has sought to establish reporting thresholds for 
proposed new data items.
    The Federal Reserve proposes the following revisions to the FR Y-9C 
effective March 31, 2009: (1) New data items and revisions to existing 
data items on trading assets and liabilities, (2) new data items 
associated with the U.S. Department of the Treasury (Treasury) Capital 
Purchase Program (CPP), (3) new data items and revisions to existing 
data items on regulatory capital requirements, (4) new data items 
providing information on held-for-investment loans and leases acquired 
in business combinations, (5) new data items and revisions to several 
data items applicable to noncontrolling (minority) interests in 
consolidated subsidiaries, (6) clarification of the definition of loans 
secured by real estate, (7) clarification of the instructions for 
reporting unused commitments, (8) exemptions from reporting certain 
existing data items for BHCs with less than $1 billion in total assets, 
and (9) instructional guidance on quantifying misstatements.
    The Federal Reserve proposes the following revisions to the FR Y-9C 
effective June 30, 2009: (1) New data items for real estate 
construction and development loans (for BHCs with construction and 
development loan concentrations), (2) new data items and deletion of 
existing items for holdings of collateralized debt obligations and 
other structured financial products, (3) new data items and revisions 
to existing data items for holdings of commercial mortgage-backed 
securities, (4) new data items and revisions to existing data items for 
unused commitments with an original maturity of one year or less to 
asset-backed commercial paper conduits, (5) new data items and 
revisions to existing data items for fair value measurements by level 
for asset and liability categories reported at fair value on a 
recurring basis, (6) new data items for pledged loans and pledged 
trading assets, (7) new data items for collateral held against over-
the-counter (OTC) derivative exposures (for BHCs with $10 billion or 
more in total assets), (8) new data items and revisions and deletions 
of existing data items for investments in real estate ventures, (9) new 
data items and revisions to existing data items for past due and 
nonaccrual trading assets, and (10) new data items and revisions to 
existing data items for credit derivatives.
    The Federal Reserve proposes to modify the FR Y-9SP to also collect 
new data items associated with the Treasury's Capital Purchase Program 
(CPP). The proposed changes would be effective as of June 30, 2009.

[[Page 67161]]

Proposed Revisions--FR Y-9C

A. Proposed Revisions Not Related to Call Report Revisions

    The Federal Reserve proposes to make the following revisions to the 
FR Y-9C effective as of March 31, 2009, which are unrelated to the 
revisions proposed to the Call Report.

A.1 Revisions to Information Collected on Schedule HC-D, Trading Assets 
and Liabilities

    BHCs report the fair value of liabilities resulting from sales of 
assets that the BHC does not own (short selling or short positions) in 
Schedule HC-D, data item 13.a, Liability for short positions. Since 
2000, the total liability for short positions reported by FR Y-9C 
respondents has increased approximately 123 percent to over $325 
billion as of March 31, 2008. This data item also comprises over half 
of total trading liabilities reported on the FR Y-9C. To appropriately 
assess the safety and soundness of BHCs that participate in short 
selling activity and to better monitor the specific risk exposures 
associated with the type of assets that are sold short, the Federal 
Reserve proposes to break out data item 13.a into three new categories: 
13.a.(1) Equity securities; 13.a.(2) Debt securities; and 13.a.(3) All 
other assets.
    Since 2000, the aggregate amount of Other trading assets in 
domestic offices reported in Schedule HC-D, data item 9, has increased 
approximately 108 percent to over $120 billion as of March 31, 2008. 
The Federal Reserve believes that a significant component of this 
amount is commodity contracts and physical commodities held for 
trading. The gross positive fair value of commodity and other contracts 
(other than interest rate, foreign exchange and equity derivative 
contracts) held for trading has grown from less than $14 billion as of 
year-end 2001 to over $85 billion as of March 31, 2008. Furthermore, 
BHCs have recently been given regulatory approval to engage in the 
trading of physical commodities held in inventory. Because of the 
volatility of the assets underlying these commodity contracts and the 
risk associated with the trading of these types of assets, the Federal 
Reserve proposes to add new memorandum item 9.a.(1), Gross fair value 
of commodity contracts, and new memorandum item 9.a.(2), Gross fair 
value of physical commodities held in inventory. These memoranda items 
would be completed by BHCs that reported average trading assets of $1 
billion or more in any of the four preceding quarters.
    Current memoranda items 9.a, 9.b, and 9.c, providing a description 
of and the fair value of any type of trading asset that is greater than 
$25,000 and exceeds 25 percent of the amount reported in Schedule HC-D, 
data item 9, Other trading assets would be renumbered as 9.b.(1), 
9.b.(2), and 9.b.(3). In addition, the Federal Reserve proposes to 
exclude the reporting of the fair value of commodities from renumbered 
memorandum item 9.b. The Federal Reserve also proposes to modify the 
reporting criteria for renumbered memorandum item 9.b to provide a 
description of and the fair value of any type of trading asset that is 
greater than $25,000 and exceeds 25 percent of Schedule HC-D, data item 
9, less Schedule HC-D, new memorandum item 9.a.

A.2 Proposed Revisions to Schedule HC-M, Memoranda

    On October 14, 2008, the Secretary of the Treasury announced a 
program to provide capital to eligible financial institutions, 
including BHCs. Under the CPP, the Treasury will provide capital to 
participating BHCs by purchasing newly issued senior perpetual 
preferred stock of the bank holding company. This perpetual preferred 
stock will be senior to the BHCs common stock and on par with the 
issuer's existing preferred shares. All such senior perpetual preferred 
stock issued by BHCs will provide for cumulative dividends.\1\ The 
senior perpetual preferred stock may be included without limit in the 
tier 1 capital of BHCs. In conjunction with the purchase of senior 
perpetual preferred stock, the Treasury will receive warrants to 
purchase common stock with an aggregate market price equal to 15 
percent of the senior preferred investment.
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    \1\ For a discussion of the terms and conditions of the CPP, see 
the Board's press release dated October 16, 2008, and the attachment 
to this press release.
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    In order to monitor the scope of the CPP, including associated 
warrants issued, and to ascertain the impact on BHCs tier 1 capital, 
the Federal Reserve proposes to add two data items to Schedule HC-M, 
Memoranda. The Federal Reserve proposes to add new data item 24 with 
the heading ``Issuances associated with the U.S. Department of Treasury 
Capital Purchase Program:'' with a breakout for data item 24.a, 
``Senior perpetual preferred stock or similar items,'' and 24.b, 
``Warrants to purchase common stock or similar items.'' BHCs would 
report the carrying amount of these instruments in data items 24.a and 
24.b. The Federal Reserve proposes to add the phrase ``or similar 
items'' to each of these data items in order to provide greater 
flexibility to collect information related to this program as details 
of the program develop further.

A.3 Proposed Revisions to Schedule HC-R, Regulatory Capital

    On March 10, 2005, the Federal Reserve amended its risk-based 
capital standards for BHC's to allow the continued inclusion of 
outstanding and prospective issuances of trust preferred securities in 
the tier 1 capital of BHCs (subject to stricter quantitative limits and 
qualitative standards). The Federal Reserve also revised the 
quantitative limits applied to the aggregate amount of qualifying 
cumulative perpetual preferred stock, qualifying trust preferred 
securities, and Class B \2\ and Class C \3\ minority interest 
(collectively, qualifying restricted core capital elements) included in 
the tier 1 capital of BHCs. These new quantitative limits become 
effective on March 31, 2009.
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    \2\ Class B minority interest is related to qualifying 
cumulative perpetual preferred stock directly issued by a 
consolidated U.S. depository institution or foreign bank subsidiary.
    \3\ Class C minority interest is related to qualifying common 
stockholders' equity or perpetual preferred stock issued by a 
consolidated subsidiary that is neither a U.S. depository 
institution nor a foreign bank.
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    The aggregate amount of restricted core capital elements that may 
be included in the tier 1 capital of a BHC must not exceed 25 percent 
of the sum of all core capital elements (qualifying common 
stockholders' equity, qualifying noncumulative perpetual preferred 
stock including related surplus, Class A minority interest,\4\ and 
restricted core capital elements), less goodwill net of any associated 
deferred tax liability.\5\ Stated differently, the aggregate amount of 
restricted core capital elements is limited to one-third of the sum of 
unrestricted core capital elements (for example, common stockholders' 
equity, noncumulative perpetual preferred stock, and Class A minority 
interest), less goodwill net of any associated deferred tax liability. 
In addition, the aggregate amount of restricted core capital elements 
(other than qualifying mandatory convertible preferred securities \6\) 
that may be

[[Page 67162]]

included in the tier 1 capital of an internationally active BHC \7\ 
must not exceed 15 percent of the sum of all core capital elements, 
including restricted core capital elements, net of goodwill less any 
associated deferred tax liability. Amounts of restricted core capital 
elements in excess of these limits generally may be included in tier 2 
capital. The excess amounts of restricted core capital elements that 
are in the form of Class C minority interest and qualifying trust 
preferred securities are subject to further limitation within tier 2 
capital, as discussed below.
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    \4\ Class A minority interest is defined as common stockholders' 
equity of a consolidated subsidiary that is a U.S. depository 
institution or a foreign bank.
    \5\ Algebraically this may be expressed as A-(B-C) where A 
represents all core capital elements, B represents goodwill, and C 
represents any deferred tax liability associated with goodwill.
    \6\ Qualifying mandatory convertible preferred securities 
generally consist of the joint issuance by a BHC to investors of 
trust preferred securities and a forward purchase contract, which 
the investors fully collateralize with the securities, that 
obligates the investors to purchase a fixed amount of the BHC's 
stock, generally within three years.
    \7\ For this purpose, an internationally active BHC is a BHC 
that (1) as of its most recent year-end FR Y-9C, reports total 
consolidated assets equal to $250 billion or more or (2) on a 
consolidated basis, reports total on-balance-sheet foreign exposure 
of $10 billion or more on its most recent year-end FFIEC 009 Country 
Exposure Report.
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    In the last five years before the maturity of the junior 
subordinated note held by the trust, the outstanding amount of the 
associated trust preferred securities is excluded from tier 1 capital 
and included in tier 2 capital, where the trust preferred securities 
are subject to certain amortization provisions and quantitative 
restrictions as if the trust preferred securities were limited-life 
preferred stock. As a limited-life capital instrument approaches 
maturity, it begins to take on characteristics of a short-term 
obligation. For this reason, the outstanding amount of term 
subordinated debt and limited-life preferred stock eligible for 
inclusion in tier 2 capital is reduced, or discounted, as these 
instruments approach maturity: One-fifth of the outstanding amount is 
excluded each year during the instrument's last five years before 
maturity. When remaining maturity is less than one year, the instrument 
is excluded from tier 2 capital.
    The aggregate amount of term subordinated debt and limited-life 
preferred stock as well as, beginning March 31, 2009, qualifying trust 
preferred securities and Class C minority interest in excess of the 
amounts includable in tier 1 capital (previously described) may be 
included in tier 2 capital up to an aggregate amount of 50 percent of 
tier 1 capital. Amounts of these instruments in excess of this limit, 
although not included in tier 2 capital, will be taken into account by 
the Federal Reserve in its overall assessment of a BHC's funding and 
financial condition.
    Currently some components of qualifying restricted core capital 
elements (numerator to the ratio calculated to compare to the limit) 
and of qualifying core capital elements (denominator to the ratio 
calculated to compare to the limit) cannot be separately identified in 
data items reported on the FR Y-9C. For example, mandatorily 
convertible preferred securities are not separately reported but are 
includible in the tier 1 of internationally active BHCs above the 15 
percent limit up to the generally applicable 25 percent limit, while 
they are included in the 25 percent limit (both numerator and 
denominator) for other BHCs. Furthermore, Class A, B, and C minority 
interest are not separately reported on the current FR Y-9C report. 
However, in computing compliance with the March 31, 2009, standard, 
Class A minority interest is an unrestricted core capital element, 
while Class B and C minority interest are restricted core capital 
elements. Finally, the amount of goodwill deducted in computing 
applicable limits under the tier 1 components rule is reduced by the 
amount of any associated deferred tax liability, while goodwill 
reported on the FR Y-9C is not net of such deferred tax liability. 
Therefore, the Federal Reserve proposes to revise certain data items in 
Schedule HC-R, Regulatory Capital, collected for the calculation of 
tier 1 and tier 2 capital and to collect new data items to identify the 
components of restricted core capital included in tier 1 capital that 
would allow for the determination of a BHC's compliance with the tier 1 
limits placed on restricted core capital elements:
     Change data item 6.a, Qualifying minority interests in 
consolidated subsidiaries and similar items, to Qualifying Class A non-
controlling (minority) interests in consolidated subsidiaries.
     Change data item 6.b, Qualifying trust preferred 
securities, to Qualifying restricted core capital elements (other than 
cumulative perpetual preferred).
     Add new data item 6.c, Qualifying mandatory convertible 
preferred securities of internationally active bank holding companies.
     Change data item 8, Subtotal (sum of items 1, 6.a. and 
6.b., less items 2, 3, 4, 5, 7.a. and 7.b.) to Subtotal (sum of items 
1, 6.a., 6.b., and 6.c., less items 2, 3, 4, 5, 7.a., and 7.b.).
     Change data item 12, Qualifying subordinated debt and 
redeemable preferred stock, to Qualifying subordinated debt, redeemable 
preferred stock, and restricted core capital elements not includible in 
item 6.b. or 6.c.
     Change data item 13, Cumulative perpetual preferred stock 
includible in Tier 2 capital, to Cumulative perpetual preferred stock 
not included in item 5 and Class B noncontrolling (minority) interest 
not included in item 6.b., but includible in Tier 2 capital.
     Add a new memoranda item 8, Restricted core capital 
elements included in Tier 1 capital, with separate reporting of the 
following new data items:
    [cir] 8.a, Qualifying Class B non-controlling (minority) interest 
(included in Schedule HC, item 27.b).
    [cir] 8.b, Qualifying Class C non-controlling (minority) interest 
(included in Schedule HC, item 27.b).
    [cir] 8.c, Qualifying cumulative perpetual preferred stock 
(included in Schedule HC, item 27.a).
    [cir] 8.d, Qualifying trust preferred securities (included in 
Schedule HC, item 19.b).
     Delete current memoranda item 3.b, Preferred stock 
(including related surplus) eligible for inclusion in Tier 1 capital: 
Cumulative perpetual preferred stock (included and reported in Total 
equity capital on Schedule HC).
     Add new memoranda item 9, Goodwill net of any associated 
deferred tax liability.
     Add new memoranda item 10, Ratio of qualifying restricted 
core capital elements to total core capital elements less (goodwill net 
of any associated deferred tax liability). (This data item would be 
reported as a percentage.)
    Also, other Schedule HC-R instructions and examples found at the 
end of the instructions to Schedule HC-R would be modified to reflect 
the aforementioned changes.

B. Proposed Revisions Related to Call Report Revisions

    The Federal Reserve proposes to make the following revisions to the 
FR Y-9C, segregated into two groups, proposed for March 2009 and 
proposed for June 2009, to parallel proposed changes to the Call 
Report. BHCs have commented that changes should be made to the FR Y-9C 
in a manner consistent with changes to the Call Report, and implemented 
at the same time, to reduce reporting burden.

B.1 Revisions Proposed for March 2009

B.1.1 Loans and Leases Acquired in Business Combinations

    BHCs must apply Statement of Financial Accounting Standards No. 141 
(Revised), Business Combinations (FAS 141(R)), which was issued in 
December 2007, prospectively to business combinations for which the 
acquisition date is on or after the beginning of their first annual 
reporting period beginning

[[Page 67163]]

on or after December 15, 2008. Thus, for BHCs with calendar year fiscal 
years, FAS 141(R) will apply to business combinations with acquisition 
dates on or after January 1, 2009. Under FAS 141(R), all business 
combinations are to be accounted for by applying the acquisition 
method.
    Under current generally accepted accounting principles, loans to be 
held for investment that are acquired in a business combination 
accounted for using the purchase method generally are recorded at 
``present values of amounts to be received determined at appropriate 
current interest rates, less allowances'' for loan and lease losses 
(ALLL).\8\ Thus, in practice, an acquired entity's ALLL generally is 
carried over to the acquiring BHC's (consolidated) balance sheet. In 
contrast, under FAS 141(R), a BHC acquiring loans to be held for 
investment in a business combination accounted for using the 
acquisition method must record these loans at fair value. The fair 
value of these loans incorporates assumptions regarding credit risk. As 
a result, FAS 141(R) does not permit an acquiring BHC to carry over the 
acquired entity's ALLL.
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    \8\ See Statement of Financial Accounting Standards No. 141, 
Business Combinations (FAS 141), paragraph 57(b). This accounting 
treatment does not apply to those acquired loans within the scope of 
American Institute of Certified Public Accountants Statement of 
Position 03-3, Accounting for Certain Loans or Debt Securities 
Acquired in a Transfer (SOP 03-3).
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    Because of this significant change in the accounting for acquired 
loans, paragraph 68(h) of FAS 141(R) requires the following disclosures 
about the loans (not subject to SOP 03-3) and leases that were acquired 
in each business combination that occurred during the reporting period:
     The fair value of the loans and leases;
     The gross contractual amounts receivable; and
     The best estimate at the acquisition date of the 
contractual cash flows not expected to be collected.
    These disclosures are intended to assist users of financial 
statements in understanding the credit quality and collectibility of 
the acquired loans and leases at the time of their acquisition. 
Accordingly, and in recognition of this significant change in 
accounting practice for business combinations, the Federal Reserve 
proposes to add new data items to the FR Y-9C that would encompass the 
three disclosures related to the date of acquisition as required by FAS 
141(R) cited above for the following categories of acquired held-for-
investment loans (not subject to SOP 03-3) and leases:
     Loans secured by real estate;
     Commercial and industrial loans;
     Loans to individuals for household, family, and other 
personal expenditures; and
     All other loans and all leases.
    These new data items would be completed by BHCs that have engaged 
in business combinations that must be accounted for in accordance with 
FAS 141(R) for transactions for which the acquisition date is on or 
after January 1, 2009. A BHC that has completed one or more business 
combinations during the current calendar year would report these data 
as they relate to the date of acquisition (as aggregate totals if 
multiple business combinations have occurred) in each FR Y-9C report 
submission after the acquisition date during that year.
    The Federal Reserve is also considering whether BHCs that have 
engaged in FAS 141(R) business combinations should provide additional 
information in the FR Y-9C about the acquired held-for-investment loans 
(not subject to SOP 03-3) and leases and the loss allowances 
established for them in periods after their acquisition. The Federal 
Reserve is considering requiring BHCs to report the outstanding balance 
of these acquired loans and leases, their carrying amount, and the 
amount of the allowance for post-acquisition losses on these loans and 
leases. Such reporting would be consistent with the information that 
BHCs currently report in the FR Y-9C about purchased impaired loans 
accounted for in accordance with SOP 03-3. Since these purchased loans 
will be recorded at fair value at acquisition, this information would 
help the Federal Reserve and other users of the FR Y-9C to track 
management's judgments regarding the collectibility of the acquired 
loans and leases in periods after the acquisition date and evaluate 
fluctuations in the level of the overall ALLL as a percentage of the 
held-for-investment loan and lease portfolio in periods after a 
business combination. However, the Federal Reserve recognizes that 
information about acquired loans and leases and related allowances will 
become less useful from an analytical standpoint with the passage of 
time after a business combination.
    The Federal Reserve asks for comment on the merits and availability 
of the post-acquisition loan and lease data described above that are 
being considered for possible addition to the FR Y-9C and the period of 
time after a business combination this information should be reported 
(e.g., through the end of the calendar year of the acquisition, through 
the end of the calendar year after the year of the acquisition, for a 
longer period, or for some other period such as the first four calendar 
quarters after the acquisition).

B.1.2 Noncontrolling Interests in Consolidated Financial Statements

    In December 2007, the Financial Accounting Standards Board (FASB) 
issued Statement No. 160, Noncontrolling Interests in Consolidated 
Financial Statements (FAS 160). FAS 160 defines a noncontrolling 
interest, also called a minority interest, as the portion of equity in 
a BHC's subsidiary not attributable, directly or indirectly, to the 
parent BHC. FAS 160 requires a BHC to clearly present in its 
consolidated financial statements the equity ownership interest in and 
the financial statement results of its subsidiaries that are 
attributable to the noncontrolling ownership interests in these 
subsidiaries. Under FAS 160, the ownership interests in subsidiaries 
held by the noncontrolling interests must be clearly identified, 
labeled, and presented in the consolidated balance sheet within equity 
capital, but separate from the parent BHC's equity capital. FAS 160 
also requires that the amount of consolidated net income attributable 
to the BHC and to the noncontrolling interests in the BHC's 
subsidiaries be clearly identified and presented on the face of the 
consolidated income statement. In this regard, the consolidated income 
statement will reflect the amount of the BHC's consolidated net income, 
with separate data items then indicating the portions of the 
consolidated net income attributable to the noncontrolling interests 
and to the parent BHC.
    The Federal Reserve proposes to make several changes to conform the 
FR Y-9C to the presentation requirements of FAS 160. The Federal 
Reserve proposes to amend Schedule HC, Balance Sheet, by replacing data 
item 22, Minority interest in consolidated subsidiaries, which is 
currently reported outside the Equity Capital section, with new data 
item 27.b in the Equity Capital section for Noncontrolling (minority) 
interests in consolidated subsidiaries. The Federal Reserve also 
proposes to renumber and rename Schedule HC, data items 26 through 29 
in the following manner:
     Data Item 26.a, Retained earnings;
     Data Item 26.b, Accumulated other comprehensive income;
     Data Item 26.c, Other equity capital components;
     Data Item 27.a, Total bank holding company equity capital 
(sum of items 23 through 26.c);

[[Page 67164]]

     Data Item 27.b, Noncontrolling (minority) interests in 
consolidated subsidiaries;
     Data Item 28, Total equity capital (sum of items 27.a and 
27.b); and
     Data Item 29, Total liabilities and equity capital (sum of 
items 21 and 28).
    The Federal Reserve also proposes to adjust certain captions in 
Schedule HC-R, Regulatory Capital, to reflect these changes to the 
Equity Capital section of the balance sheet and to conform to FAS 160. 
Schedule HC-R, data item 1, Total equity capital (from Schedule HC, 
item 28), would be renamed Total bank holding company equity capital 
(from Schedule HC, item 27.a). Schedule HC-R, data item 6, Qualifying 
minority interest in consolidated subsidiaries, would be renamed 
Qualifying Class A noncontrolling (minority) interest in consolidated 
subsidiaries.
    Further, the Federal Reserve proposes to amend Schedule HI, Income 
Statement, and Schedule HI-A, Changes in Equity Capital, to add or 
revise data items to conform to FAS 160. Schedule HI, data item 10, 
Minority interest, would be deleted and Schedule HI, data item 11, 
Income (loss) before extraordinary items and other adjustments, would 
be renumbered as data item 10. Schedule HI, data item 12, Extraordinary 
items, net of applicable taxes and minority interest, would be 
renumbered as data item 11, and renamed Extraordinary items and other 
adjustments, net of income taxes. New data items 12, Net income (loss) 
attributable to bank holding company and noncontrolling (minority) 
interests (sum of items 10 and 11), and 13, Less: Net income (loss) 
attributable to noncontrolling (minority) interests, would be added to 
identify the entity's consolidated net income and segregate net income 
attributable to noncontrolling interests. Current Schedule HI, data 
item 13, Net income (loss) (sum of items 11 and 12), would be 
renumbered as data item 14 and renamed Net income (loss) attributable 
to bank holding company (item 12 minus item 13).
    Schedule HI-A would be retitled Changes in Bank Holding Company 
Equity Capital. In Schedule HI-A, the following changes would be made:
     Current data item 1, Equity capital most recently reported 
for the end of previous calendar year (that is, after adjustments from 
amended Reports of Income), would be renamed Total bank holding company 
equity capital most recently reported for the end of the previous 
calendar year (i.e., after adjustments from amended Reports of Income);
     Current data item 4, Net income (loss) (must equal 
Schedule HI, item 13), would be renamed Net income (loss) attributable 
to bank holding company (must equal Schedule HI, item 14); and
     Current data item 15, Total equity capital end of current 
period (sum of items 3, 4, 5, 6, 7, 9, 12, 13, and 14, less items 8, 
10, and 11) (must equal item 28 on Schedule HC, Balance Sheet), would 
be renamed Total bank holding company equity capital end of current 
period (sum of items 3, 4, 5, 6, 7, 9, 12, 13, and 14, less items 8, 
10, and 11) (must equal Schedule HC, item 27.a).
    The instructions to Schedule HI-A, item 5, Sale of perpetual 
preferred stock (excluding treasury stock transactions), and data item 
6, Sale of common stock, would be amended to state that changes in BHC 
equity capital resulting from changes in a BHC's ownership interest in 
a subsidiary, while it retains its controlling financial interest in 
the subsidiary, should be reported in these data items.

B.1.3 Clarification of the Definition of Loan Secured by Real Estate

    The Federal Reserve has found that the definition of a loan secured 
by real estate in the Glossary section of the FR Y-9C reporting 
instructions has been interpreted differently by FR Y-9C report 
preparers and users. This has led to inconsistent reporting of loans 
collateralized by real estate in the loan schedule (Schedule HC-C) and 
other schedules of the FR Y-9C report that collect loan data. As a 
result, the Federal Reserve proposes to clarify the definition by 
explaining that the estimated value of the real estate collateral must 
be greater than 50 percent of the principal amount of the loan at 
origination in order for the loan to be considered secured by real 
estate. BHCs would apply this clarified definition prospectively and 
they need not reevaluate nor recategorize loans that they currently 
report as loans secured by real estate into other loan categories on 
the loan schedule. See Attachment 2 for the revised definition of a 
loan secured by real estate.

B.1.4 Clarification of Instructions for Unused Commitments

    BHCs report unused commitments in Schedule HC-L, data item 1. The 
instructions for this data item identify various arrangements that 
should be reported as unused commitments, including but not limited to 
commitments for which the BHC has charged a commitment fee or other 
consideration, commitments that are legally binding, loan proceeds that 
the BHC is obligated to advance, commitments to issue a commitment, and 
revolving underwriting facilities. However, the Federal Reserve has 
found that some BHCs have not reported commitments that they have 
entered into until they have signed the loan agreement for the 
financing that they have committed to provide. Although the Federal 
Reserve considers these arrangements to be within the scope of the 
existing instructions for reporting commitments in Schedule HC-L, the 
Federal Reserve believes that these instructions may not be 
sufficiently clear. Therefore, the Federal Reserve proposes to revise 
the instructions for Schedule HC-L, data item 1, Unused commitments. 
See Attachment 2 for the revised instruction for Unused commitments.

B.1.5 Exemptions From Reporting for Certain Existing Data Items

    The Federal Reserve has identified certain data items for which the 
reported data are of lesser usefulness for BHCs with less than $1 
billion in total assets. Accordingly, the Federal Reserve proposes to 
exempt BHCs with less than $1 billion in total assets from completing 
the following data items effective as of March 31, 2009 (these 
exemptions are also being proposed to corresponding items on the Call 
Report):
     Schedule HI, Memorandum item 12.a, Income from the sale 
and servicing of mutual funds and annuities (in domestic offices);
     Schedule HC-L, data item 2.a, Amount of financial standby 
letters of credit conveyed to others; and
     Schedule HC-L, data item 3.a, Amount of performance 
standby letters of credit conveyed to others.

B.1.6 Quantifying Misstatements

    The General Instructions section of the FR Y-9C reporting 
instructions discusses the filing of amended FR Y-9C reports. In this 
regard, the instructions state that when the Federal Reserve's 
interpretation of how GAAP or these instructions should be applied to a 
specified event or transaction (or series of related events or 
transactions) differs from the reporting bank holding company's 
interpretation, the Federal Reserve may require the bank holding 
company to reflect the event(s) or transaction(s) in its FR Y-9C report 
in accordance with the Federal Reserve's interpretation and to amend 
previously submitted reports. The Federal Reserve will consider the 
materiality of such event(s) or transaction(s) in making a 
determination about requiring the bank holding company to apply the 
Federal Reserve's interpretation and to amend previously submitted 
reports.

[[Page 67165]]

Materiality is a qualitative characteristic of accounting information 
that is defined in Financial Accounting Standards Board (FASB) Concepts 
Statement No. 2 as ``the magnitude of an omission or misstatement of 
accounting information that, in the light of surrounding circumstances, 
makes it probable that the judgment of a reasonable person relying on 
the information would have been changed or influenced by the omission 
or misstatement.''
    FASB Statement No. 154, Accounting Changes and Error Corrections 
(FAS 154), provides guidance for reporting the correction of an error 
or misstatement in previously issued financial statements. An error or 
misstatement can result from mathematical mistakes, mistakes in the 
application of generally accepted accounting principles, or oversight 
or misuse of facts that existed at the time the financial statements 
were prepared, and includes a change from an accounting principle that 
is not generally accepted to one that is generally accepted. The 
Glossary entry for Accounting Changes in the FR Y-9C reporting 
instructions includes a section on Corrections of Accounting Errors 
that provides guidance on reporting such corrections that is consistent 
with FAS 154. However, neither FAS 154 nor the Glossary entry for 
Accounting Changes specifies the appropriate method to quantify an 
error or misstatement for purposes of evaluating materiality.
    In September 2006, the Securities and Exchange Commission (SEC) 
noted in Staff Accounting Bulletin No. 108, Considering the Effects of 
Prior Year Misstatements when Quantifying Misstatements in Current Year 
Financial Statements (SAB 108),\9\ that in describing the concept of 
materiality, FASB Concepts Statement No. 2, Qualitative Characteristics 
of Accounting Information, indicates that materiality determinations 
are based on whether ``it is probable that the judgment of a reasonable 
person relying upon the report would have been changed or influenced by 
the inclusion or correction of the item'' (emphasis added). The staff 
believes registrants must quantify the impact of correcting all 
misstatements, including both the carryover and reversing effects of 
prior year misstatements, on the current year financial statements.
---------------------------------------------------------------------------

    \9\ SAB 108 can be accessed at https://www.sec.gov/interps/
account/sab108.pdf. SAB 108 has been codified as Topic 1.N. in the 
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------

    SAB 108 describes two approaches, generally referred to as 
``rollover'' and ``iron curtain,'' that have been commonly used to 
accumulate and quantify misstatements. The rollover approach 
``quantifies a misstatement based on the amount of the error 
originating in the current year income statement,'' which ``ignores the 
`carryover effects' of prior year misstatements.'' In contrast, the 
``iron curtain approach quantifies a misstatement based on the effects 
of correcting the misstatement existing in the balance sheet at the end 
of the current year, irrespective of the misstatement's year(s) of 
origination.'' Because each of these approaches has its weaknesses, SAB 
108 advises that the impact of correcting all misstatements on current 
year financial statements should be accomplished by quantifying an 
error under both the rollover and iron curtain approaches and by 
evaluating the error measured under each approach. When either approach 
results in a misstatement that is material, after considering all 
relevant quantitative and qualitative factors, an adjustment to the 
financial statements would be required. Guidance on the consideration 
of all relevant factors when assessing the materiality of misstatements 
is provided in the SEC's Staff Accounting Bulletin No. 99, Materiality 
(SAB 99).\10\ SAB 108 observes that when the correction of an error in 
the current year would materially misstate the current year's financial 
statements because the correction includes the effect of the prior year 
misstatements, the prior year financial statements should be corrected.
---------------------------------------------------------------------------

    \10\ SAB 99 can be accessed at https://www.sec.gov/interps/
account/sab99.htm. SAB 99 has been codified as Topic 1.M. in the 
SEC's Codification of Staff Accounting Bulletins.
---------------------------------------------------------------------------

    The Federal Reserve has advised BHCs that, for FR Y-9C reporting 
purposes, a BHC that is a public company or a subsidiary of a public 
company should apply the guidance from SAB 108 and SAB 99 when 
quantifying the impact of correcting misstatements, including both the 
carryover and reversing effects of prior year misstatements, on their 
current year FR Y-9C reports.\11\ The Federal Reserve believes that the 
guidance in SAB 108 and SAB 99 represents sound accounting practices 
that all BHCs, including those that are not public companies, should 
follow for purposes of quantifying misstatements and considering all 
relevant factors when assessing the materiality of misstatements in 
their FR Y-9C reports. Accordingly, the Federal Reserve proposes to 
incorporate the guidance in these two Staff Accounting Bulletins into 
the section of the Accounting Changes Glossary entry on error 
corrections, thereby establishing a single approach for quantifying 
misstatements in the FR Y-9C that would be applicable to all BHCs. The 
Glossary entry would explain that the impact of correcting all 
misstatements on current year FR Y-9C reports should be accomplished by 
quantifying an error under both the rollover and iron curtain 
approaches and by evaluating the error measured under each approach. 
When either approach results in a misstatement that is material, after 
considering all relevant quantitative and qualitative factors, 
appropriate adjustments to FR Y-9C reports would be required.
---------------------------------------------------------------------------

    \11\ For example, see the FR Y-9 report Supplemental 
Instructions for June 2007 at https://www.federalreserve.gov/
reportforms/supplemental/SI_FRY9_200706.pdf.
---------------------------------------------------------------------------

B.2 Revisions Proposed for June 2009

B.2.1 Construction and Development Loans With Interest Reserves

    In December 2006, the Federal Reserve issued final guidance on 
commercial real estate (CRE) loans, including construction, land 
development, and other land (C&D) loans, entitled Concentrations in 
Commercial Real Estate Lending, Sound Risk Management Practices (CRE 
Guidance).\12\ This guidance was developed to reinforce sound risk 
management practices for institutions with high and increasing 
concentrations of commercial real estate loans on their balance sheets. 
It provides a framework for assessing CRE concentrations; risk 
management, including board and management oversight, portfolio 
management, management information systems, market analysis and stress 
testing, underwriting and credit risk review; and supervisory 
oversight, including CRE concentration management and an assessment of 
capital adequacy.
---------------------------------------------------------------------------

    \12\ 71 FR 74580, December 12, 2006.
---------------------------------------------------------------------------

    In issuing the CRE Guidance, the Federal Reserve noted that CRE 
concentrations had been rising over the past several years and had 
reached levels that could create safety and soundness concerns in the 
event of a significant economic downturn. As a consequence, the CRE 
Guidance explains that, as part of their ongoing supervisory monitoring 
processes, the Federal Reserve would use certain criteria to identify 
institutions that are potentially exposed to significant CRE 
concentration risk. Thus, the CRE Guidance states in part that an 
institution whose total reported

[[Page 67166]]

construction, land development, and other land loans is approaching or 
exceeds 100 percent or more of the institution's total risk-based 
capital may be identified for further supervisory analysis of the level 
and nature of its CRE concentration risk. As of March 31, 2008, 
approximately 51 percent of all FR Y-9C respondents held C&D loans in 
excess of 100 percent of their total risk-based capital.
    A practice that is common in C&D lending is the establishment of an 
interest reserve as part of the original underwriting of a C&D loan. 
The interest reserve account allows the lender to periodically advance 
loan funds to pay interest charges on the outstanding balance of the 
loan. The interest is capitalized and added to the loan balance. 
Frequently, C&D loan budgets will include an interest reserve to carry 
the project from origination to completion and may cover the project's 
anticipated sell-out or lease-up period. Although potentially 
beneficial to the lender and the borrower, the use of interest reserves 
carries certain risks. Of particular concern is the possibility that an 
interest reserve could disguise problems with a borrower's willingness 
and ability to repay the debt consistent with the terms and conditions 
of the loan agreement. For example, a C&D loan for a project on which 
construction ceases before it has been completed or is not completed in 
a timely manner may appear to be performing if the continued 
capitalization of interest through the use of an interest reserve keeps 
the troubled loan current. This practice can erode collateral 
protection and mask loans that should otherwise be reported as 
delinquent or in nonaccrual status.
    Since the CRE Guidance was issued, market conditions have weakened, 
most notably in the C&D sector. As this weakening has occurred, the 
Federal Reserve's examiners are encountering C&D loans on projects that 
are troubled, but where interest has been capitalized inappropriately, 
resulting in overstated income and understated volumes of past due and 
nonaccrual C&D loans. Therefore, to assist the Federal Reserve in 
monitoring C&D lending activities at those BHCs with a concentration of 
such loans, i.e., C&D loans (in domestic offices) that exceeded 100 
percent of total risk-based capital as of the previous calendar year-
end, the Federal Reserve proposes to add two new data items. First, 
BHCs with such a concentration would report the amount of C&D loans (in 
domestic offices) included in the loan schedule (Schedule HC-C) on 
which the use of interest reserves is provided for in the loan 
agreement. Second, these BHCs would report the amount of capitalized 
interest included in the interest and fee income on loans during the 
quarter. These data, together with information that BHCs currently 
report on the amount of past due and nonaccrual C&D loans, would assist 
in identifying BHCs with C&D loan concentrations that may be engaging 
in questionable interest capitalization practices for supervisory 
follow-up.

B.2.2 Structured Financial Products Carried in Securities and Trading 
Portfolios

    Structured financial products such as collateralized debt 
obligations (CDOs) have become increasingly more complex and the volume 
of these financial products has increased substantially in recent 
years. Structured financial products generally convert a large pool of 
assets and other exposures (such as derivatives and third-party 
guarantees) into tradable capital market debt instruments. Some of the 
more complex financial product structures mix asset classes in an 
attempt to create investment products that diversify risk. In recent 
years, increasingly complex structured financial products have become 
more widely held as investments and trading assets, allowing investors 
and traders to acquire positions in a pool of assets with varying risks 
and rewards depending on the underlying collateral or reference assets. 
Some of these products are synthetic structured financial products that 
use credit derivatives and a reference pool of assets. Hybrid products, 
which are a combination of cash and synthetic structured financial 
products, were also created. Further, complex products known as CDOs 
``squared'', which are CDOs backed primarily by the tranches of other 
CDOs, have contributed to the opacity and inability of investors to 
understand the performance of these highly complex products. Some 
holders of structured financial products have sustained financial 
losses due to defaults and losses on the underlying assets and other 
exposures. In addition, reduced market liquidity has contributed to 
significant fair value declines and lack of price transparency for 
other structured financial products. These recent market events have 
demonstrated the need to collect more comprehensive information on 
investment products with significant market, credit, liquidity, and 
valuation risks in order to identify and monitor BHCs with exposures to 
these products and to track such exposures for the industry as a whole.
    Currently, BHCs separately report their holdings of regular 
mortgage-backed securities (MBS) (such as mortgage-backed pass-through 
securities, collateralized mortgage obligations, and real estate 
mortgage investment conduits) in the securities schedule (Schedule HC-
B) or trading schedule (Schedule HC-D), as appropriate. All BHCs 
separately report their holdings of held-to-maturity and available-for-
sale asset-backed securities (ABS) in the securities schedule. Those 
BHCs with large trading portfolios separately report their held-for-
trading ABS in the trading schedule. BHCs' holdings of all other debt 
securities not issued by governmental entities in the U.S. are reported 
as Other debt securities in either the securities or trading schedule, 
as appropriate. However, the more complex structured financial products 
discussed above are not separately reported in Schedules HC-B and HC-D, 
but are currently reported in other data items within these two 
schedules.
    Therefore, the Federal Reserve proposes to separately collect 
certain structured financial product data in both the securities and 
trading schedules of the FR Y-9C. First, the Federal Reserve would add 
data items to collect information on certain structured financial 
products by type of structure (cash, synthetic, and hybrid). Each of 
these three new data items would cover CDOs, collateralized loan 
obligations (CLOs), collateralized bond obligations (CBOs), CDOs 
squared and cubed, and similar structured financial products.\13\
---------------------------------------------------------------------------

    \13\ These new line items would not include mortgage-backed and 
asset-backed commercial paper, which would continue to be reported 
as MBS and ABS, respectively, in Schedules HC-B and HC-D.
---------------------------------------------------------------------------

    These new data items would be added to the body of the securities 
schedule and the trading schedule. In Schedule HC-B, the amortized cost 
and fair value of these three types of structures would be reported 
using the current four-column format that distinguishes between held-
to-maturity and available-for-sale securities. In Schedule HC-D, the 
fair value of these three types of structures would be reported. Since 
the new data items on structured financial products would include CDOs, 
the Federal Reserve would delete existing Memoranda items 5.a and 5.b 
from the trading schedule (Schedule HC-D).
    Second, the Federal Reserve would collect information on these 
complex structured financial products by the predominant type of 
collateral supporting the structures in new memoranda items in both 
Schedule HC-B and Schedule HC-D. The collateral

[[Page 67167]]

supporting these products has distinct risk characteristics and the new 
information would provide greater insight into the risks associated 
with the various collateralized structured financial products. The 
structured financial products would be reported according to the 
following types of collateral:
     Trust preferred securities issued by financial 
institutions;
     Trust preferred securities issued by real estate 
investment trusts;
     Corporate and similar loans; \14\
---------------------------------------------------------------------------

    \14\ Securities backed by commercial and industrial loans that 
are commonly regarded as ABS rather than CLOs in the marketplace 
would continue to be reported as ABS in Schedules HC-B and HC-D.
---------------------------------------------------------------------------

     1-4 family residential MBS issued or guaranteed by U.S. 
government-sponsored enterprises (GSEs);
     1-4 family residential MBS not issued or guaranteed by 
GSEs;
     Diversified (mixed) pools of structured financial products 
such as CDOs squared and cubed (also known as pools of pools); and
     Other collateral.
    In Schedule HC-B, amortized cost and fair value would be reported 
by the predominant type of collateral supporting the structure based on 
whether the products are classified as held-to-maturity or available-
for-sale. In Schedule HC-D, the fair value of these products would be 
reported by predominant type of collateral supporting the structure.

B.2.3 Holdings of Commercial Mortgage-Backed Securities

    At present, all BHCs report information on their holdings of held-
to-maturity and available-for-sale MBS in Schedule HC-B, Securities, 
without distinguishing between residential and commercial MBS. BHCs 
with average trading assets of $2 million or more in any of the four 
preceding calendar quarters provide information on MBS held for trading 
in Schedule HC-D, but only those with average trading assets of $1 
billion or more disclose the amount of their residential and commercial 
MBS.
    Differences in residential mortgages and commercial mortgages carry 
through to MBS backed by these two types of mortgages. In contrast to 
residential mortgage loans, commercial mortgage loans are normally 
without recourse, which means that if the borrower defaults, the 
creditor cannot seize any other assets of the borrower. As a 
consequence, the ability of the underlying commercial real estate to 
produce income and the value of the property are key factors when 
assessing the credit risk of commercial MBS. In addition, the 
prepayment risk of commercial MBS is lower than on residential MBS 
because commercial mortgages normally place restrictions on prepayment 
that typically are not present on residential mortgages. Furthermore, 
the residential real estate market often performs differently than the 
commercial real estate market.
    Given the differences between residential and commercial MBS, the 
Federal Reserve proposes to revise the reporting of MBS in Schedule HC-
B, Securities, and Schedule HC-D, Trading Assets and Liabilities, in 
order to separately identify and track BHC holdings of commercial MBS. 
In Schedule HC-B, data items 4.a, Pass-through securities, and 4.b, 
Other mortgage-backed securities, would be revised to cover only 
residential MBS. New data items 4.c.(1) and (2) would be added for 
Commercial pass-through securities and Other commercial mortgage-backed 
securities. Similarly, in Schedule HC-D, data items 4.a through 4.c 
would cover only residential MBS and a new data item 4.d would collect 
data on Commercial mortgage-backed securities. These new and revised 
data items would replace Memoranda items 4.a, Residential mortgage-
backed securities, and 4.b, Commercial mortgage-backed securities, in 
Schedule HC-D, which are currently completed only by BHCs with average 
trading assets of $1 billion or more in any of the four preceding 
calendar quarters.

B.2.4 Unused Eligible Liquidity Facilities for Asset-Backed Commercial 
Paper (ABCP) Conduits With an Original Maturity of One Year or Less

    Under the Federal Reserve's risk-based capital guidelines, BHCs are 
required to hold capital against the unused portions of eligible 
liquidity facilities that provide support to ABCP programs. The capital 
guidelines apply different risk-based capital requirements to eligible 
liquidity facilities based on the original maturity of the facilities. 
BHCs are currently required to hold less capital against eligible 
liquidity facilities with original maturities of one year or less than 
against liquidity facilities with original maturities in excess of one 
year. However, because of the current structure of Schedule HC-R, 
Regulatory Capital, the instructions for the schedule direct BHCs to 
report the credit equivalent amount of both types of eligible liquidity 
facilities in data item 53, Unused commitments with an original 
maturity exceeding one year. The reporting of both types of eligible 
liquidity facilities in a single data item has been accomplished by 
having BHCs adjust the credit equivalent amount of eligible liquidity 
facilities with original maturities of one year or less to produce the 
effect of the lower capital charge applicable to such liquidity 
facilities. This approach does not promote transparency with respect to 
the actual credit equivalent amount of eligible liquidity facilities 
with original maturities of one year or less and does not allow for 
verification of the accuracy of the credit converting and risk-
weighting of these exposures.
    To address these concerns, the Federal Reserve proposes to renumber 
Schedule HC-R, data item 53 as data item 53.a and add a new data item 
53.b, Unused commitments with an original maturity of one year or less 
to asset-backed commercial paper conduits, to Schedule HC-R. The credit 
conversion factor applied to amounts reported in data item 53.b, column 
A, would be 10 percent.

B.2.5 Fair Value Measurements

    Effective for the March 31, 2007, report date, the Federal Rese