Agency Information Collection Activities: Announcement of Board Approval Under Delegated Authority and Submission to OMB, 8355-8362 [2010-3578]
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8355
Federal Register / Vol. 75, No. 36 / Wednesday, February 24, 2010 / Notices
SENATE GENERAL ELECTION EXPENDITURE LIMITATIONS—2010 ELECTIONS—Continued
VAP
(in thousands)
State
Vermont .....................................................................................................................
Virginia .......................................................................................................................
Washington ................................................................................................................
West Virginia ..............................................................................................................
Wisconsin ...................................................................................................................
Wyoming ....................................................................................................................
Contribution Limitations for
Individuals, Non-Multicandidate
Committees and for Certain Political
Party Committees Giving to U.S. Senate
Candidates for the 2009–2010 Election
Cycle
VAP × .02 × the
price index
(4.35110)
495
6,035
5,095
1,433
4,345
412
Senate
Expenditure
Limit (the greater
of the amount
in column 3 or
$87,000)
43,100
525,200
443,400
124,700
378,100
35,900
87,000
525,200
443,400
124,700
378,100
87,000
contribution limitations for individuals,
non-multicandidate committees and for
certain political party committees giving
to U.S. Senate candidates for the 2009–
2010 election cycle:
For the convenience of the readers,
the Commission is also republishing the
Statutory provision
2
2
2
2
U.S.C.
U.S.C.
U.S.C.
U.S.C.
441a(a)(1)(A)
441a(a)(1)(B)
441a(a)(3)(A)
441a(a)(3)(B)
Statutory amount
.......................................
.......................................
.......................................
.......................................
2 U.S.C. 441a(h) ................................................
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Lobbyist Bundling Disclosure
Threshold for 2010
The Act, as amended by HLOGA,
requires certain political committees to
disclose contributions bundled by
lobbyists/registrants and lobbyist/
registrant political action committees
once the contributions exceed a
specified threshold amount. The
Commission must adjust this threshold
amount annually to account for
inflation. The disclosure threshold is
increased by multiplying the $15,000
statutory disclosure threshold by
1.06418, the difference between the
price index, as certified to the
Commission by the Secretary of Labor,
for the 12 months preceding the
beginning of the calendar year and the
price index for the base period (calendar
year 2006). The resulting amount is
rounded to the nearest multiple of $100.
See 2 U.S.C. 434(i)(3)(A) and (B),
441a(c)(1)(B) and 11 CFR 104.22(g).
Based upon this formula ($15,000 ×
1.06418), the lobbyist bundling
disclosure threshold for calendar year
2010 is $16,000, unchanged from 2009.
On behalf of the Commission.
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16:49 Feb 23, 2010
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2009–2010 Limitation
$2,000 ..............................................................
$25,000 ............................................................
$37,500 ............................................................
$57,500 (of which no more than $37,500 may
be attributable to contributions to political
committees that are not political committees
of national political parties).
$35,000 ............................................................
$2,400
$30,400
$45,600
$69,900 (of which no more than $45,600 may
be attributable to contributions to political
committees that are not political committees
of national political parties)
$42,600
Dated: February 19, 2010.
Matthew S. Petersen,
Chairman, Federal Election Commission.
[FR Doc. 2010–3688 Filed 2–23–10; 8:45 am]
BILLING CODE 6715–01–P
FEDERAL RESERVE SYSTEM
Agency Information Collection
Activities: Announcement of Board
Approval Under Delegated Authority
and Submission to OMB
SUMMARY: Background. Notice is hereby
given of the final approval of the
proposed information collection by the
Board of Governors of the Federal
Reserve System (Board) under OMB
delegated authority, as per 5 CFR
1320.16 (OMB Regulations on
Controlling Paperwork Burdens on the
Public). 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
instrument(s) are placed into OMB’s
public docket files. The Federal Reserve
may not conduct or sponsor, and the
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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.
FOR FURTHER INFORMATION CONTACT:
Federal Reserve Board Clearance
Officer—Michelle Shore—Division of
Research and Statistics, Board of
Governors of the Federal Reserve
System, Washington, DC 20551 (202–
452–3829).
OMB Desk Officer—Shagufta
Ahmed—Office of Information and
Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, Room 10235,
Washington, DC 20503.
Final Approval Under OMB Delegated
Authority of the Revision, Without
Extension of the Following Report
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.
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Federal Register / Vol. 75, No. 36 / Wednesday, February 24, 2010 / Notices
Frequency: FR Y–9C, quarterly;
FR Y–9SP, semi-annually.
Reporters: Bank holding companies
(BHCs).
Annual reporting hours: FR Y–9C,
162,602 hours; FR Y–9SP, 48,254 hours.
Estimated average hours per response:
FR Y–9C, 41.65 hours; FR Y–9SP, 5.40
hours.
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 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 preinspection 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.
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Current Actions: On November 13,
2008, the Federal Reserve published a
notice in the Federal Register (73 FR
67159) requesting public comment for
60 days on the revision, without
extension, of the FR Y–9C and FR Y–9
SP reports. The comment period for this
notice expired on January 12, 2009. The
Federal Reserve received two comment
letters on this proposal addressing only
changes proposed to the FR Y–9C
report. In addition, six comment letters
were received by the Federal Reserve,
Federal Deposit Insurance Corporation,
and Office of the Comptroller of the
Currency (the banking agencies) on
proposed revisions to the Call Reports
that parallel the proposed revisions to
the FR Y–9C and are taken into
consideration for this proposal. No
comments were received on proposed
changes to the FR Y–9SP.
The Federal Reserve received two
comment letters on proposed revisions
to the FR Y–9C: One from a bankers’
organization (which also submitted
comparable comments on proposed
changes to the Call Report) and one
from a bank consulting firm. In
addition, the banking agencies received
comment letters from six organizations:
Two banks, one bank holding company,
two bankers’ organizations, and a bank
insurance consultant on proposed
changes to the Call Report that parallel
proposed changes to the FR Y–9C, and
are taken into consideration for this
proposal. No comments were received
on proposed changes to the FR Y–9SP.
None of the commenters addressed all
of the aspects of the proposed changes
to the FR Y–9C. Rather, individual
comments addressed certain specific
proposed changes. In two cases,
commenters raised reporting matters
that were not addressed in the Federal
Reserve’s proposal. The following is a
summary of the general comments
received on the proposed FR Y–9C
revisions and on proposed changes to
the Call Report that parallel proposed
changes to the FR Y–9C.
One bankers’ organization stated that
it believed that the proposed revisions
would provide additional information
that would be useful for the assessment
of risk. This organization expressed
general agreement, on balance, with the
proposed revisions, but also offered
several suggested changes for
consideration.1 Another bankers’
organization indicated its understanding
of the need for more information on
1 One bank that is a member of this bankers’
organization referred to the organization’s comment
letter and appeared to concur with the
organization’s comments, but also addressed one
aspect of the proposal on which the bankers’
organization did not specifically comment.
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certain types of loans currently under
stress, but noted that the proposed
revisions would require many
community banking institutions to
submit significantly more data in their
regulatory reports. This organization
hoped that the increased staff time that
would be needed to provide the
proposed data would be offset by a
reduction in on-site examination time
through examiners’ use of these data to
better focus their examination priorities.
In this regard, the intent in proposing
the revisions to the FR Y–9C was to
enhance risk-focused supervision, both
from an off-site and an on-site
perspective. The third bankers’
organization commented on the amount
of lead time necessary for institutions to
implement systems changes to enable
them to provide the requested
additional data, recommending a
minimum of three months between the
publication of final revisions in the
Federal Register and the effective date
of the reporting changes.
Two commenters submitted
comments on issues that were not
addressed in the FR Y–9C proposal. One
bank holding company sent a copy of
separate correspondence that it had
previously sent to three organizations
suggesting a suspension of the
accounting rules for other-thantemporary impairments on investment
securities. By law, the accounting
principles applicable to the FR Y–9C
must be consistent with or, if certain
conditions are met, no less stringent
than generally accepted accounting
principles (GAAP).2 Therefore, the
suggested suspension of accounting
rules cannot be implemented for FR Y–
9C reporting purposes.
One bank consulting firm
recommended revising the FR Y–9C to
require fee income to be reported
separately from interest income, and to
add a new data item for the fair value
changes to interest revenue. As stated in
the FR Y–9C instructions (and noted by
the commenter), FASB Statement No.
91, ‘‘Accounting for Nonrefundable Fees
and Costs Associated with Originating
or Acquiring Loans and Initial Direct
Costs of Leases,’’ generally prescribes
that fees associated with lending
activities should be deferred and
recognized over the life of the related
loan as an adjustment of yield (interest
income). Thus, GAAP guidance does not
require separate disclosure of fee
income. Regarding the request for a new
data item for fair value changes to
interest income, the commenter
mistakenly concluded that fair value
option revaluations (net change in the
2 See
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fair values of interest-bearing financial
assets) is included with interest and fee
income on loans, and thus wanted this
amount reported separately from
interest and fee income. However, such
fair value option revaluations are
included in other noninterest income on
the income statement, not as part of
interest income and fees on loans.
Accordingly, the Federal Reserve will
not implement either of the
commenter’s suggested revisions.
After considering the comments
received on the proposal, the Federal
Reserve will move forward with the
majority of the proposed revisions, with
limited modifications in response to
certain comments, on the phased-in
basis as proposed. The Federal Reserve
is continuing to evaluate certain other
proposed revisions in light of the
comments received thereon, and
therefore will not implement these
revisions until after it has fully
reviewed the comments.3
The Federal Reserve recognizes
institutions’ need for lead time to
prepare for reporting changes, which
was the rationale for proposing the
phased-in implementation schedule for
2009. The data items that will be new
or revised effective March 31, 2009, are
limited in number and most are linked
to changes in GAAP or changes in
regulation. For the March 31, 2009,
report date, bank holding companies
may provide reasonable estimates for
any new or revised data item initially
required to be reported as of that date
for which the requested information is
not readily available. This same policy
on the use of reasonable estimates will
apply to the reporting of other new or
revised data items when they are first
implemented effective June 30 or later.
Sections I and II of this memo identify
the changes proposed to take effect
March 31 and June 30, respectively;
discuss the Federal Reserve’s evaluation
of the comments received on the
proposed changes that the Federal
Reserve will implement, as modified;
and describe the proposed FR Y–9C
revisions that will remain under review.
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I. FR Y–9C Report Revisions Proposed
for March 2009
The Federal Reserve and the other
banking agencies received either
supportive comments or no comments
on the following revisions that were
proposed to take effect as of March 31,
2009, and therefore the Federal Reserve
3 See section I.C of this notice on unused
commitments, section II.B on past due and
nonaccrual trading assets, and the portion of section
II.C addressing the present value of unpaid
premiums on sold credit protection.
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will implement these revisions as
proposed:
• New data items and revisions to
existing data items on trading assets and
liabilities,
• New data items associated with the
U.S. Department of the Treasury
(Treasury) Capital Purchase Program
(CPP),4
• New data items and revisions to
existing data items on regulatory capital
requirements,
• Revisions to several FR Y–9C
schedules in response to accounting
changes applicable to noncontrolling
(minority) interests in consolidated
subsidiaries, and
• Instructional guidance on
quantifying misstatements.
The Federal Reserve and other
banking agencies received one or more
substantive comments addressing each
of the following proposed March 31,
2009, revisions:
• The addition of new data items in
response to a revised accounting
standard that will provide information
on held-for-investment loans and leases
acquired in business combinations,
• Clarifications of the definition of
the term loan secured by real estate and
of the instructions for reporting unused
commitments, and
• Exemptions from reporting certain
existing data items for bank holding
companies with less than $1 billion in
total assets.
The comments and the Federal
Reserve’s responses related to these
proposed revisions are discussed below.
A. Loans and Leases Acquired in
Business Combinations
Banking institutions 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 on or after December
15, 2008. Thus, for banking institutions
with calendar year fiscal years, FAS
141(R) will apply to business
combinations with acquisition dates on
or after January 1, 2009. Compared to
current accounting practice, FAS 141(R)
significantly changes the accounting for
those loans and leases acquired in
business combinations that will be held
for investment.5 In response to this
4 The Federal Reserve will also implement these
new data items as proposed for the FR Y–9SP
report, effective as of June 30, 2009.
5 This change in accounting treatment does not
apply to acquired held-for-investment loans within
the scope of American Institute of Certified Public
Accountants Statement of Position 03–3,
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accounting change, the Federal Reserve
proposed to add new data items to the
FR Y–9C loan and lease schedule
(Schedule HC–C) that would mirror the
acquisition-date disclosures required by
FAS 141(R). These new data items
would disclose the following
information for four categories of loans
(not subject to SOP 03–3) and leases that
were acquired in each business
combination that occurred during the
year-to-date 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.
The four categories of acquired heldfor-investment loans (not subject to SOP
03–3) and leases are:
• 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 banking institutions 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
banking institution that has completed
one or more business combinations
during the current calendar year would
report these acquisition date data (as
aggregate totals if multiple business
combinations have occurred) in each FR
Y–9C submission after the acquisition
date during that year. The acquisition
date data would not be reported in years
after the year in which the acquisition
occurs.
One bankers’ organization stated that
it concurred with the proposal to
require these additional disclosures for
loans (not subject to SOP 03–3) and
leases acquired in business
combinations that occurred during the
reporting period. No other commenter
addressed these proposed additional
disclosures. Accordingly, the Federal
Reserve will implement of these data
items in the March 31, 2009, FR Y–9C,
as proposed.
In the FR Y–9C proposal, the Federal
Reserve stated that it was considering
whether banking institutions that have
engaged in FAS 141(R) business
combinations should provide additional
information in the FR Y–9C (beyond the
disclosures described above) about
acquired held-for-investment loans (not
Accounting for Certain Loans or Debt Securities
Acquired in a Transfer (SOP 03–3).
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subject to SOP 03–3) and leases and the
loss allowances established for them in
periods after their acquisition. The
proposal stated that the additional data
items under consideration included the
outstanding balance of these acquired
loans and leases, their carrying amount,
and the amount of allowances for postacquisition credit losses on these loans
and leases. The Federal Reserve
indicated that this information would
help the Federal Reserve as well as
other report users to track management’s
judgments regarding the collectability of
the acquired loans and leases in periods
after the acquisition date and evaluate
fluctuations in the level of the overall
Allowance for Loan and Lease Losses
(ALLL) as a percentage of the held-forinvestment loan and lease portfolio in
periods after a business combination.
The Federal Reserve requested comment
on the merits and availability of these
post-acquisition loan and lease data and
the period of time after a business
combination that this information
should be reported.
Two bankers’ organizations
commented on these additional loan
and lease disclosures. One organization
did not specifically address the merits
of this information, stating only that if
banking institutions were required to
report these additional data, they should
report it only through the end of the
calendar year of the business
combination. The second organization
agreed with the first organization
concerning the reporting period for
these additional data. However, this
organization also stated its belief that
the post-acquisition data on acquired
loans and leases would often not be
available because acquired performing
loans and leases would tend to be
combined with, rather than segregated
from, a banking institution’s other
performing loans and leases.
After considering these comments, the
Federal Reserve will not add data items
to the FR Y–9C for the outstanding
balance of held-for-investment loans
(not subject to SOP 03–3) and leases
acquired in FAS 141(R) business
combinations, their carrying amount,
and the amount of allowances for postacquisition credit losses on these loans
and leases. The Federal Reserve will
continue to monitor accounting and
disclosure practices with respect to
these acquired loans and leases and
their post-acquisition allowances and
assess their data needs in this area. Any
future revisions to the FR Y–9C to
collect data on acquired loans and
leases and post-acquisition allowances
will be subject to notice and comment.
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B. 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 instructions has been interpreted
differently by 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 that collect loan data. As a result, the
Federal Reserve proposed 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.
Banking institutions would apply this
clarified definition prospectively and
they need not reevaluate and
recategorize loans that they currently
report as loans secured by real estate
into other loan categories on the FR Y–
9C loan schedules.
One bankers’ organization stated that
it believes that the proposed definition
of a loan secured by real estate is
workable and provides additional
clarity. One bank submitted examples
involving loans with real estate as
collateral and asked how they would be
reported based on the revised definition.
The Federal Reserve will implement the
clarified definition of loan secured by
real estate as proposed but, in response
to this latter comment, also add
examples to the definition to assist
banking institutions in understanding
how it should be applied.
C. Clarification of Instructions for
Unused Commitments
Banking institutions 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 banking
institution has charged a commitment
fee or other consideration, commitments
that are legally binding, loan proceeds
that the banking institution is obligated
to advance, commitments to issue a
commitment, and revolving
underwriting facilities. However, some
banking institutions 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
these arrangements are considered to be
within the scope of the existing
instructions for reporting commitments
in Schedule HC–L, the instructions may
not be sufficiently clear. Therefore, the
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Federal Reserve proposed to revise the
instructions for Schedule HC–L, data
item 1, Unused commitments, to more
clearly and completely explain the
arrangements that should be reported in
this data item.
All three bankers’ organizations
submitting comments on the proposed
FR Y–9C revisions specifically
addressed the proposed instructional
clarification pertaining to unused
commitments. One organization agreed
that clarification is needed, but
recommended that commitments to
issue a commitment in the future,
including those entered into even
though the related loan agreement has
not yet been signed, should be removed
from the list of types of arrangements
that the instructions would direct
banking institutions to report as unused
commitments. The other two bankers’
organizations also commented on the
inclusion of this type of arrangement as
an unused commitment. One
organization expressed concern about
reporting ‘‘commitments that contain a
relatively high level of uncertainty until
a loan agreement has been signed or the
loan has been funded with a first
advance’’ and the reliability of data on
such commitments. The other
organization stated that because some
banking institutions do not have
systems for tracking such arrangements,
the instructions should in effect permit
banking institutions to exclude
commitment letters with an expiration
date of 90 days or less. Finally, the first
bankers’ organization also
recommended that the instructions for
reporting unused commitments should
state that amounts conveyed or
participated to others that the conveying
or participating banking institution is
not obligated to fund should not be
reported as unused commitments by the
conveying or participating banking
institution.
The Federal Reserve is continuing to
evaluate these recommendations. As a
consequence, the Federal Reserve will
not revise the instructions for Schedule
HC–L, data item 1, Unused
commitments, effective March 31, 2009,
as proposed, leaving the existing
instructions for this Schedule HC–L
data item to remain in effect. Once
deliberations on these recommendations
are concluded and a determination is
made on whether and how to revise the
instructions for reporting Unused
commitments in Schedule HC–L, data
item 1, these conclusions will be
published in a separate Federal Register
notice. If the instructions to Schedule
HC–L, data item 1, are subsequently
revised, the clarifications to these
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instructions would take effect no earlier
than December 31, 2009.
D. Exemptions From Reporting for
Certain Existing FR Y–9C
The Federal Reserve has identified
certain data items for which the
reported data are of lesser usefulness for
banking institutions with less than $1
billion in total assets. Accordingly, the
Federal Reserve proposed to exempt
such banking institutions from
completing the following data items
effective March 31, 2009:
• Schedule HI, Memorandum item
12, 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.
One commenter, a bank insurance
consultant, objected to the proposal to
exempt banking institutions with less
than $1 billion in total assets from
reporting the data item, Income from the
sale and servicing of mutual funds and
annuities (in domestic offices), stating
that this data item should be preserved
in the regulatory reports. This
commenter also stated that the proposal
did not explain how the determination
was made that the collection of this data
item from banking institutions in this
size range is of lesser usefulness. This
commenter added that by eliminating
the reporting of this income information
for these banking institutions, ‘‘we will
lose our sole window into community
banks’ mutual fund and annuity
activities.’’
Memorandum item 12 was added to
Schedule HI of the FR Y–9C in 1995. At
that time, the Federal Reserve collected
limited information on banking
institutions’ noninterest income.
However, since 2001, the Federal
Reserve has significantly expanded the
amount of detailed information
collected on noninterest income in
recognition of the increasing importance
of such income to banking institutions’
earnings. As a result, all respondents,
regardless of size, currently report the
amount of Fees and commissions from
securities brokerage and Fees and
commissions from annuity sales in
Schedule HI, data items 5.d.(1) and
5.d.(3), each quarter. Data item 5.d.(1)
specifically includes income from the
sale and servicing of mutual funds.
Thus, in general, the income that a
banking institution reports in Schedule
HI, Memorandum item 12, will have
been included in these two noninterest
income data items in the body of
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Schedule HI. However, although the
bank insurance consultant stated that as
of ‘‘June 30, 2008, more banks with less
than $1 billion in assets reported mutual
fund and annuity income’’ than reported
eight other types of noninterest income
in the body of the income statement, the
consultant did not provide comparative
data for the number of such banks
reporting ‘‘Fees and commissions from
securities brokerage’’ or ‘‘Fees and
commissions from annuity sales.’’
In addition, the Federal Reserve will
continue to use the FR Y–9C to identify
banking institutions that sell private
label or third party mutual funds and
annuities (Schedule HC–M, data item
15) as well as banking institutions
managing assets held in proprietary
mutual funds and annuities (Schedule
HC–M, data item 16). Furthermore, FR
Y–9C users have indicated that
Schedule HI, Memorandum item 12,
Income from the sale and servicing of
mutual funds and annuities is regarded
as being of lesser usefulness than the
noninterest income data items with
which it overlaps (data items 5.d.(1) and
5.d.(3) of Schedule HI). Accordingly,
after considering the views expressed by
the bank insurance consultant, the
Federal Reserve believes that the
existing income statement data items for
Fees and commissions from securities
brokerage and Fees and commissions
from annuity sales are sufficient to meet
ongoing needs for income data on these
types of activities from banking
institutions with less than $1 billion in
total assets and recommends that such
banking institutions should be exempt
from separately reporting Income from
the sale and servicing of mutual funds
and annuities beginning March 31,
2009, as proposed.
The Federal Reserve received no
comments specifically addressing the
other data items for which banking
institutions with less than $1 billion in
assets would be exempt from continued
reporting and the Federal Reserve will
implement these exemptions as of
March 31, 2009, as proposed.
II. FR Y–9C Revisions Proposed for
June 2009
The Federal Reserve and other
banking agencies received either
supportive comments or no comments
on the following revisions to the FR Y–
9C that were proposed to take effect as
of June 30, 2009, and therefore the
Federal Reserve will implement these
revisions as proposed:
• Holdings of collateralized debt
obligations and other structured
financial products by type of product
and underlying collateral,
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• Holdings of commercial mortgagebacked securities,
• Unused commitments with an
original maturity of one year or less to
asset-backed commercial paper
conduits,
• Pledged loans and pledged trading
assets,
• Collateral held against over-thecounter (OTC) derivative exposures by
type of collateral and type of
counterparty as well as the current
credit exposure on OTC derivatives by
type of counterparty (for banking
institutions with $10 billion or more in
total assets),
• Fair value measurements by level
for asset and liability categories reported
at fair value on a recurring basis
(banking institutions that apply a fair
value option, or are required to
complete the FR Y–9C trading
schedule), and
• Investments in real estate ventures.
The agencies received one or more
substantive comments addressing each
of the following proposed June 30, 2009,
revisions:
• Real estate construction and
development loans outstanding with
capitalized interest and the amount of
such interest included in income for the
quarter (for banking institutions with
construction and development loan
concentrations),
• Past due and nonaccrual trading
assets, and
• Credit derivatives by credit quality
and remaining maturity and by
regulatory capital treatment.
The comments and the Federal
Reserve’s responses related to these
proposed revisions are discussed below.
A. Construction and Development Loans
With Interest Reserves
In December 2006, the agencies 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).6 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
6 71
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management and an assessment of
capital adequacy.
In issuing the CRE Guidance, the
agencies 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 agencies 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
C&D 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 riskbased 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, examiners
have been encountering C&D loans on
projects that are troubled, but where
interest has been capitalized
inappropriately, resulting in overstated
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income and understated volumes of past
due and nonaccrual C&D loans.
Therefore, to assist in the monitoring of
C&D lending activities at those banking
institutions 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 proposed to add two new data
items. First, banking institutions with
such a concentration would report the
amount of C&D loans (in domestic
offices) included in the FR Y–9C loan
schedule (Schedule HC–C) on which the
use of interest reserves is provided for
in the loan agreement. Second, these
banking institutions 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 banking
institutions currently report on the
amount of past due and nonaccrual C&D
loans, would assist in identifying
respondents with C&D loan
concentrations that may be engaging in
questionable interest capitalization
practices for supervisory follow-up.
One bank expressed agreement with
concerns about the disguising of
problems with a borrower’s willingness
and ability to repay the debt consistent
with the terms and conditions of the
loan agreement through the improper
use of interest reserves on C&D loans.
The bank also acknowledged that real
estate market conditions have weakened
in its market area since the agencies
issued the CRE Guidance in December
2006. Although the bank stated that it
has a concentration of C&D loans, as
defined above, it reported that a recent
review of its portfolio revealed that only
a modest number of its C&D loan
agreements included interest reserves.
The bank also described its lending
policies and controls over the approval
of interest reserves in the original
underwriting of a C&D loan and in the
limited cases when the original loan had
matured or was otherwise recast. It then
stated that both the bank lender and its
supervisory agency should focus their
attention—and any regulatory reporting
requirements—on situations when
interest reserves are added to a loan
after a development project is
completed or ‘‘when a project goes over
budget or otherwise has completion
issues.’’ With respect to the two
proposed data items pertaining to C&D
loans with interest reserves, the bank
noted that its loan system does not
currently capture the required data and
adding this capability to the loan system
by the proposed June 30, 2009, effective
date would likely be difficult, which
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would mean that the data would have
to be compiled manually until system
changes are in place.
After further review, the Federal
Reserve has decided it will not collect
the two proposed items related to the
use of interest reserves at this time.
B. Trading Assets That Are Past Due or
in Nonaccrual Status
Currently, the FR Y–9C does not
distinguish past due and nonaccrual
trading assets from other assets on
Schedule HC–N, Past Due and
Nonaccrual Loans, Leases, and Other
Assets. The Federal Reserve proposed to
replace Schedule HC–N, data item 9,
Debt securities and other assets, that are
past due 30 days or more or in
nonaccrual status with two separate
data items: data item 9.a, Trading assets,
and data item 9.b, All other assets
(including available-for-sale and heldto-maturity securities). These data items
would follow the existing three column
breakdown on Schedule HC–N that
respondents utilize to report assets past
due 30 through 89 days and still
accruing, past due 90 days or more and
still accruing, and in nonaccrual status.
Data item 9.a would include all assets
held for trading purposes, including
loans held for trading. Collection of this
information would allow the Federal
Reserve to better assess the quality of
assets held for trading purposes, and
generally enhance surveillance and
examination planning efforts.
The Federal Reserve also proposed to
expand the scope of Schedule HC–D,
Trading Assets, Memorandum item 3,
Loans measured at fair value that are
past due 90 days or more, to include
loans held for trading and measured at
fair value that are in nonaccrual status.
This change was intended to provide for
more consistent treatment with the
information that would be collected on
Schedule HC–N and with the disclosure
requirements in FASB Statement No.
159, The Fair Value Option for
Financial Assets and Financial
Liabilities.
One bankers’ organization stated that
it believed that disclosure requirements
regarding the delinquency and
nonaccrual status of trading securities is
not particularly meaningful given that
these securities are marked to market
through earnings. As a consequence,
credit risk is already incorporated into
the market price of each trading
security. The organization further stated
that the nonaccrual concept
traditionally has not been applied to
trading securities, which makes the
proposed reporting of such data costly
and difficult to implement. Accordingly,
this commenter recommended against
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adding the proposed disclosure
requirements regarding the delinquency
and nonaccrual status of trading
securities.
The Federal Reserve is continuing to
evaluate this commenter’s
recommendation. Therefore, the Federal
Reserve will not implement the
revisions to Schedule HC–N, data item
9, and Schedule HC–D, Memorandum
item 3, effective June 30, 2009, as
proposed. The Federal Reserve will
retain the current data items while it
considers the proposed reporting
changes in light of this comment. Once
deliberations on these proposed
disclosure requirements are concluded
and a determination is made on whether
and how to proceed with them, these
conclusions will be published in a
separate Federal Register notice. If
Schedule HC–N, data item 9, and
Schedule HC–D, Memorandum item 3,
are subsequently revised, these
reporting changes would take effect no
earlier than December 31, 2009.
C. Enhanced Information on Credit
Derivatives
Effective for the March 2006 FR Y–9C,
the Federal Reserve revised the
information collected on credit
derivatives in Schedules HC–L,
Derivatives and Off-Balance Sheet
Items, and HC–R, Regulatory Capital, to
gain a better understanding of the nature
and trends of banking institutions’
credit derivative activities. Since that
time, the volume of credit derivative
activity in the banking industry, as
measured by the notional amount of
these contracts, increased steadily
through March 31, 2008, rising to an
aggregate notional amount of over $16
trillion as of that date. The aggregate
notional amount has since declined
slightly. Reported data further indicate
that the credit derivative activity in the
industry is highly concentrated in
banking institutions with total assets in
excess of $10 billion. For these banking
institutions, credit derivatives function
as a risk mitigation tool for credit
exposures in their operations as well as
a financial product that is sold to third
parties for risk management and other
purposes.
The Federal Reserve’s safety and
soundness efforts continue to place
emphasis on understanding and
assessing the role of credit derivatives in
bank risk management practices. In
addition, the Federal Reserve’s
monitoring of credit derivative activities
at certain banking institutions has
identified differences in interpretation
as to how credit derivatives are treated
under the Federal Reserve’s risk-based
capital standards. To further the Federal
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16:49 Feb 23, 2010
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Reserve’s safety and soundness efforts
concerning credit derivatives and to
improve transparency in the treatment
of credit derivatives for regulatory
capital purposes, the Federal Reserve
proposed to revise the information
pertaining to credit derivatives that is
collected on Schedules HC–L, HC–N
(Past Due and Nonaccrual Loans,
Leases, and Other Assets), and HC–R.
In Schedule HC–L, data item 7, Credit
derivatives, the Federal Reserve
proposed to change the column A
caption, Guarantor, to Sold Protection
and the column B caption, Beneficiary,
to Purchased Protection to eliminate
confusion surrounding the meaning of
Guarantor and Beneficiary that
commonly occurs between the users and
preparers of these data. The Federal
Reserve also proposed to add a new data
item 7.c to Schedule HC–L to collect
information on the notional amount of
credit derivatives by regulatory capital
treatment. For credit derivatives that are
subject to the Federal Reserve’s market
risk capital standards, the Federal
Reserve proposed to collect the notional
amount of sold protection and the
amount of purchased protection. For all
other credit derivatives, the Federal
Reserve proposed to collect the notional
amount of sold protection, the notional
amount of purchased protection that is
recognized as a guarantee under the
risk-based capital guidelines, and the
notional amount of purchased
protection that is not recognized as a
guarantee under the risk-based capital
standards.
The Federal Reserve also proposed to
add a new data item 7.d to Schedule
HC–L to collect information on the
notional amount of credit derivatives by
credit rating and remaining maturity.
The data item would collect the
notional amount of sold protection
broken down by credit ratings of
investment grade and subinvestment
grade for the underlying reference asset
and by remaining maturities of one year
or less, over one year through five years,
and over five years. The same
information would be collected for
purchased protection.
In Schedule HC–N, the Federal
Reserve proposed to change the scope of
Memorandum item 6, Past due interest
rate, foreign exchange rate, and other
commodity and equity contracts, to
include credit derivatives. The fair
value of credit derivatives where the
banking institution has purchased
protection increased significantly to
over $500 billion at March 31, 2008, as
compared to below negative $10 billion
at March 31, 2007. Thus, the
performance of credit derivative
counterparties has increased in
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8361
importance. The expanded scope of
Memorandum item 6 on Schedule HC–
N would include the fair value of credit
derivatives carried as assets that are past
due 30 through 89 days and past due 90
days or more.
In Schedule HC–R the Federal
Reserve proposed to change the scope of
the information collected in
Memorandum items 2.g.(1) and (2) on
the notional principal amounts of Credit
derivative contracts that are subject to
risk-based capital requirements to
include only (a) the notional principal
amount of purchased protection that is
defined as a covered position under the
market risk capital guidelines and (b)
the notional principal amount of
purchased protection that is not a
covered position under the market risk
capital guidelines and is not recognized
as a guarantee for risk-based capital
purposes. The scope of Memorandum
item 1, Current credit exposure across
all derivative contracts covered by the
risk-based capital standards, would be
similarly revised to include the current
credit exposure arising from credit
derivative contracts that represent (a)
purchased protection that is defined as
a covered position under the market risk
capital guidelines and (b) purchased
protection that is not a covered position
under the market risk capital guidelines
and is not recognized as a guarantee for
risk-based capital purposes. The Federal
Reserve also proposed to add new
Memorandum items 3.a and 3.b to
Schedule HC–R to collect the present
value of unpaid premiums on sold
credit protection that is defined as a
covered position under the market risk
capital guidelines. Consistent with the
information currently reported in
Memorandum item 2.g, the Federal
Reserve proposed to collect this present
value information with a breakdown
between investment grade and
subinvestment grade for the rating of the
underlying reference asset and with the
same three remaining maturity
breakouts.
No comments were received on any of
the proposed reporting revisions
pertaining to credit derivatives
described above, except for a comment
from a bankers’ organization on the
proposal to collect data on Schedule
HC–R relating to the present value of
unpaid premiums on sold credit
protection that is defined as a covered
position under the market risk capital
guidelines. Accordingly, the Federal
Reserve will implement all of the
proposed credit derivative reporting
changes—other than the proposed new
Schedule HC–R data items for present
value data—as of June 30, 2009, as
proposed. With respect to the present
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value data, the bankers’ organization
requested clarification of the impact of
this proposed reporting requirement on
a banking institution’s risk-based capital
calculations. The Federal Reserve is
continuing to consider this comment
and the proposed collection of present
value data for certain credit derivatives.
Therefore, the Federal Reserve will not
add Memorandum items 3.a and 3.b to
Schedule HC–R to collect this present
value information effective June 30,
2009, as proposed. Once deliberations
on the comment and the proposed
present value data items has been
concluded, conclusions will be
published in a separate Federal Register
notice. If Memorandum items 3.a and
3.b are subsequently added to Schedule
HC–R, this new reporting requirement
would take effect no earlier than
December 31, 2009.
Board of Governors of the Federal Reserve
System, March 11, 2009.
Editorial Note: This document was
received in the Office of the Federal Register
on February 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010–3578 Filed 2–23–10; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL RESERVE SYSTEM
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Change in Bank Control Notices;
Acquisition of Shares of Bank or Bank
Holding Companies
The notificants listed below have
applied under the Change in Bank
Control Act (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12
CFR 225.41) to acquire a bank or bank
holding company. The factors that are
considered in acting on the notices are
set forth in paragraph 7 of the Act (12
U.S.C. 1817(j)(7)).
The notices are available for
immediate inspection at the Federal
Reserve Bank indicated. The notices
also will be available for inspection at
the office of the Board of Governors.
Interested persons may express their
views in writing to the Reserve Bank
indicated for that notice or to the offices
of the Board of Governors. Comments
must be received not later than March
10, 2010.
A. Federal Reserve Bank of Atlanta
(Steve Foley, Vice President) 1000
Peachtree Street, N.E., Atlanta, Georgia
30309:
1. Richard T. Alger; the Richard T.
Alger Revocable Trust; Richard T. Alger,
trustee; and the Mason W. Alger and
Dorothy Turner Alger Irrevocable Trust
for Thomas M. Alger; Richard T. Alger,
trustee; John Alger and Carla Alger, all
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16:49 Feb 23, 2010
Jkt 220001
of Homestead, Florida; to acquire voting
shares of Hometown of Homestead
Banking Company, and thereby
indirectly acquire voting shares of 1st
National Bank of South Florida, both of
Homestead, Florida.
B. Federal Reserve Bank of
Minneapolis (Jacqueline G. King,
Community Affairs Officer) 90
Hennepin Avenue, Minneapolis,
Minnesota 55480–0291:
1. David Tychman, Seattle,
Washington; individually and as trustee
of eight Tychman/Sanders family
trusts’, to retain voting shares of The
Tysan Corporation, Minneapolis,
Minnesota. The trustees of one or more
of nine Tychman/Sanders family trusts
(James Sanders, Plymouth, Minnesota,
Deera Tychman, Edina, Minnesota,
Judith Shapiro, Saint Louis Park,
Minnesota, and David Tychman, Seattle,
Washington), for retroactive permission
for the nine trusts to join the Tychman/
Sanders group which controls 25
percent or more of The Tysan
Corporation, Minneapolis, Minnesota,
and includes 17 other Tychman/Sanders
family trusts. The Tysan Corporation
controls Lake Community Bank, Long
Lake, Minnesota, Pine Country Bank,
Little Falls, Minnesota, and Blaine State
Bank, Blaine, Minnesota.
Board of Governors of the Federal Reserve
System, February 18, 2010.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2010–3540 Filed 2–23–10; 8:45 am]
the BHC Act (12 U.S.C. 1842(c)). If the
proposal also involves the acquisition of
a nonbanking company, the review also
includes whether the acquisition of the
nonbanking company complies with the
standards in section 4 of the BHC Act
(12 U.S.C. 1843). Unless otherwise
noted, nonbanking activities will be
conducted throughout the United States.
Additional information on all bank
holding companies may be obtained
from the National Information Center
website at www.ffiec.gov/nic/.
Unless otherwise noted, comments
regarding each of these applications
must be received at the Reserve Bank
indicated or the offices of the Board of
Governors not later than March 19,
2010.
A. Federal Reserve Bank of Kansas
City (Todd Offenbacker, Assistant Vice
President) 1 Memorial Drive, Kansas
City, Missouri 64198–0001:
1. Aslin Group, Inc, Mission Hills,
Kansas; Aslin Opportunity Fund BK, LP,
Cape Haze, Florida; and Aslin Capital I,
LLC, Cape Haze, Florida; all to become
bank holding companies through the
acquisition of 100 percent of the voting
shares of 1st Financial Bank, Overland
Park, Kansas.
Board of Governors of the Federal Reserve
System, February 19, 2010.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2010–3652 Filed 2–23–10; 8:45 am]
BILLING CODE 6210–01–S
BILLING CODE 6210–01–S
DEPARTMENT OF DEFENSE
FEDERAL RESERVE SYSTEM
Formations of, Acquisitions by, and
Mergers of Bank Holding Companies
The companies listed in this notice
have applied to the Board for approval,
pursuant to the Bank Holding Company
Act of 1956 (12 U.S.C. 1841 et seq.)
(BHC Act), Regulation Y (12 CFR Part
225), and all other applicable statutes
and regulations to become a bank
holding company and/or to acquire the
assets or the ownership of, control of, or
the power to vote shares of a bank or
bank holding company and all of the
banks and nonbanking companies
owned by the bank holding company,
including the companies listed below.
The applications listed below, as well
as other related filings required by the
Board, are available for immediate
inspection at the Federal Reserve Bank
indicated. The applications also will be
available for inspection at the offices of
the Board of Governors. Interested
persons may express their views in
writing on the standards enumerated in
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GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
[OMB Control No. 9000–0096]
Federal Acquisition Regulation;
Submission for OMB Review; Patents
AGENCY: Department of Defense (DOD),
General Services Administration (GSA),
and National Aeronautics and Space
Administration (NASA).
ACTION: Notice of request for comments
regarding an extension to an existing
OMB clearance.
SUMMARY: Under the provisions of the
Paperwork Reduction Act of 1995 (44
U.S.C. Chapter 35), the Regulatory
Secretariat will be submitting to the
Office of Management and Budget
(OMB) a request to review and approve
an extension of a previously approved
information collection requirement
concerning patents. A request for public
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Agencies
[Federal Register Volume 75, Number 36 (Wednesday, February 24, 2010)]
[Notices]
[Pages 8355-8362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-3578]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Agency Information Collection Activities: Announcement of Board
Approval Under Delegated Authority and Submission to OMB
SUMMARY: Background. Notice is hereby given of the final approval of
the proposed information collection by the Board of Governors of the
Federal Reserve System (Board) under OMB delegated authority, as per 5
CFR 1320.16 (OMB Regulations on Controlling Paperwork Burdens on the
Public). 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
instrument(s) 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.
FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance
Officer--Michelle Shore--Division of Research and Statistics, Board of
Governors of the Federal Reserve System, Washington, DC 20551 (202-452-
3829).
OMB Desk Officer--Shagufta Ahmed--Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, Washington, DC 20503.
Final Approval Under OMB Delegated Authority of the Revision, Without
Extension of the Following Report
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.
[[Page 8356]]
Frequency: FR Y-9C, quarterly; FR Y-9SP, semi-annually.
Reporters: Bank holding companies (BHCs).
Annual reporting hours: FR Y-9C, 162,602 hours; FR Y-9SP, 48,254
hours.
Estimated average hours per response: FR Y-9C, 41.65 hours; FR Y-
9SP, 5.40 hours.
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 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: On November 13, 2008, the Federal Reserve
published a notice in the Federal Register (73 FR 67159) requesting
public comment for 60 days on the revision, without extension, of the
FR Y-9C and FR Y-9 SP reports. The comment period for this notice
expired on January 12, 2009. The Federal Reserve received two comment
letters on this proposal addressing only changes proposed to the FR Y-
9C report. In addition, six comment letters were received by the
Federal Reserve, Federal Deposit Insurance Corporation, and Office of
the Comptroller of the Currency (the banking agencies) on proposed
revisions to the Call Reports that parallel the proposed revisions to
the FR Y-9C and are taken into consideration for this proposal. No
comments were received on proposed changes to the FR Y-9SP.
The Federal Reserve received two comment letters on proposed
revisions to the FR Y-9C: One from a bankers' organization (which also
submitted comparable comments on proposed changes to the Call Report)
and one from a bank consulting firm. In addition, the banking agencies
received comment letters from six organizations: Two banks, one bank
holding company, two bankers' organizations, and a bank insurance
consultant on proposed changes to the Call Report that parallel
proposed changes to the FR Y-9C, and are taken into consideration for
this proposal. No comments were received on proposed changes to the FR
Y-9SP.
None of the commenters addressed all of the aspects of the proposed
changes to the FR Y-9C. Rather, individual comments addressed certain
specific proposed changes. In two cases, commenters raised reporting
matters that were not addressed in the Federal Reserve's proposal. The
following is a summary of the general comments received on the proposed
FR Y-9C revisions and on proposed changes to the Call Report that
parallel proposed changes to the FR Y-9C.
One bankers' organization stated that it believed that the proposed
revisions would provide additional information that would be useful for
the assessment of risk. This organization expressed general agreement,
on balance, with the proposed revisions, but also offered several
suggested changes for consideration.\1\ Another bankers' organization
indicated its understanding of the need for more information on certain
types of loans currently under stress, but noted that the proposed
revisions would require many community banking institutions to submit
significantly more data in their regulatory reports. This organization
hoped that the increased staff time that would be needed to provide the
proposed data would be offset by a reduction in on-site examination
time through examiners' use of these data to better focus their
examination priorities. In this regard, the intent in proposing the
revisions to the FR Y-9C was to enhance risk-focused supervision, both
from an off-site and an on-site perspective. The third bankers'
organization commented on the amount of lead time necessary for
institutions to implement systems changes to enable them to provide the
requested additional data, recommending a minimum of three months
between the publication of final revisions in the Federal Register and
the effective date of the reporting changes.
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\1\ One bank that is a member of this bankers' organization
referred to the organization's comment letter and appeared to concur
with the organization's comments, but also addressed one aspect of
the proposal on which the bankers' organization did not specifically
comment.
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Two commenters submitted comments on issues that were not addressed
in the FR Y-9C proposal. One bank holding company sent a copy of
separate correspondence that it had previously sent to three
organizations suggesting a suspension of the accounting rules for
other-than-temporary impairments on investment securities. By law, the
accounting principles applicable to the FR Y-9C must be consistent with
or, if certain conditions are met, no less stringent than generally
accepted accounting principles (GAAP).\2\ Therefore, the suggested
suspension of accounting rules cannot be implemented for FR Y-9C
reporting purposes.
---------------------------------------------------------------------------
\2\ See 12 U.S.C. 1831n(a).
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One bank consulting firm recommended revising the FR Y-9C to
require fee income to be reported separately from interest income, and
to add a new data item for the fair value changes to interest revenue.
As stated in the FR Y-9C instructions (and noted by the commenter),
FASB Statement No. 91, ``Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs
of Leases,'' generally prescribes that fees associated with lending
activities should be deferred and recognized over the life of the
related loan as an adjustment of yield (interest income). Thus, GAAP
guidance does not require separate disclosure of fee income. Regarding
the request for a new data item for fair value changes to interest
income, the commenter mistakenly concluded that fair value option
revaluations (net change in the
[[Page 8357]]
fair values of interest-bearing financial assets) is included with
interest and fee income on loans, and thus wanted this amount reported
separately from interest and fee income. However, such fair value
option revaluations are included in other noninterest income on the
income statement, not as part of interest income and fees on loans.
Accordingly, the Federal Reserve will not implement either of the
commenter's suggested revisions.
After considering the comments received on the proposal, the
Federal Reserve will move forward with the majority of the proposed
revisions, with limited modifications in response to certain comments,
on the phased-in basis as proposed. The Federal Reserve is continuing
to evaluate certain other proposed revisions in light of the comments
received thereon, and therefore will not implement these revisions
until after it has fully reviewed the comments.\3\
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\3\ See section I.C of this notice on unused commitments,
section II.B on past due and nonaccrual trading assets, and the
portion of section II.C addressing the present value of unpaid
premiums on sold credit protection.
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The Federal Reserve recognizes institutions' need for lead time to
prepare for reporting changes, which was the rationale for proposing
the phased-in implementation schedule for 2009. The data items that
will be new or revised effective March 31, 2009, are limited in number
and most are linked to changes in GAAP or changes in regulation. For
the March 31, 2009, report date, bank holding companies may provide
reasonable estimates for any new or revised data item initially
required to be reported as of that date for which the requested
information is not readily available. This same policy on the use of
reasonable estimates will apply to the reporting of other new or
revised data items when they are first implemented effective June 30 or
later.
Sections I and II of this memo identify the changes proposed to
take effect March 31 and June 30, respectively; discuss the Federal
Reserve's evaluation of the comments received on the proposed changes
that the Federal Reserve will implement, as modified; and describe the
proposed FR Y-9C revisions that will remain under review.
I. FR Y-9C Report Revisions Proposed for March 2009
The Federal Reserve and the other banking agencies received either
supportive comments or no comments on the following revisions that were
proposed to take effect as of March 31, 2009, and therefore the Federal
Reserve will implement these revisions as proposed:
New data items and revisions to existing data items on
trading assets and liabilities,
New data items associated with the U.S. Department of the
Treasury (Treasury) Capital Purchase Program (CPP),\4\
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\4\ The Federal Reserve will also implement these new data items
as proposed for the FR Y-9SP report, effective as of June 30, 2009.
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New data items and revisions to existing data items on
regulatory capital requirements,
Revisions to several FR Y-9C schedules in response to
accounting changes applicable to noncontrolling (minority) interests in
consolidated subsidiaries, and
Instructional guidance on quantifying misstatements.
The Federal Reserve and other banking agencies received one or more
substantive comments addressing each of the following proposed March
31, 2009, revisions:
The addition of new data items in response to a revised
accounting standard that will provide information on held-for-
investment loans and leases acquired in business combinations,
Clarifications of the definition of the term loan secured
by real estate and of the instructions for reporting unused
commitments, and
Exemptions from reporting certain existing data items for
bank holding companies with less than $1 billion in total assets.
The comments and the Federal Reserve's responses related to these
proposed revisions are discussed below.
A. Loans and Leases Acquired in Business Combinations
Banking institutions 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 on or after December 15, 2008. Thus,
for banking institutions with calendar year fiscal years, FAS 141(R)
will apply to business combinations with acquisition dates on or after
January 1, 2009. Compared to current accounting practice, FAS 141(R)
significantly changes the accounting for those loans and leases
acquired in business combinations that will be held for investment.\5\
In response to this accounting change, the Federal Reserve proposed to
add new data items to the FR Y-9C loan and lease schedule (Schedule HC-
C) that would mirror the acquisition-date disclosures required by FAS
141(R). These new data items would disclose the following information
for four categories of loans (not subject to SOP 03-3) and leases that
were acquired in each business combination that occurred during the
year-to-date reporting period:
---------------------------------------------------------------------------
\5\ This change in accounting treatment does not apply to
acquired held-for-investment 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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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.
The four categories of acquired held-for-investment loans (not
subject to SOP 03-3) and leases are:
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 banking institutions
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 banking institution
that has completed one or more business combinations during the current
calendar year would report these acquisition date data (as aggregate
totals if multiple business combinations have occurred) in each FR Y-9C
submission after the acquisition date during that year. The acquisition
date data would not be reported in years after the year in which the
acquisition occurs.
One bankers' organization stated that it concurred with the
proposal to require these additional disclosures for loans (not subject
to SOP 03-3) and leases acquired in business combinations that occurred
during the reporting period. No other commenter addressed these
proposed additional disclosures. Accordingly, the Federal Reserve will
implement of these data items in the March 31, 2009, FR Y-9C, as
proposed.
In the FR Y-9C proposal, the Federal Reserve stated that it was
considering whether banking institutions that have engaged in FAS
141(R) business combinations should provide additional information in
the FR Y-9C (beyond the disclosures described above) about acquired
held-for-investment loans (not
[[Page 8358]]
subject to SOP 03-3) and leases and the loss allowances established for
them in periods after their acquisition. The proposal stated that the
additional data items under consideration included the outstanding
balance of these acquired loans and leases, their carrying amount, and
the amount of allowances for post-acquisition credit losses on these
loans and leases. The Federal Reserve indicated that this information
would help the Federal Reserve as well as other report users to track
management's judgments regarding the collectability of the acquired
loans and leases in periods after the acquisition date and evaluate
fluctuations in the level of the overall Allowance for Loan and Lease
Losses (ALLL) as a percentage of the held-for-investment loan and lease
portfolio in periods after a business combination. The Federal Reserve
requested comment on the merits and availability of these post-
acquisition loan and lease data and the period of time after a business
combination that this information should be reported.
Two bankers' organizations commented on these additional loan and
lease disclosures. One organization did not specifically address the
merits of this information, stating only that if banking institutions
were required to report these additional data, they should report it
only through the end of the calendar year of the business combination.
The second organization agreed with the first organization concerning
the reporting period for these additional data. However, this
organization also stated its belief that the post-acquisition data on
acquired loans and leases would often not be available because acquired
performing loans and leases would tend to be combined with, rather than
segregated from, a banking institution's other performing loans and
leases.
After considering these comments, the Federal Reserve will not add
data items to the FR Y-9C for the outstanding balance of held-for-
investment loans (not subject to SOP 03-3) and leases acquired in FAS
141(R) business combinations, their carrying amount, and the amount of
allowances for post-acquisition credit losses on these loans and
leases. The Federal Reserve will continue to monitor accounting and
disclosure practices with respect to these acquired loans and leases
and their post-acquisition allowances and assess their data needs in
this area. Any future revisions to the FR Y-9C to collect data on
acquired loans and leases and post-acquisition allowances will be
subject to notice and comment.
B. 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 instructions has
been interpreted differently by 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
that collect loan data. As a result, the Federal Reserve proposed 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. Banking institutions would apply
this clarified definition prospectively and they need not reevaluate
and recategorize loans that they currently report as loans secured by
real estate into other loan categories on the FR Y-9C loan schedules.
One bankers' organization stated that it believes that the proposed
definition of a loan secured by real estate is workable and provides
additional clarity. One bank submitted examples involving loans with
real estate as collateral and asked how they would be reported based on
the revised definition. The Federal Reserve will implement the
clarified definition of loan secured by real estate as proposed but, in
response to this latter comment, also add examples to the definition to
assist banking institutions in understanding how it should be applied.
C. Clarification of Instructions for Unused Commitments
Banking institutions 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 banking institution has
charged a commitment fee or other consideration, commitments that are
legally binding, loan proceeds that the banking institution is
obligated to advance, commitments to issue a commitment, and revolving
underwriting facilities. However, some banking institutions 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 these arrangements are considered to be within the
scope of the existing instructions for reporting commitments in
Schedule HC-L, the instructions may not be sufficiently clear.
Therefore, the Federal Reserve proposed to revise the instructions for
Schedule HC-L, data item 1, Unused commitments, to more clearly and
completely explain the arrangements that should be reported in this
data item.
All three bankers' organizations submitting comments on the
proposed FR Y-9C revisions specifically addressed the proposed
instructional clarification pertaining to unused commitments. One
organization agreed that clarification is needed, but recommended that
commitments to issue a commitment in the future, including those
entered into even though the related loan agreement has not yet been
signed, should be removed from the list of types of arrangements that
the instructions would direct banking institutions to report as unused
commitments. The other two bankers' organizations also commented on the
inclusion of this type of arrangement as an unused commitment. One
organization expressed concern about reporting ``commitments that
contain a relatively high level of uncertainty until a loan agreement
has been signed or the loan has been funded with a first advance'' and
the reliability of data on such commitments. The other organization
stated that because some banking institutions do not have systems for
tracking such arrangements, the instructions should in effect permit
banking institutions to exclude commitment letters with an expiration
date of 90 days or less. Finally, the first bankers' organization also
recommended that the instructions for reporting unused commitments
should state that amounts conveyed or participated to others that the
conveying or participating banking institution is not obligated to fund
should not be reported as unused commitments by the conveying or
participating banking institution.
The Federal Reserve is continuing to evaluate these
recommendations. As a consequence, the Federal Reserve will not revise
the instructions for Schedule HC-L, data item 1, Unused commitments,
effective March 31, 2009, as proposed, leaving the existing
instructions for this Schedule HC-L data item to remain in effect. Once
deliberations on these recommendations are concluded and a
determination is made on whether and how to revise the instructions for
reporting Unused commitments in Schedule HC-L, data item 1, these
conclusions will be published in a separate Federal Register notice. If
the instructions to Schedule HC-L, data item 1, are subsequently
revised, the clarifications to these
[[Page 8359]]
instructions would take effect no earlier than December 31, 2009.
D. Exemptions From Reporting for Certain Existing FR Y-9C
The Federal Reserve has identified certain data items for which the
reported data are of lesser usefulness for banking institutions with
less than $1 billion in total assets. Accordingly, the Federal Reserve
proposed to exempt such banking institutions from completing the
following data items effective March 31, 2009:
Schedule HI, Memorandum item 12, 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.
One commenter, a bank insurance consultant, objected to the
proposal to exempt banking institutions with less than $1 billion in
total assets from reporting the data item, Income from the sale and
servicing of mutual funds and annuities (in domestic offices), stating
that this data item should be preserved in the regulatory reports. This
commenter also stated that the proposal did not explain how the
determination was made that the collection of this data item from
banking institutions in this size range is of lesser usefulness. This
commenter added that by eliminating the reporting of this income
information for these banking institutions, ``we will lose our sole
window into community banks' mutual fund and annuity activities.''
Memorandum item 12 was added to Schedule HI of the FR Y-9C in 1995.
At that time, the Federal Reserve collected limited information on
banking institutions' noninterest income. However, since 2001, the
Federal Reserve has significantly expanded the amount of detailed
information collected on noninterest income in recognition of the
increasing importance of such income to banking institutions' earnings.
As a result, all respondents, regardless of size, currently report the
amount of Fees and commissions from securities brokerage and Fees and
commissions from annuity sales in Schedule HI, data items 5.d.(1) and
5.d.(3), each quarter. Data item 5.d.(1) specifically includes income
from the sale and servicing of mutual funds. Thus, in general, the
income that a banking institution reports in Schedule HI, Memorandum
item 12, will have been included in these two noninterest income data
items in the body of Schedule HI. However, although the bank insurance
consultant stated that as of ``June 30, 2008, more banks with less than
$1 billion in assets reported mutual fund and annuity income'' than
reported eight other types of noninterest income in the body of the
income statement, the consultant did not provide comparative data for
the number of such banks reporting ``Fees and commissions from
securities brokerage'' or ``Fees and commissions from annuity sales.''
In addition, the Federal Reserve will continue to use the FR Y-9C
to identify banking institutions that sell private label or third party
mutual funds and annuities (Schedule HC-M, data item 15) as well as
banking institutions managing assets held in proprietary mutual funds
and annuities (Schedule HC-M, data item 16). Furthermore, FR Y-9C users
have indicated that Schedule HI, Memorandum item 12, Income from the
sale and servicing of mutual funds and annuities is regarded as being
of lesser usefulness than the noninterest income data items with which
it overlaps (data items 5.d.(1) and 5.d.(3) of Schedule HI).
Accordingly, after considering the views expressed by the bank
insurance consultant, the Federal Reserve believes that the existing
income statement data items for Fees and commissions from securities
brokerage and Fees and commissions from annuity sales are sufficient to
meet ongoing needs for income data on these types of activities from
banking institutions with less than $1 billion in total assets and
recommends that such banking institutions should be exempt from
separately reporting Income from the sale and servicing of mutual funds
and annuities beginning March 31, 2009, as proposed.
The Federal Reserve received no comments specifically addressing
the other data items for which banking institutions with less than $1
billion in assets would be exempt from continued reporting and the
Federal Reserve will implement these exemptions as of March 31, 2009,
as proposed.
II. FR Y-9C Revisions Proposed for June 2009
The Federal Reserve and other banking agencies received either
supportive comments or no comments on the following revisions to the FR
Y-9C that were proposed to take effect as of June 30, 2009, and
therefore the Federal Reserve will implement these revisions as
proposed:
Holdings of collateralized debt obligations and other
structured financial products by type of product and underlying
collateral,
Holdings of commercial mortgage-backed securities,
Unused commitments with an original maturity of one year
or less to asset-backed commercial paper conduits,
Pledged loans and pledged trading assets,
Collateral held against over-the-counter (OTC) derivative
exposures by type of collateral and type of counterparty as well as the
current credit exposure on OTC derivatives by type of counterparty (for
banking institutions with $10 billion or more in total assets),
Fair value measurements by level for asset and liability
categories reported at fair value on a recurring basis (banking
institutions that apply a fair value option, or are required to
complete the FR Y-9C trading schedule), and
Investments in real estate ventures.
The agencies received one or more substantive comments addressing
each of the following proposed June 30, 2009, revisions:
Real estate construction and development loans outstanding
with capitalized interest and the amount of such interest included in
income for the quarter (for banking institutions with construction and
development loan concentrations),
Past due and nonaccrual trading assets, and
Credit derivatives by credit quality and remaining
maturity and by regulatory capital treatment.
The comments and the Federal Reserve's responses related to these
proposed revisions are discussed below.
A. Construction and Development Loans With Interest Reserves
In December 2006, the agencies 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).\6\ 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
[[Page 8360]]
management and an assessment of capital adequacy.
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\6\ 71 FR 74580, December 12, 2006.
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In issuing the CRE Guidance, the agencies 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 agencies 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 C&D 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,
examiners have been 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 in the monitoring of C&D
lending activities at those banking institutions 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 proposed to add two new data items. First,
banking institutions with such a concentration would report the amount
of C&D loans (in domestic offices) included in the FR Y-9C loan
schedule (Schedule HC-C) on which the use of interest reserves is
provided for in the loan agreement. Second, these banking institutions
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 banking institutions currently report on
the amount of past due and nonaccrual C&D loans, would assist in
identifying respondents with C&D loan concentrations that may be
engaging in questionable interest capitalization practices for
supervisory follow-up.
One bank expressed agreement with concerns about the disguising of
problems with a borrower's willingness and ability to repay the debt
consistent with the terms and conditions of the loan agreement through
the improper use of interest reserves on C&D loans. The bank also
acknowledged that real estate market conditions have weakened in its
market area since the agencies issued the CRE Guidance in December
2006. Although the bank stated that it has a concentration of C&D
loans, as defined above, it reported that a recent review of its
portfolio revealed that only a modest number of its C&D loan agreements
included interest reserves. The bank also described its lending
policies and controls over the approval of interest reserves in the
original underwriting of a C&D loan and in the limited cases when the
original loan had matured or was otherwise recast. It then stated that
both the bank lender and its supervisory agency should focus their
attention--and any regulatory reporting requirements--on situations
when interest reserves are added to a loan after a development project
is completed or ``when a project goes over budget or otherwise has
completion issues.'' With respect to the two proposed data items
pertaining to C&D loans with interest reserves, the bank noted that its
loan system does not currently capture the required data and adding
this capability to the loan system by the proposed June 30, 2009,
effective date would likely be difficult, which would mean that the
data would have to be compiled manually until system changes are in
place.
After further review, the Federal Reserve has decided it will not
collect the two proposed items related to the use of interest reserves
at this time.
B. Trading Assets That Are Past Due or in Nonaccrual Status
Currently, the FR Y-9C does not distinguish past due and nonaccrual
trading assets from other assets on Schedule HC-N, Past Due and
Nonaccrual Loans, Leases, and Other Assets. The Federal Reserve
proposed to replace Schedule HC-N, data item 9, Debt securities and
other assets, that are past due 30 days or more or in nonaccrual status
with two separate data items: data item 9.a, Trading assets, and data
item 9.b, All other assets (including available-for-sale and held-to-
maturity securities). These data items would follow the existing three
column breakdown on Schedule HC-N that respondents utilize to report
assets past due 30 through 89 days and still accruing, past due 90 days
or more and still accruing, and in nonaccrual status. Data item 9.a
would include all assets held for trading purposes, including loans
held for trading. Collection of this information would allow the
Federal Reserve to better assess the quality of assets held for trading
purposes, and generally enhance surveillance and examination planning
efforts.
The Federal Reserve also proposed to expand the scope of Schedule
HC-D, Trading Assets, Memorandum item 3, Loans measured at fair value
that are past due 90 days or more, to include loans held for trading
and measured at fair value that are in nonaccrual status. This change
was intended to provide for more consistent treatment with the
information that would be collected on Schedule HC-N and with the
disclosure requirements in FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities.
One bankers' organization stated that it believed that disclosure
requirements regarding the delinquency and nonaccrual status of trading
securities is not particularly meaningful given that these securities
are marked to market through earnings. As a consequence, credit risk is
already incorporated into the market price of each trading security.
The organization further stated that the nonaccrual concept
traditionally has not been applied to trading securities, which makes
the proposed reporting of such data costly and difficult to implement.
Accordingly, this commenter recommended against
[[Page 8361]]
adding the proposed disclosure requirements regarding the delinquency
and nonaccrual status of trading securities.
The Federal Reserve is continuing to evaluate this commenter's
recommendation. Therefore, the Federal Reserve will not implement the
revisions to Schedule HC-N, data item 9, and Schedule HC-D, Memorandum
item 3, effective June 30, 2009, as proposed. The Federal Reserve will
retain the current data items while it considers the proposed reporting
changes in light of this comment. Once deliberations on these proposed
disclosure requirements are concluded and a determination is made on
whether and how to proceed with them, these conclusions will be
published in a separate Federal Register notice. If Schedule HC-N, data
item 9, and Schedule HC-D, Memorandum item 3, are subsequently revised,
these reporting changes would take effect no earlier than December 31,
2009.
C. Enhanced Information on Credit Derivatives
Effective for the March 2006 FR Y-9C, the Federal Reserve revised
the information collected on credit derivatives in Schedules HC-L,
Derivatives and Off-Balance Sheet Items, and HC-R, Regulatory Capital,
to gain a better understanding of the nature and trends of banking
institutions' credit derivative activities. Since that time, the volume
of credit derivative activity in the banking industry, as measured by
the notional amount of these contracts, increased steadily through
March 31, 2008, rising to an aggregate notional amount of over $16
trillion as of that date. The aggregate notional amount has since
declined slightly. Reported data further indicate that the credit
derivative activity in the industry is highly concentrated in banking
institutions with total assets in excess of $10 billion. For these
banking institutions, credit derivatives function as a risk mitigation
tool for credit exposures in their operations as well as a financial
product that is sold to third parties for risk management and other
purposes.
The Federal Reserve's safety and soundness efforts continue to
place emphasis on understanding and assessing the role of credit
derivatives in bank risk management practices. In addition, the Federal
Reserve's monitoring of credit derivative activities at certain banking
institutions has identified differences in interpretation as to how
credit derivatives are treated under the Federal Reserve's risk-based
capital standards. To further the Federal Reserve's safety and
soundness efforts concerning credit derivatives and to improve
transparency in the treatment of credit derivatives for regulatory
capital purposes, the Federal Reserve proposed to revise the
information pertaining to credit derivatives that is collected on
Schedules HC-L, HC-N (Past Due and Nonaccrual Loans, Leases, and Other
Assets), and HC-R.
In Schedule HC-L, data item 7, Credit derivatives, the Federal
Reserve proposed to change the column A caption, Guarantor, to Sold
Protection and the column B caption, Beneficiary, to Purchased
Protection to eliminate confusion surrounding the meaning of Guarantor
and Beneficiary that commonly occurs between the users and preparers of
these data. The Federal Reserve also proposed to add a new data item
7.c to Schedule HC-L to collect information on the notional amount of
credit derivatives by regulatory capital treatment. For credit
derivatives that are subject to the Federal Reserve's market risk
capital standards, the Federal Reserve proposed to collect the notional
amount of sold protection and the amount of purchased protection. For
all other credit derivatives, the Federal Reserve proposed to collect
the notional amount of sold protection, the notional amount of
purchased protection that is recognized as a guarantee under the risk-
based capital guidelines, and the notional amount of purchased
protection that is not recognized as a guarantee under the risk-based
capital standards.
The Federal Reserve also proposed to add a new data item 7.d to
Schedule HC-L to collect information on the notional amount of credit
derivatives by credit rating and remaining maturity. The data item
would collect the notional amount of sold protection broken down by
credit ratings of investment grade and subinvestment grade for the
underlying reference asset and by remaining maturities of one year or
less, over one year through five years, and over five years. The same
information would be collected for purchased protection.
In Schedule HC-N, the Federal Reserve proposed to change the scope
of Memorandum item 6, Past due interest rate, foreign exchange rate,
and other commodity and equity contracts, to include credit
derivatives. The fair value of credit derivatives where the banking
institution has purchased protection increased significantly to over
$500 billion at March 31, 2008, as compared to below negative $10
billion at March 31, 2007. Thus, the performance of credit derivative
counterparties has increased in importance. The expanded scope of
Memorandum item 6 on Schedule HC-N would include the fair value of
credit derivatives carried as assets that are past due 30 through 89
days and past due 90 days or more.
In Schedule HC-R the Federal Reserve proposed to change the scope
of the information collected in Memorandum items 2.g.(1) and (2) on the
notional principal amounts of Credit derivative contracts that are
subject to risk-based capital requirements to include only (a) the
notional principal amount of purchased protection that is defined as a
covered position under the market risk capital guidelines and (b) the
notional principal amount of purchased protection that is not a covered
position under the market risk capital guidelines and is not recognized
as a guarantee for risk-based capital purposes. The scope of Memorandum
item 1, Current credit exposure across all derivative contracts covered
by the risk-based capital standards, would be similarly revised to
include the current credit exposure arising from credit derivative
contracts that represent (a) purchased protection that is defined as a
covered position under the market risk capital guidelines and (b)
purchased protection that is not a covered position under the market
risk capital guidelines and is not recognized as a guarantee for risk-
based capital purposes. The Federal Reserve also proposed to add new
Memorandum items 3.a and 3.b to Schedule HC-R to collect the present
value of unpaid premiums on sold credit protection that is defined as a
covered position under the market risk capital guidelines. Consistent
with the information currently reported in Memorandum item 2.g, the
Federal Reserve proposed to collect this present value information with
a breakdown between investment grade and subinvestment grade for the
rating of the underlying reference asset and with the same three
remaining maturity breakouts.
No comments were received on any of the proposed reporting
revisions pertaining to credit derivatives described above, except for
a comment from a bankers' organization on the proposal to collect data
on Schedule HC-R relating to the present value of unpaid premiums on
sold credit protection that is defined as a covered position under the
market risk capital guidelines. Accordingly, the Federal Reserve will
implement all of the proposed credit derivative reporting changes--
other than the proposed new Schedule HC-R data items for present value
data--as of June 30, 2009, as proposed. With respect to the present
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value data, the bankers' organization requested clarification of the
impact of this proposed reporting requirement on a banking
institution's risk-based capital calculations. The Federal Reserve is
continuing to consider this comment and the proposed collection of
present value data for certain credit derivatives. Therefore, the
Federal Reserve will not add Memorandum items 3.a and 3.b to Schedule
HC-R to collect this present value information effective June 30, 2009,
as proposed. Once deliberations on the comment and the proposed present
value data items has been concluded, conclusions will be published in a
separate Federal Register notice. If Memorandum items 3.a and 3.b are
subsequently added to Schedule HC-R, this new reporting requirement
would take effect no earlier than December 31, 2009.
Board of Governors of the Federal Reserve System, March 11,
2009.
Editorial Note: This document was received in the Office of the
Federal Register on February 18, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-3578 Filed 2-23-10; 8:45 am]
BILLING CODE 6210-01-P