Request for Comment on Possible Changes to Industry Guide 3 (Statistical Disclosure by Bank Holding Companies), 12757-12781 [2017-04329]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 43 (Tuesday, March 7, 2017)]
[Proposed Rules]
[Pages 12757-12781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04329]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 211, 229, 231 and 241

[Release No. 33-10321; 34-80131; File No. S7-02-17]
RIN 3235-AL79


Request for Comment on Possible Changes to Industry Guide 3 
(Statistical Disclosure by Bank Holding Companies)

AGENCY: Securities and Exchange Commission.

ACTION: Request for comment.

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SUMMARY: The Commission is publishing this request for comment to seek 
public input as to the disclosures called for by Industry Guide 3, 
Statistical Disclosure by Bank Holding Companies. The financial 
services industry has changed dramatically since Guide 3 was first 
published. Consequently, our disclosure guidance may not in all cases 
reflect recent industry developments or changes in accounting standards 
related to financial and other reporting requirements.

DATES: Comments should be received on or before May 8, 2017.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/other.shtml);
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-02-17 on the subject line; or
     Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-02-17. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method of submission. The Commission will post all comments on the 
Commission's Web site (https://www.sec.gov/rules/other.shtml). Comments 
also are available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly.

FOR FURTHER INFORMATION CONTACT: Lindsay McCord, Associate Chief 
Accountant in the Office of Chief Accountant, Division of Corporation 
Finance, at (202) 551-3400, U.S. Securities and Exchange Commission, 
100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Applicable Disclosures
    A. Distribution of Assets, Liabilities and Stockholders' Equity; 
Interest Rate and Interest Differential (Average Balance, Interest 
and Yield/Rate Analysis and Rate/Volume Analysis)
    B. Investment Portfolio
    C. Loan Portfolio
    D. Summary of Loan Loss Experience
    E. Deposits
    F. Return on Equity and Assets
    G. Short-Term Borrowings
    H. Potential New Disclosures
III. Applicability of Disclosure Requirements
    A. Applicability to Registrants Other Than Bank Holding 
Companies
    B. Applicability to Foreign Registrants
    C. Size Thresholds and Reporting Periods
IV. Closing

I. Introduction

    The Commission is considering possible revisions to its disclosure 
regime for bank holding companies. When we discuss current disclosure 
guidance in this request for comment, we focus on the disclosures 
currently called for by Industry Guide 3, Statistical Disclosure by 
Bank Holding Companies (Guide 3).\1\ By its terms, Guide 3 applies 
exclusively to bank holding companies, although the staff has 
previously indicated that the disclosures called for by Guide 3 
``should also be provided by other registrants with material lending 
and deposit activities.'' \2\ In this request for comment, when we use 
the term ``BHC registrants,'' we are referring to public companies that 
apply Guide 3 disclosures. In light of developments in

[[Page 12758]]

the financial services industry since publication of Guide 3, we are 
considering modernization of the nature, timing, scope and 
applicability of Guide 3. We also encourage commenters to consider 
registrants other than BHC registrants with material amounts of 
activities in the areas addressed in Guide 3 \3\ when responding to 
this request for comment.
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    \1\ 57 FR 36442.
    \2\ Staff Accounting Bulletin Topic 11:K--Application of Article 
9 and Guide 3 (SAB 11:K). The Industry Guides and SAB 11:K are not 
rules, regulations or statements of the Commission. Further, as with 
any staff guidance, the views of the staff referenced in this 
request for comment are not rules or interpretations of the 
Commission. The Commission has neither approved nor disapproved the 
views of the staff expressed herein.
    \3\ Guide 3 is divided into seven sections, each covering a 
distinct area of statistical disclosure: (I) Distribution of Assets, 
Liabilities and Stockholders' Equity; Interest Rates and Interest 
Differential, (II) Investment Portfolio, (III) Loan Portfolio, (IV) 
Summary of Loan Loss Experience, (V) Deposits, (VI) Return on Equity 
and Assets, and (VII) Short-Term Borrowings.
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    The goal of the Commission's disclosure system is to ensure that 
investors receive the information they need to make informed investment 
and voting decisions.\4\ Many of the Commission's disclosure 
requirements are found in Regulation S-K,\5\ which is the central 
repository of non-financial statement disclosure requirements, and 
Regulation S-X,\6\ which prescribes the form and content of and 
requirements for financial statements. These requirements generally 
apply to all registrants, regardless of industry. In some instances, 
the Commission has determined that registrants in specific industries, 
such as bank holding companies, should provide additional disclosures. 
For example, Subpart 1200 of Regulation S-K \7\ contains additional 
disclosure requirements for oil and gas producing companies. The 
Commission also recently proposed to consolidate the property 
disclosure requirements for mining registrants in a new Subpart 1300 of 
Regulation S-K.\8\ Similarly, the Commission has adopted disclosure 
requirements and published guidance specific to bank holding companies, 
such as Article 9 of Regulation S-X (Article 9),\9\ which sets forth 
the Commission's rules for the form and content of consolidated bank 
holding company financial statements and bank financial statements 
included in filings with the Commission.
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    \4\ Adoption of Integrated Disclosure System, Release No. 33-
6383 (Mar. 3, 1982) [47 FR 11380].
    \5\ 17 CFR 229.10 et seq.
    \6\ 17 CFR 210.1-01 et seq.
    \7\ 17 CFR 229.1201 through 1208.
    \8\ Modernization of Property Disclosures for Mining 
Registrants, Release No. 33-10098 (June 16, 2016) [81 FR 41651] 
(Mining Disclosures Release).
    \9\ 17 CFR 210.9-01 through 9-07.
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    Industry Guide 3 was first published in 1976 \10\ as ``a convenient 
reference to the statistical disclosures sought by the staff of the 
Division of Corporation Finance in registration statements and other 
disclosure documents filed by bank holding companies.'' \11\ The Guide 
3 release noted that ``as the operations of bank holding companies have 
diversified, it has become increasingly difficult for investors to 
identify the sources of income of such companies.'' \12\ The Division 
believed that disclosure of the same statistical information on a 
regular, periodic basis would assist in assessing their future earning 
potential and enable investors to compare bank holding companies.\13\ 
In drafting Guide 3, the staff was ``mindful of the investor's need to 
assess uncertainties, the need for disclosure with respect to changes 
in risk characteristics, and specifically the need for substantial and 
specific disclosure of changes in risk characteristics of loan 
portfolios.'' \14\ Consequently, Guide 3 called for ``more meaningful 
disclosure about loan portfolios and related items in filings by bank 
holding companies'' \15\ than had been generally available prior to 
implementation of Guide 3. Guide 3 also requests information with 
respect to a BHC registrant's foreign operations on the basis that it 
believes is representative of its foreign activities and the risks 
associated with such business. The staff's view was that such 
``information [would] assist investors to evaluate the potential impact 
of future economic events upon a registrant's business and earnings and 
to assess the ability of a bank holding company to move into or out of 
situations with favorable or unfavorable risk/return characteristics.'' 
\16\ In adopting Guide 3, the staff consulted extensively with 
representatives of the Board of Governors of the Federal Reserve System 
(FRB), the Office of the Comptroller of the Currency (OCC) and the 
Federal Deposit Insurance Corporation (FDIC) (collectively, U.S. 
banking agencies), which regulate banking organizations.\17\ Unless the 
context dictates otherwise, in this request for comment, when we use 
the term ``banking organizations,'' we are referring to national banks, 
state member banks, Federal savings associations, and top-tier bank 
holding companies domiciled in the United States not subject to the 
FRB's Small Bank Holding Company Policy Statement (12 CFR part 225, 
appendix C), as well as top-tier savings and loan holding companies 
domiciled in the United States, except certain savings and loan holding 
companies that are substantially engaged in insurance underwriting or 
commercial activities.\18\ Guide 3 has been amended over time to 
provide more uniformity and consistency between the Guide and Article 9 
and to elicit additional information about various risk elements 
involved in deposit and lending activities,\19\ although the last 
substantive revision of Guide 3 took place in 1986.\20\
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    \10\ Guides for Statistical Disclosure by Bank Holding 
Companies, Release No. 33-5735 (Aug. 31, 1976) [41 FR 39007] (Guide 
3 Release). Guide 3 was originally published as Securities Act Guide 
61 and Exchange Act Guide 3. In 1982, Securities Act Guide 61 and 
Exchange Act Guide 3 were redesignated as Securities Act Industry 
Guide 3 and Exchange Act Industry Guide 3. See Rescission of Guides 
and Redesignation of Industry Guides, Release No. 33-6384 (Mar. 16, 
1982) [47 FR 11476]. When it published the Guide 3 Release, the 
Commission stated that ``[t]he Guides are not Commission rules nor 
do they bear the Commission's official approval; they represent 
policies and practices followed by the Commission's Division of 
Corporation Finance in administering the disclosure requirements of 
the federal securities laws.''
    \11\ Guide 3 Release at 39008.
    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ See Regulatory Capital Rules: Regulatory Capital, 
Implementation of Basel III, Capital Adequacy, Transition 
Provisions, Prompt Corrective Action, Standardized Approach for 
Risk-weighted Assets, Market Discipline and Disclosure Requirements, 
Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital 
Rule. (Oct. 11, 2013) [78 FR 62017] (Regulatory Capital Rules).
    \19\ Amendments to Guides for Statistical Disclosure by Bank 
Holding Companies, Release No. 33-6221 (July 8, 1980) [45 FR 47138] 
(1980 Guide 3 Amendments Release); Revision of Financial Statement 
Requirements and Industry Guide Disclosure for Bank Holding 
Companies, Release No. 33-6458 (Mar. 7, 1983) [48 FR 11104]; 
Revision of Industry Guide Disclosures for Bank Holding Companies, 
Release No. 33-6478 (Aug. 11, 1983) 48 FR 37609 (1983 Guide 3 
Revisions Release); Notification of Technical Amendments to 
Securities Act Industry Guides, Release No. 33-9337 (Jul. 13, 2012) 
[77 FR 42175].
    \20\ Guide 3's last substantive revision, which added 
disclosures regarding loans and extensions of credit to borrowers in 
countries experiencing liquidity problems, occurred in 1986. See 
Amendments to Industry Guide Disclosures by Bank Holding Companies, 
Release No. 33-6677 (Nov. 25, 1986) [51 FR 43594].
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Purpose of This Request for Comment

    Since the last substantive revisions to Guide 3, the Commission has 
issued disclosure requirements and guidelines \21\ and the Financial 
Accounting Standards Board (FASB) \22\

[[Page 12759]]

has issued accounting standards that have changed the reporting 
obligations for all registrants generally. In addition, various 
international, federal and state regulatory, supervisory and standard-
setting bodies \23\ require entities within their respective remits to 
publish a wide range of quantitative and qualitative disclosures. 
Consequently, some of the disclosures called for by Guide 3, which are 
focused on the needs of an investor, may be duplicative of or overlap 
with subsequently adopted Commission rules, accounting principles 
generally accepted in the United States (U.S. GAAP) or disclosures 
mandated by other regulatory, supervisory or standard-setting regimes.
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    \21\ For example, the Commission adopted Item 305 of Regulation 
S-K in 1997. Disclosure of Accounting Policies for Derivative 
Financial Instruments and Derivative Commodity Instruments and 
Disclosure of Quantitative and Qualitative Information about Market 
Risk Inherent in Derivative Financial Instruments, Other Financial 
Instruments and Derivative Commodity Instruments, Release No. 33-
7386 (Jan. 31, 1997) [62 FR 6044] (Disclosure of Market Risk 
Sensitive Instruments Release).
    \22\ The Commission has broad authority and responsibility under 
the federal securities laws to prescribe the methods to be followed 
in the preparation of accounts and the form and content of financial 
statements to be filed under those laws. See, e.g., Sections 7 and 
19(a) and Schedule A, Items (25) and (26) of the Securities Act of 
1933 [15 U.S.C. 77a et seq.] (Securities Act) and Sections 3(b), 
12(b) and 13(b) of the Securities Exchange Act of 1934 [15 U.S.C. 
78a et seq.] (Exchange Act). To assist it in meeting this 
responsibility, the Commission historically has looked to private 
sector standard-setting bodies designated by the accounting 
profession to develop accounting principles and standards. In 2002, 
in accordance with criteria established by the Sarbanes-Oxley Act, 
the Commission designated the FASB as the private sector accounting 
standard setter for U.S. financial reporting. See Commission 
Statement of Policy Reaffirming the Status of the FASB as a 
Designated Private-Sector Standard Setter, Release No. 33-8221 (Apr. 
25, 2003) [68 FR 23333]. The IASB, which is subject to oversight by 
the IFRS Foundation, is responsible for IFRS and establishes its own 
standard-setting agenda. For further information, see https://www.ifrs.org/About-us/Pages/IFRS-Foundation-and-IASB.aspx.
    \23\ In the United States, for example, the U.S. banking 
agencies regulate and supervise banking organizations. The Basel 
Committee on Banking Supervision (BCBS) is an example of an 
international standard-setter for the prudential regulation of 
banks. The BCBS develops international regulatory capital standards 
through a number of capital accords and related publications. The 
United States is a participating member of the BCBS, and the U.S. 
banking agencies generally implement BCBS standards through a notice 
and comment process. For more information, see https://www.bis.org/bcbs/history.pdf.
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    Furthermore, the financial services industry has evolved 
significantly since Guide 3 was first published. Bank holding companies 
and financial holding companies today conduct a wider array of 
activities than was the case at the time of Guide 3's publication.\24\ 
Moreover, the use of financial instruments has also evolved. For 
example, 1,438 insured U.S. commercial banks and savings associations 
reported derivatives activities at the end of the third quarter of 
2016.\25\ A small group of large financial institutions continues to 
dominate derivatives activity in the U.S. commercial banking system. 
During the third quarter of 2016, four large commercial banks 
represented 89.7 percent of the total banking industry notional amounts 
and 84.4 percent of industry net credit exposure.\26\
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    \24\ For example, some banking organizations engage in 
activities involving physical commodities, insurance, investment 
management, asset management and broker-dealer activities. See also 
Henry T. C. Hu, Disclosure Universes and Modes of Information: 
Banks, Innovation, and Divergent Regulatory Quests, 31 Yale Journal 
on Regulation 565 (2014) at pages 590-592.
    \25\ See Quarterly Report on Bank Derivatives Activities, Third 
Quarter 2016, Office of the Comptroller of the Currency, available 
at https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/derivatives-quarterly-report.html.
    \26\ Id.
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    In this request for comment, we describe each disclosure section in 
Guide 3 in turn, as well as related disclosures required by Commission 
rules, U.S. GAAP and the U.S. banking agencies,\27\ and we ask for 
public input about how and to what extent the Guide 3 disclosure regime 
could be improved. We seek input on new or revised disclosure or the 
elimination of what may be duplicative or overlapping disclosures in 
Guide 3. We also seek input on whether any of the Guide 3 disclosures, 
which are not Commission rules or requirements, should be codified as 
Commission rules.\28\ Because we are considering modernization of the 
scope and applicability of Guide 3, we also encourage commenters to 
consider registrants other than bank holding companies when 
recommending improvements to the disclosure regime.
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    \27\ The descriptions in this request for comment are provided 
for the convenience of commenters and to facilitate the comment 
process. These descriptions, particularly the descriptions of 
applicable bank regulatory requirements and U.S. GAAP, should not be 
taken as Commission or staff guidance about the relevant rules or 
standards.
    \28\ In 1996, the Commission's Task Force on Disclosure 
Simplification recommended relocating the industry guides, including 
Guide 3, into Regulation S-K. Report of the Task Force on Disclosure 
Simplification (Mar. 5, 1996), available at https://www.sec.gov/news/studies/smpl.htm. Currently, Instruction 13 to Regulation S-K Item 
303(a) directs the attention of bank holding companies to the 
information called for by Guide 3. In 2008, the Commission 
modernized the reporting requirements applicable to oil and gas 
reserves and codified the disclosures formerly in Industry Guide 2 
into Regulation S-K. Modernization of Oil and Gas Reporting, Release 
No. 33-8995 (Dec. 31, 2008) [74 FR 2158].
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Sources of Disclosures

    In addition to Article 9 and Guide 3, various Commission rules and 
accounting standards applicable to registrants in all industries govern 
the disclosures that bank holding companies provide in Commission 
filings. For example: \29\
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    \29\ The rules and accounting standards in these examples apply 
to domestic registrants. Foreign private issuers are subject to 
similar Commission disclosure requirements. For example, Form 20-F 
requires a discussion of the foreign private issuer's financial 
condition, changes in financial condition and results of operations 
and quantitative and qualitative disclosures about market risk.
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     Article 4 of Regulation S-X \30\ requires financial 
statements for domestic registrants to comply with U.S. GAAP, which in 
turn contains disclosure requirements that apply specifically to the 
financial services industry.\31\
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    \30\ 17 CFR 210.4-01 through 4-10.
    \31\ U.S. GAAP includes industry-specific accounting and 
reporting guidance for the financial services industry in Accounting 
Standards Codification (ASC) 940 to 950. U.S. GAAP categorizes the 
financial services industry disclosures by the following: Broker 
Dealers, Depository and Lending, Insurance, Investment Companies, 
Mortgage Banking, and Title Plant.
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     Item 303 of Regulation S-K,\32\ Management's discussion 
and analysis of financial condition and results of operations (MD&A), 
requires a discussion and analysis of the underlying causes of material 
changes in financial statement line items, as well as the material 
trends and uncertainties that may have a material impact on a 
registrant's results of operations, liquidity or capital resources.\33\
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    \32\ 17 CFR 229.303.
    \33\ See Commission Guidance Regarding Management's Discussion 
and Analysis of Financial Condition and Results of Operations, 
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056] (Interpretive 
Guidance on MD&A).
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     Item 305 of Regulation S-K,\34\ Quantitative and 
qualitative disclosures about market risk, requires disclosures about 
market risks, including interest rate risk. Interest rate risk is a 
significant risk for registrants whose balance sheets are concentrated 
in interest-earning assets and interest-bearing liabilities.
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    \34\ 17 CFR 229.305.
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     Item 2.02 of Form 8-K requires registrants that make any 
public announcement or release material non-public information about 
their results of operations or financial condition for a completed 
quarter or annual period to furnish the information as an exhibit to 
Form 8-K. Among other things, this requirement applies to earnings 
releases and investor presentations.\35\
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    \35\ Registrants sometimes provide investor presentations that 
contain extensive information that is not required to be disclosed 
by Commission rules or accounting standards. For example, some 
registrants disclose calculations for capital ratios to which they 
are not yet subject. In addition, some registrants disclose their 
deposit spreads for each category of deposits, while disclosing in 
MD&A their deposit spread on an aggregated basis only.
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    A wide range of information is publicly available beyond what is 
called for by the Commission's disclosure requirements and guidance. 
For example:
     The U.S. banking agencies require their regulated banking 
organizations to file publicly available Consolidated Reports of 
Condition and Income (Call

[[Page 12760]]

Reports), on a quarterly basis.\36\ The FRB also requires bank holding 
companies to file publicly available data separately on a consolidated 
basis.\37\ Because these reports are prepared based on bank regulatory 
reporting requirements, the information they contain is not necessarily 
identical to the information in Commission filings.
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    \36\ Every national bank, state member bank, insured state 
nonmember bank, and savings association is required to file periodic 
consolidated Call Reports. These banking organizations may not be 
the entities that file reports with the Commission, which typically 
are the bank holding companies. For Call Report instructions and 
forms, see https://www.ffiec.gov/ffiec_report_forms.htm. Call Reports 
must be filed 30 to 35 calendar days after the report date, 
depending on whether the filer has a foreign office. The discussion 
of Call Reports in this request for comment is based on the 
reporting requirements applicable to banking organizations as of 
December 31, 2016.
    \37\ The FRB collects basic financial data on a consolidated 
basis from domestic bank holding companies, savings and loan holding 
companies and securities holding companies on Form FR Y-9C.
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     Banking organizations are subject to the regulatory 
capital framework and the associated disclosures adopted by the U.S. 
banking agencies. The current regulatory capital framework, known as 
``Basel III,'' was first phased in beginning on January 1, 2014 and 
became effective for all U.S. banking organizations on January 1, 
2015.\38\ U.S. GAAP requires disclosure describing the capital 
requirements and compliance with those requirements on an annual 
basis.\39\
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    \38\ The BCBS developed international regulatory capital 
standards through a number of capital accords and related 
publications, which have collectively been in effect since 1998. 
Basel III is a comprehensive set of reform measures, developed by 
the BCBS, to strengthen the regulation, supervision, and risk 
management of the banking sector. The measures include both 
liquidity and capital reforms. See https://www.federalreserve.gov/bankinforeg/basel/.
    The Basel III framework is based on the following three pillars: 
(1) Minimum capital requirements, (2) supervisory review process, 
and (3) market discipline disclosures. See Regulatory Capital Rules.
    \39\ ASC 942-505-50. The ratios and amounts required to be 
disclosed, if applicable, include: (1) Tier 1 leverage, (2) Tier 1 
risk-based and total risk-based capital, (3) tangible capital, and 
(4) Tier 3 capital for market risk. Registrants should disclose any 
other regulatory limitations that could materially affect their 
economic resources and claims to those resources.
     Entities within the scope of ASC 942 include the following: (a) 
Finance companies; (b) depository institutions; (c) bank holding 
companies; (d) savings and loan association holding companies; (e) 
branches and agencies of foreign banks regulated by U.S. federal 
banking regulatory agencies; (f) state-chartered banks, credit 
unions and savings institutions that are not federally insured; (g) 
foreign financial institutions that present U.S. GAAP financial 
statements; (h) mortgage companies; and (i) corporate credit unions.
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     Large, internationally active banking organizations, 
certain designated nonbank financial companies and certain consolidated 
subsidiary depositary institutions thereof are subject to a liquidity 
coverage ratio (LCR) requirement. The LCR requirement is designed to 
promote the short-term resilience of the liquidity risk profile of 
covered organizations, thereby improving the financial services 
industry's ability to absorb shocks arising from financial and economic 
stress, and to further improve the measurement and management of 
liquidity risk. It requires covered organizations to maintain adequate 
levels of ``high-quality liquid assets.'' \40\ Basel III also 
introduced, and the U.S. banking agencies have proposed, a net stable 
funding ratio (NSFR) requirement, a liquidity measure that would 
require large, internationally active banking organizations to maintain 
sufficient levels of ``stable funding'' to reduce liquidity risk in the 
banking system.\41\
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    \40\ The U.S. banking agencies adopted the LCR rule effective 
January 1, 2015 for large and internationally active banking 
organizations, generally, bank holding companies, certain savings 
and loan holding companies, and depository institutions with $250 
billion or more in total assets or $10 billion or more in on balance 
sheet foreign exposure and their consolidated subsidiaries that are 
depository institutions with $10 billion or more in total 
consolidated assets. In addition, a modified minimum LCR requirement 
applies to bank holding companies and savings and loan holding 
companies without significant insurance or commercial operations 
that are not internationally active and, in each case, have $50 
billion or more in total consolidated assets. See Liquidity Coverage 
Ratio: Liquidity Risk Measurement Standards (Oct. 10, 2014) [79 FR 
61440] (LCR Adopting Release).
     In December 2016, the FRB adopted quarterly public disclosure 
requirements related to the LCR requirement, including disclosure of 
the inputs to the LCR calculation. The effective date is scaled 
based on organization size, and only those covered organizations 
with $700 billion or more in total consolidated assets or $10 
trillion or more in assets under custody must comply in 2017. See 
Liquidity Coverage Ratio: Public Disclosure Requirements; Extension 
of Compliance Period for Certain Companies to Meet the Liquidity 
Coverage Ratio Requirements (Dec. 27, 2016) [81 FR 94922].
    \41\ In May 2016, the U.S. banking agencies proposed a rule that 
would establish a minimum NSFR threshold applicable to covered 
organizations and would require public disclosure of the NSFR, its 
components and a discussion of certain qualitative features of it. 
If adopted, the rule would become effective on January 1, 2018 and 
is tailored to the size of the organization. See Net Stable Funding 
Ratio: Liquidity Risk Measurement Standards and Disclosure 
Requirements (May 3, 2016) [81 FR 35123].
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     Under Basel III, certain banking organizations are subject 
to public disclosure requirements intended to allow market participants 
to assess an organization's capital adequacy (Pillar 3).\42\
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    \42\ Pillar 3 disclosure requirements apply to banking 
organizations with $50 billion or more in total assets. See 
Regulatory Capital Rules: Regulatory Capital, Implementation of 
Basel III, Capital Adequacy, Transition Provisions, Prompt 
Corrective Action, Standardized Approach for Risk-weighted Assets, 
Market Discipline and Disclosure Requirements, Advanced Approaches 
Risk-Based Capital Rule, and Market Risk Capital Rule (Oct. 11, 
2013) [78 FR 62018] (Regulatory Capital Rules Release).
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     Large bank holding companies are subject to the FRB's 
annual comprehensive capital analysis and review (CCAR) and Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) \43\ 
stress testing (DFAST).\44\ Some bank holding companies subject to 
these stress testing requirements issue press releases announcing their 
CCAR and DFAST results and furnish the press releases as Form 8-K 
exhibits. The FRB generally publishes the CCAR results, and banking 
organizations' primary bank regulatory agencies generally publish the 
DFAST results. These results are published both in summary form and on 
an organization-by-organization basis.
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    \43\ Public Law 111-203, 124 Stat. 1376 (2010).
    \44\ Banking organizations with $50 billion or more in total 
consolidated assets are subject to the full scope of these tests. 
DFAST testing and disclosure requirements are significantly reduced 
for banking organizations with $10 billion to $50 billion in total 
consolidated assets. See https://www.federalreserve.gov/newsevents/press/bcreg/20150602a.htm.
    The FRB uses CCAR to assess whether a banking organization has 
sufficient capital to continue operations in times of economic and 
financial stress and to ensure that the organization maintains a 
robust, forward-looking capital planning process that accounts for 
the unique risks it faces. See https://www.federalreserve.gov/bankinforeg/ccar.htm. The U.S. banking agencies use DFAST to assess 
whether a banking organization has sufficient capital to absorb 
losses and support operations during adverse economic conditions. 
See https://www.federalreserve.gov/newsevents/press/bcreg/bcreg20150602a1.pdf.
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Public Comments on Guide 3

    Over the years, the Commission has continuously evaluated its 
disclosure system and engaged periodically in rulemakings designed to 
enhance its disclosure and registration requirements. This request for 
comment is part of the staff's broad-based review of the Commission's 
disclosure regime.
    As part of this effort, the staff requested public input generally 
on how the Commission's disclosure system could be improved for the 
benefit of both companies and investors,\45\ and a concept release on 
the business and financial disclosure requirements in Regulation S-K 
\46\ requests comment on the Commission industry guides.\47\ Over

[[Page 12761]]

30 of the comment letters submitted in response to these requests 
addressed Guide 3 specifically or Commission industry guides 
generally.\48\ Several commenters indicated that the industry guides 
are helpful and relevant,\49\ and several commenters recommended that 
the industry guides be updated.\50\ Several commenters recommended that 
the industry guides be revised to eliminate overlap with U.S. GAAP 
requirements.\51\ One commenter recommended that the Commission conduct 
a comprehensive review of the regulatory disclosures applicable to the 
financial services industry.\52\ Some commenters suggested that to 
reduce complexity and redundancy, the staff should consider how U.S. 
GAAP disclosure requirements interplay with Commission disclosure 
requirements.\53\ Some commenters recommended that the industry guides 
be codified into Regulation S-K or Regulation S-X,\54\ while other 
commenters recommended that the guides not be codified.\55\ Three 
commenters made specific recommendations on the disclosures called for 
by Guide 3.\56\
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    \45\ Comment letters related to this request are available at 
https://www.sec.gov/spotlight/disclosure-effectiveness.shtml.
    \46\ Business and Financial Disclosure Required by Regulation S-
K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915] (Regulation S-
K Concept Release).
    \47\ Comment letters related to the Regulation S-K Concept 
release are available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
    \48\ See letters from The PNC Financial Services Group (July 14, 
2014) (PNC Letter); Tom C.W. Lin (July 30, 2014) (Lin Letter); 
Global Financial Institutions Accounting Committee of the Securities 
Industry and Financial Markets Association (Oct. 13, 2014) (SIFMA 
Letter); Sustainability Accounting Standards Board (Nov. 12, 2014) 
(SASB Letter); CFA Institute (Nov. 12, 2014) (CFA Institute Letter); 
Shearman & Sterling LLP (Nov. 26, 2014) (Shearman & Sterling 
Letter); Disclosure Effectiveness Working Group of the Federal 
Regulation of Securities Committee and the Law & Accounting 
Committee of the Business Law Section of the American Bar 
Association (Mar. 6, 2015) (ABA Letter); Henry T. C. Hu (Oct. 7, 
2015) (Hu Letter); Data Transparency Coalition (Oct. 29, 2015) (Data 
Transparency Coalition Letter); Ernst & Young LLP (Nov. 20, 2015) 
(EY Letter); Terra Alpha Investments LLC (June 6, 2016) (Terra Alpha 
Letter); Sustainability Accounting Standards Board (July 1, 2016) 
(SASB Letter II); US SIF and US SIF Foundation (July 14, 2016) (US 
SIF Letter); American Bankers Association (July 15, 2016) (American 
Bankers Association Letter); Deloitte & Touche LLP (July 15, 2016) 
(Deloitte Letter); U.S. Chamber of Commerce (July 20, 2016) (Chamber 
Letter); Corporate Governance Coalition for Investor Value (July 20, 
2016) (CGCIV Letter); Center for Audit Quality (July 21, 2016) (CAQ 
Letter); Ernst & Young LLP (July 21, 2016) (EY Letter II); The PNC 
Financial Services Group (July 21, 2016) (PNC Letter II); KPMG LLP 
(July 21, 2016); Investment Program Association (July 21, 2016) 
(Investment Program Association Letter); Committee on Securities 
Law, Business Law Section, Maryland State Bar Association (July 21, 
2016) (Maryland State Bar Letter); PricewaterhouseCoopers LLP (July 
21, 2016) (PwC Letter); Crowe Horwath LLP (July 21, 2016) (Crowe 
Horwath Letter); Allstate Insurance Company (July 21, 2016) 
(Allstate Letter); Financial Services Roundtable (July 21, 2016) 
(Financial Services Roundtable Letter); Davis Polk & Wardwell LLP 
(July 22, 2016) (Davis Polk Letter); Lark Research, Inc. (July 25, 
2016 (Lark Research Letter); Shearman & Sterling (August 31, 2016) 
(Shearman & Sterling Letter II); CFA Institute (Oct. 6, 2016) (CFA 
Institute Letter II).
    \49\ See, e.g., CFA Institute Letter; CFA Institute Letter II; 
Maryland State Bar Letter; Shearman & Sterling Letter II.
    \50\ See, e.g., Allstate Letter; American Bankers Association 
Letter; CAQ Letter; CFA Institute Letter; CFA Institute Letter II; 
Crowe Horwath Letter; Davis Polk Letter; EY Letter; Financial 
Services Roundtable Letter; Investment Program Association Letter; 
PNC Letter II; PwC Letter; Shearman & Sterling Letter; SIFMA Letter.
    \51\ See, e.g., CAQ Letter; Crowe Horwath Letter; EY Letter; 
KPMG Letter; SIFMA Letter.
    \52\ SIFMA Letter.
    \53\ See, e.g. CFA Institute Letter; Shearman & Sterling Letter.
    \54\ See, e.g., Crowe Horwath Letter; Davis Polk Letter; EY 
Letter;
    \55\ See, e.g., Allstate Letter; Investment Program Association 
Letter; PNC Letter II.
    \56\ Deloitte Letter (recommending that the Commission consider 
whether certain investment portfolio, return on equity and assets 
and short-term borrowings disclosures continue to be informative or 
useful for investors, and that the Commission consider increasing 
the threshold that triggers deposits disclosure); Maryland State Bar 
Letter (recommending that the threshold that triggers deposit 
disclosure be increased, and that the scaled disclosure requirements 
in Guide 3 be made available to all smaller reporting companies and 
emerging growth companies); SIFMA Letter (providing specific 
recommendations on whether to retain, eliminate or revise each Guide 
3 disclosure).
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    In this request for comment, we are seeking public input as to 
whether and in which respects the specific quantitative and qualitative 
disclosures called for by Guide 3 should be modified. Such disclosures 
include statistical disclosures that enable investors to compare 
results of operations among BHC registrants and evaluate exposures to 
risk. Portions of Guide 3 may call for the same or similar information 
as called for by U.S. GAAP or other regulatory reporting requirements 
that are not subject to the Commission's review. We are considering 
whether our current disclosure regime for BHC registrants continues to 
elicit the most relevant and important information for investors. To 
this end, we are seeking to understand better the types of information 
investors find important and how our current disclosure regime comports 
with investor expectations as well as industry practice and trends. In 
addition, we seek to understand to what degree other disclosure 
regimes, such as those instituted by U.S. banking agencies, may be used 
by investors.
    We also are considering how Guide 3's disclosures can be most 
effectively presented from the perspective of both investor protection 
and promoting efficiency, competition and capital formation.\57\ We 
also are interested in learning about any challenges that BHC 
registrants have faced in preparing and providing the categories of 
information currently covered by Guide 3.
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    \57\ Section 3(f) of the Exchange Act requires that, whenever 
the Commission is engaged in rulemaking under the Exchange Act and 
is required to consider or determine whether an action is necessary 
or appropriate in the public interest, the Commission shall 
consider, in addition to the protection of investors, promotion of 
efficiency, competition and capital formation. Section 2(b) of the 
Securities Act also sets forth this same requirement. See also 
Section 23(a)(2) of the Exchange Act.
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    Further, we are considering whether disclosures called for by Guide 
3 should be applicable to certain other registrants in the financial 
services industry.
Request for Comment
    1. Does Guide 3 provide important information for investors about 
BHC registrants? What is the value to investors of the disclosures 
currently called for by Guide 3?
    2. Do the disclosures called for by Guide 3 assist investors with 
comparing financial condition and results of operations across BHC 
registrants? Do the disclosures help investors evaluate exposures to 
risk across BHC registrants?
    3. How should the Commission consider the importance of 
comparability for BHC registrants relative to other industries that do 
not have defined analytical data or specified disclosures?
    4. Which Guide 3 disclosures, if any, should be codified as 
Commission rules, and why?
    5. Excluding Commission filings, on what disclosures (e.g., U.S. 
banking agency regulatory disclosures) do investors most frequently 
rely in making investment decisions? How do investors use those 
disclosures in making investment decisions? How do investors use such 
disclosures to compare results of operations and evaluate exposures to 
risks?
    6. Should the information from disclosures outside of Commission 
filings be incorporated into the Commission's disclosure requirements? 
Why or why not? If incorporated, how should the information be 
presented to facilitate investors' access to such information?
    7. Should the disclosures called for by Guide 3 be extended to 
other registrants, such as those engaged in the financial services 
industry? If so, which registrants and which disclosures?

II. Applicable Disclosures

    In this section, we describe the disclosures currently called for 
by Guide 3 and other regulatory regimes. Our discussion of U.S. 
accounting standards and bank regulatory requirements is neither 
comprehensive nor interpretive, and it emphasizes only current \58\ 
disclosure requirements, some

[[Page 12762]]

of which will or may change in the future.\59\ To focus the discussion, 
this request for comment describes the disclosures applicable to 
domestic registrants that are not smaller reporting companies \60\ or 
emerging growth companies \61\ and that do not provide scaled Guide 3 
disclosures.\62\ We discuss the applicability of these disclosures to 
foreign registrants, smaller reporting companies, emerging growth 
companies and smaller bank holding companies in Section III. We also 
consider whether disclosures beyond or in lieu of those currently 
applicable would be important for investors.
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    \58\ We refer to U.S. GAAP standards that are effective as of 
the date of this request for comment as ``current'' and highlight 
separately throughout this request for comment standards that have 
been issued but are not yet effective.
    \59\ For example, in 2016 the FASB issued two new accounting 
standards that modify the accounting for and disclosure of financial 
assets and liabilities. See the discussion of these new standards in 
Sections 2.B, 2.C and 2.D of this request for comment.
    \60\ Exchange Act Rule 12b-2 [17 CFR 240.12b-2] defines a 
smaller reporting company as an issuer that is not an investment 
company, an asset-backed issuer or a majority-owned subsidiary of a 
parent that is not a smaller reporting company and that has a public 
float of less than $75 million. If an issuer has zero public float, 
it is considered a smaller reporting company if its annual revenues 
are less than $50 million.
    \61\ Section 2(a)(19) of the Securities Act defines an emerging 
growth company as an issuer that had total annual gross revenues of 
less than $1 billion during its most recently completed fiscal year. 
It retains that status for five years after its initial public 
offering unless its revenues are $1 billion or more, it issues more 
than $1 billion of non-convertible debt during the previous three-
year period, or it qualifies as a large accelerated filer as defined 
in Exchange Act Rule 12b-2.
    \62\ For bank holding companies with less than $200 million in 
total assets or less than $10 million of equity, Guide 3 calls for 
only two years of data, as opposed to three or five years of data, 
depending on the item, for all other registrants.
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A. Distribution of Assets, Liabilities and Stockholders' Equity; 
Interest Rate and Interest Differential (Average Balance, Interest and 
Yield/Rate Analysis and Rate/Volume Analysis)

1. Background
    Net interest income represented more than 64% of total net 
operating revenue for all FDIC-insured institutions for the first three 
quarters of 2016.\63\ Given the significance of net interest income to 
the results of operations, it is important for investors to understand 
the reasons for its fluctuations. A BHC registrant's future earnings 
depend significantly on present and future economic conditions. Changes 
in interest rates can have a significant impact on a BHC registrant's 
performance, and that impact may not be evident from analyzing 
historical results alone.
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    \63\ Unless otherwise indicated, industry-wide percentages used 
in this request for comment were calculated using information from 
FDIC Quarterly, which includes data for all FDIC-insured 
institutions and is available at https://www.fdic.gov/bank/analytical/quarterly/2016_vol10_4/fdic_v10n4_3q16_quarterly.pdf.
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    As called for by Guide 3, average balance sheets \64\ provide 
investors with an indication of the balance sheet items that have been 
most affected by changes in interest rates and an indication of a 
registrant's ability to move into or out of situations with favorable 
or unfavorable risk/return characteristics. For example, an average 
balance sheet may provide an indication of whether a registrant is 
asset-sensitive or liability-sensitive.\65\ Liability-sensitive BHC 
registrants that rely heavily on short-term and other rate-sensitive 
funding sources may experience significant increases in funding costs 
in a rising interest rate environment. Such BHC registrants may be 
unable to offset higher funding costs with higher yielding assets, 
which could result in an adverse impact on net interest margins.
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    \64\ Section I.A of Guide 3 calls for balance sheets that show 
the average daily balances of significant categories of assets and 
liabilities. If the collection of data on a daily average basis, 
however, would involve unwarranted or undue burden or expense, 
weekly or month end averages may be used, provided they are 
representative of the operations of the BHC registrant. The basis 
used for presenting averages should be disclosed when not presented 
on a daily average basis.
    \65\ A liability-sensitive banking organization has a long-term 
asset maturity and repricing structure, relative to a shorter-term 
liability structure. For example, a liability-sensitive BHC 
registrants may have significant exposure to longer-term mortgage-
related assets that reprice slowly while relying heavily on rate-
sensitive funding sources that reprice more quickly.
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2. Current Guide 3 Disclosures
    Section I.A of Guide 3 calls for balance sheets that show the 
average daily balances of significant categories of assets and 
liabilities, including all major categories of interest-earning assets 
and interest-bearing liabilities.\66\ Section I.B of Guide 3 calls for 
disclosure of the:
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    \66\ Section I.A of Guide 3 indicates that major categories of 
interest-earning assets should include loans, taxable investment 
securities, non-taxable investment securities, interest-bearing 
deposits in other banks, federal funds sold, securities purchased 
with agreements to resell, other short-term investments and other 
assets. Major categories of interest-bearing liabilities should 
include savings deposits, other time deposits, short-term debt, 
long-term debt and other liabilities.
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     Interest earned or paid \67\ on the average amount of each 
major category of interest-earning asset and interest-bearing 
liability;
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    \67\ The interest earned and interest paid reported on the 
average balance sheet is based on the amounts reported in the 
audited financial statements. Under U.S. GAAP, reported interest 
expense may differ from the cash paid for interest during the 
period.
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     average yield for each major category of interest-earning 
asset;
     average rate paid for each major category of interest-
bearing liability;
     average yield on all interest-earning assets;
     average effective rate paid on all interest-bearing 
liabilities; and
     net yield on interest-earning assets.\68\
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    \68\ Net yield is net interest earnings divided by total 
interest-earning assets, with net interest earnings equaling the 
difference between total interest earned and total interest paid.
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    Section I.C of Guide 3 calls for a rate and volume analysis of 
interest income and interest expense for the last two fiscal years. 
This analysis should be segregated by each major category of interest-
earning asset and interest-bearing liability into amounts attributable 
to:
     changes in volume (changes in volume multiplied by the old 
rate);
     changes in rates (changes in rates multiplied by the old 
volume); and
     changes in rate/volume (changes in rates multiplied by 
changes in volume).
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 prescribes the form and content of consolidated financial 
statements for bank holding companies and requires presentation of 
interest income and interest expense separately by type and subtotals 
of total interest income, interest expense and net interest income on 
the income statement or in the footnotes to the financial 
statements.\69\ In addition, all registrants must discuss their 
financial condition, changes in financial condition and results of 
operations in MD&A, including a narrative discussion of the extent to 
which any material increases are attributable to increases in price or 
increases in volume. MD&A requires registrants to describe significant 
components of revenues or expenses that, in the registrant's judgment, 
should be described in order to understand the results of 
operations.\70\ In response to this requirement, some bank holding 
companies provide an analysis of fluctuations in their interest income 
and interest expense in MD&A. Another source of income for bank holding 
companies that may be discussed in MD&A is non-interest income. Because 
Guide 3 currently does not call for specific disclosures regarding this 
type of income, we discuss non-interest

[[Page 12763]]

income in Section H. Potential New Disclosures.
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    \69\ 17 CFR 210.9-04. The types of interest income or interest 
expense include loans, investment securities, trading accounts, 
deposits, short-term borrowings and long-term debt.
    \70\ 17 CFR 229.303(a)(3).
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    Other rule provisions require registrants to provide quantitative 
and qualitative disclosures about market risk sensitive instruments, 
both trading and other than trading instruments, that affect their 
financial condition.\71\ Interest rate risk generally is a significant 
market risk exposure for BHC registrants. These disclosures, made in 
response to Item 305 of Regulation S-K, are intended to provide 
investors with forward-looking information about a registrant's 
potential interest rate risk exposure, while the disclosures called for 
by Item I of Guide 3 focus on the historical effect. Item 305 requires 
a description of the quantitative impact of market risk and provides 
flexibility by allowing one or more of the following three disclosure 
alternatives to be used:
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    \71\ Items 305(a) and 305(b) of Regulation S-K [17 CFR 
229.305(a) and 305 (b)]. For purposes of Items 305(a) and 305(b), 
market risk sensitive instruments include derivative financial 
instruments, other financial instruments and derivative commodity 
instruments. Each of these terms is defined in General Instruction 3 
to Items 305(a) and 305(b).
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     A tabular presentation of fair value information and 
contract terms relevant to determining future cash flows, categorized 
by expected maturity dates.
     A sensitivity analysis expressing potential loss in future 
earnings, fair values or cash flows from selected hypothetical changes 
in market rates and prices.
     Value at risk (VaR) disclosures expressing potential loss 
in future earnings, fair values or cash flows from market movements 
over a selected period of time with a selected likelihood of 
occurrence.
    Item 305 of Regulation S-K addresses risks arising from changes in 
interest rates, foreign currency exchange rates, commodity prices, 
equity prices and other market changes that affect market risk 
sensitive instruments and was designed to strike a balance between 
comparability and flexibility of market risk disclosures by prescribing 
these alternatives without stipulating standardized methods or 
procedures specifying how to comply with each alternative.\72\ 
Registrants may choose which methods, model characteristics, 
assumptions and parameters they use in complying with the item, and 
registrants may use more than one disclosure alternative across each 
market risk exposure category.\73\ Consequently, investors may be 
unable to compare one registrant to another. The staff has observed 
that large bank holding companies generally elect to use a combination 
of disclosure alternatives to present different market risk sensitive 
instruments. An example of how a bank holding company may use multiple 
disclosure alternatives for its Item 305 disclosures is to use VaR to 
quantify market risks for its entire trading portfolio while using a 
sensitivity analysis to quantify interest rate risk for the other than 
trading portfolio. Registrants must describe the disclosure alternative 
or alternatives they select to assist investors with evaluating the 
potential effect of variations in a model's characteristics and 
assumptions. One consequence of the disclosure alternative approach 
used in Item 305 is that registrants may provide disclosure using 
alternatives that differ from the methods they actually use to manage, 
evaluate and monitor market risk. Commenters have suggested that 
management's views about market risk and risk management activities, 
rather than one of the three prescribed methods, represent the most 
relevant information for investors.\74\ However, when Item 305 was 
adopted, the Commission believed that a presentation of market risk 
using a management approach outside of the framework articulated in 
Item 305 could make it difficult for investors to assess market risk 
across registrants.\75\
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    \72\ See Disclosure of Market Risk Sensitive Instruments 
Release.
    \73\ Market risk exposure categories include interest rate risk, 
foreign currency exchange rate risk, commodity price risk and other 
relevant market risks.
    \74\ See, e.g., CAQ Letter and KPMG Letter.
    \75\ The Commission noted that, in adopting Item 305, it sought 
to strike a balance between the views of commenters seeking a 
``management approach'' and those supporting a more consistent 
reporting framework for the sake of comparability. See Disclosure of 
Market Risk Sensitive Instruments Release.
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    During the last five years, other regulatory agencies and the 
private sector have given increased attention to market risk 
disclosures. For example, in 2012 the Financial Stability Board's 
Enhanced Disclosure Task Force (EDTF), a private sector group composed 
of members representing users and preparers of financial reports, 
recommended that banking organizations provide information that 
facilitates users' understanding of the linkages between line items in 
the balance sheet and income statement with positions included in the 
market risk disclosures. The EDTF report included 32 recommendations 
for improving bank risk disclosures in the areas of report usability, 
risk governance and risk management, capital adequacy, liquidity and 
funding, market risk, credit risk and other risks.
    In addition, the BCBS has focused on whether banking organizations 
have sufficient capital to cover possible losses due to interest rate 
changes.\76\ According to the BCBS, adverse movements in interest rates 
can pose a significant threat to a bank's current capital base and/or 
future earnings. However, U.S. GAAP does not require a presentation or 
disclosure of net interest earnings or average balance sheets. Nearly 
five years ago, the FASB proposed the following standardized 
quantitative interest rate risk disclosures:
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    \76\ See Interest rate risk in the banking book (April 2016), 
available at https://www.bis.org/bcbs/publ/d368.pdf.
---------------------------------------------------------------------------

     The carrying amount of classes of financial assets and 
liabilities segregated according to time intervals based on the 
contractual repricing of the financial instruments;
     the weighted-average contractual yield by class of 
financial instrument and time interval as well as the duration for each 
class of financial instrument;
     an interest rate sensitivity table showing the effects on 
net income and shareholders' equity of specified hypothetical, 
instantaneous shifts of interest rate curves as of the measurement 
date;
     a discussion of the significant changes and reasons for 
those changes related to the timing and amounts of financial assets and 
liabilities in the tabular disclosures from the last reporting period 
to the current reporting period along with any action taken to manage 
the exposure related to the changes; and
     additional qualitative or narrative disclosure, as 
necessary, for understanding of exposure to interest rate risk.\77\
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    \77\ The proposed disclosures would have applied only to 
entities or reportable segments for which the primary business 
activity is to (i) earn, as a primary source of income, the 
difference between interest income generated by earning assets and 
interest paid on borrowed funds or (ii) provide insurance. See 
Proposed Accounting Standards Update--Financial Instruments (Topic 
825): Disclosure About Liquidity Risk and Interest Rate Risk (Jun. 
27, 2012) (FASB Interest Rate Risk Exposure Draft), available at 
www.fasb.org.
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    During the FASB Exposure Draft's development, the FASB received 
feedback from users \78\ that it was imperative that liquidity and 
interest rate disclosures be comparable and that standardized 
quantitative disclosures provide more decision-useful information than 
non-standardized disclosures. Although initiated, in part, as a 
response to these comments, the

[[Page 12764]]

majority of respondents to the FASB Exposure Draft, 84% of whom were 
preparers, did not support the proposed disclosures. Most respondents 
stated that standardizing information about interest rate risk would 
not be achieved by the proposals. Some commenters questioned whether 
standardization was an appropriate objective and whether it could ever 
be achieved.\79\ The liquidity risk and interest rate risk project was 
last updated in November 2012 and is not on the FASB's active standard-
setting agenda.
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    \78\ See Accounting for Financial Instruments Disclosures About 
Liquidity Risk and Interest Rate Risk Comment Letter Summary, 
available at https://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160500931.
    \79\ For example, respondents noted that expected maturity 
requires estimates from each entity's asset and loan portfolios, 
such as prepayment rates relating to the expected behavior of the 
counterparty, and that the underlying assumptions made for each of 
those estimates will not be consistent among entities.
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ii. Information Available Outside of SEC Filings
    Banking organizations must report segregated information about 
interest income and interest expense and quarterly averages of certain 
balance sheet items in their Call Reports.\80\ While banking 
organizations are not required to report all balance sheet line items 
or subtotals of interest-earning assets and interest-bearing 
liabilities, the Call Report categories for reporting interest income, 
interest expense and quarterly averages are more disaggregated than 
what is called for by Guide 3.
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    \80\ Interest income, interest expense and quarterly averages 
are segregated by the following: Type of loan, type of security, 
trading assets/liabilities, federal funds sold/purchased and 
securities purchased/sold under agreements to resell/repurchase, 
deposits by location and category, subordinated notes and debentures 
and other. See Call Report Schedules RC-1, Income Statement and RC-
K, Quarterly Averages.
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Request for Comment
    8. Do the distribution of (i) assets, liabilities and stockholders' 
equity; (ii) interest rates and (iii) interest differential disclosures 
called for by Guide 3 provide investors with information upon which 
they base investment and voting decisions? Would such information 
otherwise be provided under Commission rules (e.g., Regulation S-K) or 
U.S. GAAP? Are there any particular issues that BHC registrants face in 
providing these disclosures or that investors or analysts face in 
utilizing these disclosures?
    9. Do Commission rules or U.S. GAAP require the same or similar 
information on the distribution of (i) assets, liabilities and 
stockholders' equity; (ii) interest rates and (iii) interest 
differential disclosures as called for by Guide 3? If so, how is the 
information similar or dissimilar? Please provide a detailed 
comparison.
    10. What improvements could we make to the disclosures called for 
by Section I of Guide 3? For example, should we require disclosure 
about how BHC registrants present the effects of hedging of interest 
rate risk? Should we consider enhancing quantitative interest-rate risk 
disclosures? If so, what guidance, if any, should we provide to BHC 
registrants about the presentation?
    11. Are there additional interest income and interest expense 
disclosures that would be important for investors that we should 
consider? In suggesting additional disclosures, please indicate whether 
BHC registrants would face any challenges in preparing and providing 
them. Please describe specifically the evidentiary basis for your 
knowledge of the challenges faced by BHC registrants in providing such 
disclosures. In your response, please assess the benefits of such 
disclosures to investors against the regulatory burdens to BHC 
registrants.
    12. Recognizing the differences between more prescriptive and 
standardized disclosure requirements, which allow for more 
comparability, and more principles-based disclosure requirements, which 
allow registrants to provide disclosures more closely aligned with how 
their business is managed, would more prescriptive and standardized 
disclosures about market risks for BHC registrants beyond those called 
for by Item 305 of Regulation S-K be important for investors? If so, 
how should we revise our current disclosures? For example, should we 
limit the disclosure alternatives or assumptions these BHC registrants 
can use by market risk and/or trading versus other than trading 
portfolios in Item 305?
    13. Alternatively, should we eliminate the prescribed market risk 
disclosure alternatives in Item 305 for BHC registrants and instead 
require them to provide market risk disclosures based on the methods 
they actually use to manage risk? Does the benefit of providing 
disclosure about the way management assesses market risk outweigh any 
lack of comparability of these disclosures across BHC registrants for 
an investor?
    14. Should we require any of the interest rate risk disclosures 
proposed in the FASB's 2012 Exposure Draft in our filings? If so, which 
ones, and why?
    15. Should we revise our market risk disclosures for BHC 
registrants to better align the disclosures to the financial 
statements, capital adequacy or other metrics? If so, what revisions 
should we consider and why?
    16. Should we consider requiring that the distribution of (i) 
assets, liabilities and stockholders' equity; (ii) interest rates and 
(iii) interest differential disclosures called for by Guide 3 be 
presented in a structured data format, such as XBRL, to facilitate 
investor comparison of data across BHC registrants and usability of the 
disclosures? Why or why not? If so, what elements of these disclosures 
should be tagged so that they can be extracted in a structured data 
format?
    17. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    18. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    19. Should we require disclosure of the interest income and expense 
information provided in Call Reports or other regulatory filings? If 
so, what information and why?
    20. Should the distribution of (i) assets, liabilities and 
stockholders' equity; (ii) interest rates and (iii) interest 
differential disclosures called for by Guide 3 be extended to other 
registrants, such as those engaged in the financial services industry? 
If so, which registrants and which disclosures?

B. Investment Portfolio

1. Background
    The investment portfolio typically is an important component of BHC 
registrants' total assets. Due to a recent trend of deposits outpacing 
lending,\81\ investment portfolios have expanded in recent years and 
now represent a much greater percentage of the total assets of FDIC-
insured institutions.\82\ In addition, compliance with the LCR 
requirements may require some large, internationally active banking 
organizations to alter the mix of assets in their investment portfolios 
or revise their investment strategies so as to maintain sufficient 
amounts of investments that meet the definition of ``high-quality 
liquid assets.'' \83\ At September 30, 2016,

[[Page 12765]]

investment securities constituted nearly 21% of the total assets of all 
FDIC-insured institutions.\84\
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    \81\ See, e.g., Shrinking Loan-to-Deposit Ratios Remain Cause 
for Concern Among Banks, Forbes (Mar. 10, 2015).
    \82\ According to the Aggregate Condition and Income Data for 
all FDIC-Insured Institutions, Table II-A., in the FDIC Quarterly, 
investment securities accounted for 15% of total assets as of 
December 31, 2007. This report is available at https://www5.fdic.gov/qbp/2007dec/qbp.pdf.
    \83\ See LCR Adopting Release and the discussion of concerns 
raised with respect to assets that would qualify as high-quality 
liquid assets.
    \84\ See FDIC Quarterly.
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    Banking organizations typically use their investment portfolios to 
provide balance sheet liquidity, to generate income and to engage in 
risk management and market-making. U.S. GAAP currently classifies 
investment securities into three categories: Trading securities, held-
to-maturity (HTM) securities and available-for-sale (AFS) 
securities.\85\ Trading securities include securities acquired for the 
purpose of selling them within hours or days and securities for which 
this category has been elected. HTM securities are limited to 
securities that a registrant has the positive intent and ability to 
hold to maturity. Securities not classified as trading or HTM are 
classified as AFS securities. Both trading and AFS securities are 
measured at fair value on the balance sheet, whereas HTM securities are 
measured at amortized cost.
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    \85\ ASC 320-10-25-1.
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    In 2016, the FASB issued two new accounting standards for financial 
instruments.\86\ ASU 2016-01 will change the accounting guidance for 
equity investments, but does not affect the recognition and initial 
measurement of investments in debt securities.\87\ This guidance is 
effective for registrants in fiscal years beginning after December 15, 
2017. ASU 2016-13 will change the impairment model for most financial 
assets accounted for at amortized cost, including HTM debt securities, 
and also makes certain changes to the recognition of impairment for AFS 
securities.\88\ This guidance is effective for registrants in fiscal 
years beginning after December 15, 2019 or fiscal years beginning after 
December 15, 2018 if early adoption is elected. Both ASU 2016-01 and 
ASU 2016-13 also will change U.S. GAAP disclosure requirements for 
investment securities.\89\
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    \86\ Accounting Standards Update 2016-01, Financial 
Instruments--Overall (Subtopic 825-10): Recognition and Measurement 
of Financial Assets and Liabilities (ASU 2016-01).
     Accounting Standards Update 2016-13, Financial Instruments--
Credit Losses (Topic 326): Measurement of Credit Losses on Financial 
Instruments (ASU 2016-13).
    \87\ Equity investments that have readily determinable fair 
values (except those accounted for under the equity method of 
accounting or those that result in consolidation of the investee) 
will be measured at fair value with changes in fair value recognized 
in net income. This eliminates the ability to classify equity 
securities as AFS and the reporting of unrealized holding gains and 
losses in other comprehensive income. Equity investments that do not 
have readily determinable fair values will no longer be accounted 
for using the cost method. Instead, an entity can elect to either 
measure these equity investments at fair value with unrealized 
holding gains and losses in earnings or choose a measurement 
alternative. There will also no longer be an assessment of whether 
an impairment loss is ``other than temporary'' for these 
investments.
    \88\ U.S. GAAP currently requires a two-step process to measure 
other-than-temporary impairment (OTTI) for HTM and AFS investment 
securities. When OTTI is recognized, it is reflected as a direct 
reduction of the amortized cost basis of the investment. The new 
standard will require an allowance for credit losses for these debt 
securities instead of a direct reduction. The allowance for credit 
losses for HTM securities will be based on the same expected credit 
loss model applied to loans. There will also be an allowance for 
credit losses for AFS debt securities, but it will be measured in a 
manner similar to OTTI under current U.S. GAAP.
    \89\ The U.S. GAAP standards differ significantly from the 
International Financial Reporting Standard (IFRS) as issued by the 
International Accounting Standard Board (IASB) model, IFRS 9, 
Financial Instruments, as described in Section III.B.
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    Guide 3 investment portfolio disclosures provide investors with 
insight into the types of investments a BHC registrant holds, the 
earnings potential of those investments and their risk characteristics. 
For example, the weighted average yield for a category of securities 
allows investors to calculate estimated future earnings potential for 
that category of securities. Disclosures about significant amounts of 
investments in one or a small number of issuers also alert investors to 
concentration risks.
2. Current Guide 3 Disclosures
    Section II.A of Guide 3 calls for disclosure of the book value of 
investments by specified category as of the end of each reported 
period. Section II.B calls for a maturity analysis for each category of 
investments as of the end of the latest reported period, as well as the 
weighted average yield for each range of maturities.\90\ When the 
aggregate book value of securities from a single issuer exceeds 10% of 
stockholders' equity as of the end of the latest reported period, 
Section II.C calls for disclosure of the name of the issuer and the 
aggregate book value and aggregate market value of those securities.
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    \90\ The ranges of maturities are securities due (1) in one year 
or less, (2) between one and five years, (3) between five and ten 
years, and (4) after ten years.
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3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 requires disclosure of investment securities either on 
the balance sheet or in the footnotes to the financial statements. 
Article 9 also currently requires footnote disclosure of the carrying 
value and market value of securities by specified category, while Guide 
3 calls for disclosure of book value.\91\
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    \91\ 17 CFR 210.9-03. The investment categories specified by 
Article 9 are the same as those specified by Guide 3. In July 2016, 
the Commission proposed to amend certain of its disclosure 
requirements, including Article 9, that may have become redundant, 
duplicative, overlapping, outdated, or superseded, in light of other 
Commission disclosure requirements, U.S. GAAP, IFRS, or changes in 
the information environment. Specifically, the investment securities 
disclosure in Article 9 was proposed for elimination. See Disclosure 
Update and Simplification, Release No. 33-10110 (July 13, 2016) [81 
FR 51607] (Disclosure Update and Simplification Release).
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    Accounting standards have similar disclosure requirements, although 
the disclosures required by U.S. GAAP are more extensive than those 
required by Guide 3.\92\ For example, U.S. GAAP currently requires the 
following disclosures for AFS securities by major security type: \93\
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    \92\ See ASC 320-10-50.
    \93\ ASC 320-10-50-1B notes that major security types should be 
based on the nature and risks of the security and that an entity 
should consider all of the following when considering whether 
disclosure for a particular security type is necessary: (a) Shared 
activity or business sector, (b) vintage, (c) geographic 
concentration, (d) credit quality, and (e) economic characteristics. 
ASC 942-320-50-2 defines nine security types that entities within 
its scope must present in their investment disclosures and the list 
is more granular than the Guide 3 categories.
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     Amortized cost basis;
     aggregate fair value;
     total other-than-temporary impairment (OTTI) recognized in 
accumulated other comprehensive income (AOCI);
     total gains for securities with net gains in AOCI;
     total losses for securities with net losses in AOCI; and
     information about the contractual maturities as of the 
date of the most recent balance sheet presented.\94\
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    \94\ ASC 320-10-50-2. These disclosures will no longer be 
required for equity securities upon the effectiveness of ASU 2016-01 
as equity securities that have readily determinable fair values 
(except those accounted for under the equity method of accounting or 
those that result in consolidation of the investee) will be measured 
at fair value with changes in fair value recognized in net income.
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    U.S. GAAP requires similar disclosures for HTM securities, except 
that gross unrecognized holding gains and losses also must be 
disclosed.\95\ U.S. GAAP also requires a maturity analysis of both AFS 
and HTM securities, but it does not require disclosure of weighted 
average yields.\96\ ASU 2016-13, when effective for registrants in 
fiscal years after December 15, 2019, will not significantly change the 
disclosure requirements described above, except that it will require 
disclosure of the

[[Page 12766]]

allowance for credit losses rather than OTTI.
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    \95\ ASC 320-10-50.
    \96\ Id.
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    U.S. GAAP also requires disclosures related to asset quality and 
impairment of investment securities.\97\ For example, registrants must 
disclose the aggregate fair value of investments with unrealized losses 
and the amount of those losses, segregated by those that have been in a 
continuous unrealized loss position for 12 months or longer and those 
that have not, as well as qualitative and quantitative information 
about impairments. When registrants conclude that it is not necessary 
to record OTTI for these investment securities, U.S. GAAP requires that 
they describe the factors considered in reaching that conclusion.\98\ 
When OTTI is recorded in earnings, registrants must disclose the 
methodology and significant inputs they used to measure the credit loss 
and include a roll-forward \99\ of the amount of credit losses 
recognized in earnings. When ASU 2016-13 becomes effective, the credit 
quality and impairment disclosures described above will continue to 
apply to AFS securities, but not HTM securities. Instead, the credit 
quality and allowance for credit losses disclosures discussed below in 
Sections C.3 and D.3 will apply to HTM securities.\100\
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    \97\ Id.
    \98\ OTTI is considered to have occurred if (a) an entity 
intends to sell an impaired security, (b) it is more likely than not 
that an entity will be required to sell an impaired security before 
the recovery of its amortized cost basis, or (c) a credit loss is 
determined to have occurred based on an analysis of the present 
value of expected cash flows. ASC 320-10-35.
    \99\ A ``roll-forward'' is a reconciliation of beginning of 
period and end of period line item balances.
    \100\ See ASU 2016-13. The new standard still requires a roll-
forward of credit losses for HTM securities and a discussion of how 
the allowance for credit losses was determined. The new standard 
also includes prescriptive disclosure requirements for loans that do 
not apply to HTM securities. For example, a registrant is not 
required to present credit quality indicators for HTM securities by 
year of origination.
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    U.S. GAAP also requires disclosures about fair value measurements 
for securities measured at or written-down to fair value.\101\ These 
disclosures include the valuation techniques and inputs used to develop 
the fair value measurements, the observability of the inputs used, 
quantitative information about significant unobservable inputs and the 
effect of those fair value measurements using significant unobservable 
inputs on earnings or other comprehensive income for the period.
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    \101\ ASC 820-10-50.
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    The Division staff has observed that some BHC registrants discuss 
the composition of and fluctuations in their investment portfolio in 
MD&A.\102\ These BHC registrants also discuss critical accounting 
estimates \103\ related to their investment portfolios in MD&A, which 
may include fair value measurements and the determination of OTTI.\104\
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    \102\ Item 303 of Reg. S-K requires registrants to discuss their 
financial condition and material changes in financial condition. It 
also requires a description of internal and external sources of 
liquidity, and any material unused sources of liquid assets.
    \103\ In the Interpretive Guidance on MD&A, the Commission 
reminded registrants that they should address the material 
implications of uncertainties associated with the methods, 
assumptions and estimates underlying their critical accounting 
measurements.
    \104\ See Staff Accounting Bulletin Topic 5:M--Other Than 
Temporary Impairment of Certain Investments in Equity Securities. 
The OTTI guidance for equity securities will no longer apply when 
ASU 2016-01 is adopted.
---------------------------------------------------------------------------

    Some BHC registrants, especially the largest ones, often publish 
and furnish in a current report on Form 8-K supplements to their 
earnings releases that provide detailed information about the 
investment portfolio not required by U.S. GAAP, including information 
about the duration of the portfolio, management's investment strategy 
or how new regulations may affect the portfolio. Some BHC registrants 
also provide detailed information about credit ratings or the valuation 
of specific investments that may be at risk of impairment or were 
impaired during the period.
ii. Information Available Outside of SEC Filings
    Banking organizations are required to report the amortized cost and 
fair value of both HTM and AFS securities by security type in Call 
Reports.\105\ Banking organizations also report maturity and repricing 
data for debt securities and the amounts of income and loss recognized 
during the period.\106\ Banking organizations must also report 
regulatory capital components and ratios, including the categorization 
of investment securities by risk weights in Call Reports.\107\
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    \105\ Call Report Schedule RC-B, Securities, identifies more 
security types than Guide 3.
    \106\ Banking organizations may omit the maturity and repricing 
data for certain branches or subsidiaries located in foreign 
countries in Call Report Schedule RC-B. A banking organization may 
exclude its foreign branches or subsidiaries if the assets of the 
excluded locations combined do not exceed 50% of its total assets in 
foreign countries and 10% of its total consolidated assets.
    \107\ Banking organization's assets and off-balance sheet 
exposures are risk-weighted based on the assigned categories of 
risk. Call Report Schedule RC-R, Regulatory Capital.
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    In addition, Pillar 3 disclosures require information about how 
banking organizations measure credit and market risks in their 
investment portfolios, along with the associated risk weights of 
investment portfolio assets.\108\ For example, they must quantify the 
credit risk exposure of their investment portfolio.
---------------------------------------------------------------------------

    \108\ See Regulatory Capital Rules Release, Section XI, Market 
Discipline and Disclosure Requirements.
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Request for Comment
    21. Do the investment portfolio disclosures called for by Guide 3 
provide investors with information upon which they base investment and 
voting decisions? Would such information otherwise be provided under 
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any 
particular issues that BHC registrants face in providing these 
disclosures or that investors or analysts face in utilizing these 
disclosures?
    22. Do Commission rules or U.S. GAAP require the same or similar 
investment portfolio information as called for by Guide 3? If so, how 
is the information similar or dissimilar? Please provide a detailed 
comparison.
    23. What improvements to the existing investment portfolio 
disclosures should we consider that would assist investors in making 
investment and voting decisions? For example, should investment 
securities that are measured at fair value with changes in fair value 
recorded in earnings, such as trading securities, fall within the scope 
of our investment portfolio disclosures? In suggesting improvements, 
please indicate whether BHC registrants would face any challenges in 
preparing and providing the disclosures.
    24. To promote comparability and consistency of investment 
portfolio disclosures, should we specify the investment categories that 
BHC registrants must present when providing their investment portfolio 
disclosures? \109\ Why or why not? If so, which investment categories 
should we specify?
---------------------------------------------------------------------------

    \109\ While most accounting standards include guidance about 
disaggregation, the requirements are principles-based instead of 
prescriptive.
---------------------------------------------------------------------------

    25. While investors do not have experience with the disclosures 
that will be required by ASU 2016-13, is there information about HTM 
securities and impairment that would be important for investors under 
an expected credit loss model? If so, please indicate which information 
and indicate whether BHC registrants would face any challenges in 
preparing and providing the information.
    26. In addition, is there information about AFS securities that 
would be important for investors when

[[Page 12767]]

impairment is reflected through an allowance for credit losses instead 
of OTTI? If so, please indicate which information and whether BHC 
registrants would face any challenges in preparing and providing the 
information. For example, upon adoption of ASU 2016-13, should we 
require disaggregation of the AFS securities allowance for credit 
losses roll-forward by security type?
    27. Should we consider requiring that the investment portfolio 
disclosures called for by Guide 3 be presented in a structured data 
format, such as XBRL, to facilitate investor comparison of data across 
BHC registrants and usability of the disclosures? Why or why not? If 
so, what elements of these disclosures should be tagged so that they 
can be extracted in a structured data format?
    28. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    29. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    30. Should we require disclosure of the investment information 
provided in Call Reports or other regulatory filings? If so, what 
information and why?
    31. Should the investment portfolio disclosures called for by Guide 
3 be extended to other registrants, such as those engaged in the 
financial services industry? If so, which registrants and which 
disclosures?

C. Loan Portfolio

1. Background
    Loans \110\ often constitute a banking organization's most 
significant assets and generate a significant portion of revenues. At 
September 30, 2016, total loans and leases constituted 55% of total 
assets of all FDIC-insured institutions.\111\ Loan portfolio 
compositions differ considerably because lending activities are 
influenced by many factors, including the type of banking organization, 
management's objectives and philosophies about diversification and 
credit risk management, the availability of funds, credit demand, 
interest-rate margins and regulations. A banking organization's loan 
portfolio may consist of consumer loans, such as residential real 
estate, credit card and auto loans, as well as commercial loans, such 
as commercial real estate loans, lease financings and wholesale 
loans.\112\ Different types of loans have different risk 
characteristics. For example, commercial loans tend to have shorter 
maturities than residential real estate loans and are more likely to 
have balloon payments at maturity. Further, the composition of a 
particular banking organization's loan portfolio may vary substantially 
over time due to factors such as changes in regulations or management 
philosophies. For example, if management expects interest rates to 
rise, it may seek to increase the banking organization's offerings of 
variable-rate mortgages.
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    \110\ In this request for comment we use the terms ``loans'' or 
``loan portfolio'' when we refer to Commission rules or U.S. banking 
reporting requirements. The loan portfolio for a registrant may also 
include receivables and leases. Receivables and leases, however, 
generally do not represent a significant portion of the total loan 
portfolio.
    \111\ See FDIC Quarterly.
    \112\ Wholesale banking is often used as a term to refer to the 
wide range of services that banking organizations provide to various 
corporations and businesses, as well as to government entities.
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    To address risks related to the loan portfolio and the allowance 
for loan losses,\113\ the Commission issued Accounting Series Release 
No. 166 \114\ in 1975, which was the precursor to Guide 3's loan 
portfolio and loan loss experience disclosures. Among other things, ASR 
No. 166 provided for the disclosure of information necessary to enable 
investors to understand the nature and the status of loan portfolios, 
including a breakdown sufficient to provide investors with insight into 
investment policies, lending practices and portfolio concentrations. 
The release also called for consideration of expanded disclosures when 
loans considered doubtful as to collectability have materially 
increased, or there have been large increases in delinquent loans, or 
in loans extended or renegotiated under adverse conditions.
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    \113\ We discuss allowance for loan losses disclosures in 
Section II.D of this request for comment.
    \114\ Accounting Series Release No. 166--Disclosure of Unusual 
Risks and Uncertainties, Release No. 33-5551 (Jan. 15, 1975) [40 FR 
2678].
---------------------------------------------------------------------------

    In 2010, the FASB issued updated disclosure guidance that greatly 
expanded the loan credit quality disclosures required by U.S. 
GAAP.\115\ Loan portfolio disclosures provide investors with 
information about the types of lending in which a registrant engages, 
and one objective of the FASB's amendments was to increase the 
transparency of the nature of credit risk inherent in the loan 
portfolio.\116\ Further, disclosures of trends in early stage 
delinquencies can be an early-warning indicator of deteriorating credit 
quality.
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    \115\ Accounting Standards Update 2010-20, Disclosures about the 
Credit Quality of Financing Receivables and the Allowance for Credit 
Losses. (ASU 2010-20).
    \116\ Id.
---------------------------------------------------------------------------

2. Current Guide 3 Disclosures
    Section III.A of Guide 3 calls for disclosure of the amount of 
loans in each specified category \117\ as of the end of each period.
---------------------------------------------------------------------------

    \117\ The specified categories are, for domestic loans: (1) 
Commercial, financial and agricultural, (2) real estate--
construction, (3) real estate--mortgage, (4) installment loans to 
individuals, and (5) lease financing, and for foreign loans: (6) 
Governments and official institutions, (7) banks and other financial 
institutions, (8) commercial and industrial, and (9) other. The loan 
categories specified in Guide 3 originally conformed to those 
required in Call Reports but were changed when Guide 3 was amended 
in 1980 to conform to the loan categories set forth in Article 9. 
1980 Guide 3 Amendments Release.
---------------------------------------------------------------------------

    Section III.B calls for a maturity analysis \118\ for each category 
of loans as of the end of the latest reported period and a separate 
presentation of all loans due after one year with fixed interest rates 
versus those with floating or adjustable interest rates.
---------------------------------------------------------------------------

    \118\ The range of maturities are loans due (1) in one year or 
less, (2) between one and five years, (3) between five and ten 
years, and (4) after ten years. This information need not be 
presented for mortgage real estate loans, installment loans to 
individuals and lease financing. Foreign loan categories may be 
aggregated.
---------------------------------------------------------------------------

    Section III.C.1 calls for disclosure of the aggregate amount of 
domestic and foreign \119\ loans in each of the following categories:
---------------------------------------------------------------------------

    \119\ Instruction 7 of Guide 3 clarifies that foreign data need 
not be presented if the registrant is not required to make separate 
disclosures concerning its foreign activities pursuant to the test 
set forth in Rule 9-05 of Regulation S-X.
---------------------------------------------------------------------------

     Loans accounted for on a nonaccrual basis; \120\
---------------------------------------------------------------------------

    \120\ The term ``nonaccrual'' is not defined in U.S. GAAP or 
Commission rules. Call Report instructions, however, generally 
require an asset to be reported as nonaccrual if: (1) It is 
maintained on a cash basis because of deterioration in the financial 
condition of the borrower, (2) payment in full of principal or 
interest is not expected, or (3) principal or interest has been in 
default for a period of 90 days or more unless the asset is both 
well secured and in the process of collection. Certain loans, such 
as consumer loans and purchased credit-impaired loans, are not 
placed on nonaccrual status as discussed in the nonaccrual 
definitions section of Call Report Schedule RC-N-2. Guide 3 also 
calls for and U.S. GAAP also requires disclosure of the nonaccrual 
policy.
---------------------------------------------------------------------------

     loans accruing but contractually past due 90 days or more 
as to principal or interest payments; and
     loans classified as troubled debt restructurings (TDRs) 
\121\ that are not

[[Page 12768]]

otherwise disclosed as being on nonaccrual status or past due 90 days 
or more.\122\
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    \121\ Under U.S. GAAP, a restructuring of a debt is a TDR if the 
creditor, for economic or legal reasons related to the debtor's 
financial difficulties, grants a concession to the debtor that it 
would not otherwise consider.
    \122\ Guide 3 originally called for disclosure of nonperforming 
loans and a discussion of the risk elements associated with those 
loans for which there were serious doubts as to the ability of the 
borrowers to comply with the present loan payment terms. The current 
Section III.C.1 disclosures reflect amendments made in 1980 and 1983 
to promote consistency with bank regulatory disclosure requirements 
and comparability among registrants. 1980 Guide 3 Amendments 
Release; 1983 Guide 3 Revisions Release.
---------------------------------------------------------------------------

    Section III.C.2 calls for descriptions of the nature and extent of 
any potential problem loans \123\ at the end of the most recent 
reported period and the policy for placing loans on nonaccrual status. 
The instructions to Section III.C.2 call for disclosure of the foregone 
interest income and recognized interest income for nonaccrual loans and 
TDRs during the period.
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    \123\ Potential problem loans are loans not disclosed pursuant 
to Item III.C.1, but where known information about possible credit 
problems of borrowers (which are not related to transfer risk 
inherent in cross-border lending activities) causes management to 
have serious doubts as to the ability of the borrowers to comply 
with the present loan repayment terms and which may result in 
disclosure of the loans pursuant to Item III.C.1.
---------------------------------------------------------------------------

    If material amounts of the loans described in these sections are 
outstanding to borrowers in any foreign country, Guide 3 states that 
each country should be identified and that the amounts outstanding 
should be quantified.\124\
---------------------------------------------------------------------------

    \124\ For purposes of determining the amount of outstandings to 
be reported, loans made to or deposits placed with a branch of a 
foreign bank located outside the foreign bank's home country should 
be considered as loans to or deposits with the foreign bank.
---------------------------------------------------------------------------

    Section III.C.3 calls for disclosure of the aggregate amount of 
cross-border outstandings \125\ to borrowers in each foreign country 
where they exceed 1% of total assets.\126\ These disclosures should be 
provided by category of foreign borrower specified in Section III.A. 
Where current conditions in a foreign country give rise to liquidity 
problems that are expected to have a material impact on the timely 
repayment of principal or interest on the country's private or public 
sector debt, Guide 3 calls for:
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    \125\ Cross-border outstandings are defined as loans (including 
accrued interest), acceptances, interest-bearing deposits with other 
banks, other interest-bearing investments and any other monetary 
assets which are denominated in dollars or other nonlocal currency. 
The foreign outstandings disclosure was added in 1983 to consolidate 
all risk-related disclosure guidelines in one section of Guide 3 and 
to emphasize the risks present in cross-border lending activities. 
See 1983 Guide 3 Revisions Release.
    \126\ For countries whose outstandings are between 0.75% and 1% 
of total assets, the names of the countries and the aggregate amount 
of outstandings attributable to them should be disclosed.
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     A description of the nature and impact of the 
developments;
     an analysis of the changes in aggregate outstandings to 
borrowers in each country for the most recent reported period;
     quantitative information about interest income and 
interest collected during the most recent period; and
     quantitative information about any outstandings that may 
be subject to a restructuring.
    Section III.C.4 calls for disclosure as of the end of the most 
recent reported period of any concentration of loans exceeding 10% of 
total loans not otherwise disclosed as a category of loans pursuant to 
Section III.A.\127\
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    \127\ Loan concentrations are considered to exist when there are 
amounts loaned to multiple borrowers engaged in similar activities 
which would cause them to be similarly affected by economic or other 
conditions. For example, loans may be concentrated in a specific 
industry, such as the energy sector, that exceed the 10% threshold.
---------------------------------------------------------------------------

    Section III.D calls for disclosure as of the end of the most recent 
reported period of the nature and amounts of any other interest-bearing 
assets that would be disclosed under Section III.C.1 or III.C.2 if 
those assets were loans.
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 requires separate disclosure of total loans and unearned 
income on the balance sheet or in the footnotes for the same loan 
categories specified in Guide 3.\128\ Similar to Guide 3, Article 9 
allows bank holding companies latitude in determining loan 
categories.\129\ Article 9 also requires disclosures about loans made 
to certain related parties and the aggregate amount of those loans that 
are disclosed as nonaccrual, past due, restructured or potential 
problem loans.\130\
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    \128\ 17 CFR 210.9-03.
    \129\ The instructions to Section III.A of Guide 3 and Item 7(b) 
of Rule 9-03 state that ``[a] series of categories other than those 
specified above may be used to present details of loans if 
considered a more appropriate presentation.'' The staff has observed 
that bank holding companies commonly provide the Guide 3 and Article 
9 loan disclosures by ``class of financing receivables'' as defined 
by U.S. GAAP instead of the specified Guide 3 and Article 9 loan 
categories.
    \130\ Item 7(e) of Rule 9-03. Related parties include directors, 
executive officers, principal equity holders and associates of those 
persons.
---------------------------------------------------------------------------

    U.S. GAAP and Guide 3 have some similar loan presentation and 
disclosure standards. U.S. GAAP requires major categories of loans to 
be presented separately either on the balance sheet or in the financial 
statement footnotes.\131\ Although U.S. GAAP does not specify loan 
categories, it does require that qualitative and quantitative credit 
quality information be provided for each class of financing 
receivable,\132\ except loans measured at fair value, under the fair 
value option, and loans held for sale measured at lower of cost or fair 
value. These disclosures include:
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    \131\ ASC 310-10-45-2.
    \132\ U.S. GAAP uses the term ``financing receivable,'' and a 
loan is considered a type of financing receivable. A class of 
financing receivable is defined as a group of financing receivables 
determined on the basis of all of the following: (a) Initial 
measurement attribute (for example, amortized cost), (b) risk 
characteristics of the financing receivable, and (c) an entity's 
method for monitoring and assessing credit risk.
---------------------------------------------------------------------------

     A description of each credit quality indicator; \133\
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    \133\ A credit quality indicator is defined as a statistic about 
the credit quality of financing receivables.
---------------------------------------------------------------------------

     the recorded investment in financing receivables by credit 
quality indicator; and
     the date or range of dates in which information was 
updated for each credit quality indicator.\134\
---------------------------------------------------------------------------

    \134\ ASC 310-10-50.
---------------------------------------------------------------------------

    Currently and after implementation of ASU 2016-13, U.S. GAAP 
requires disclosure, by class of financing receivable, of the same 
information as specified in Sections III.C.1(a) and (b) of Guide 3 and 
an aging analysis of past due financing receivables. ASU 2016-13 will 
increase the credit quality-related disclosures for loans. For example, 
it will require registrants to present credit quality indicator 
disclosures by year of origination and require additional disclosures 
about loans on nonaccrual status. The disclosures about loans on 
nonaccrual status will include the amortized cost basis at both the 
beginning and end of the reporting period and the amortized cost basis 
for those nonaccrual loans without a related allowance for credit 
losses. In addition, disclosures will be required by class of financing 
receivable about collateral-dependent loans and the collateral that 
secures them.\135\
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    \135\ The disclosures required for collateral-dependent 
financial assets include descriptions of (1) the type of collateral, 
(2) the extent to which collateral secures the asset, and (3) 
significant changes in the extent to which collateral secures the 
asset, whether because of general deterioration or some other 
reason.
---------------------------------------------------------------------------

    In addition, both Guide 3 and U.S. GAAP, now and after the adoption 
of ASU 2016-13, call for disclosure of the following accounting 
policies:
     Placing financing receivables on nonaccrual status;
     recording payments received on nonaccrual financing 
receivables;
     resuming accrual of interest; and

[[Page 12769]]

     determining past due or delinquency status for each class 
of financing receivable.\136\
---------------------------------------------------------------------------

    \136\ ASC 310-10-50.
---------------------------------------------------------------------------

    Currently, U.S. GAAP also requires the following disclosures, by 
class of financing receivable, for impaired loans: \137\
---------------------------------------------------------------------------

    \137\ See ASC 310-10-35-13 for the scope of loans evaluated 
individually for impairment. A loan is impaired when, based on 
current information and events, it is probable that a creditor will 
be unable to collect all amounts due according to the contractual 
terms of the loan agreement. TDRs are also considered impaired loans 
in accordance with ASC 310-40-35-10 but are not required to be 
included in the impaired loan disclosures in years after the 
restructuring as long as the criteria in ASC 310-40-50-2 are met.
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     The accounting policy for recognizing interest income, 
including how cash receipts are recorded;
     the accounting policy for determining which loans are 
individually assessed for impairment and the factors considered in 
determining that a loan is impaired;
     as of each balance sheet date, the recorded investment 
segregated by the amount for which there is a related allowance versus 
the amount for which there is no related allowance, and the total 
unpaid principal balance of impaired loans; and
     for each period, the average recorded investment in 
impaired loans, the amount of interest income recognized while the 
loans were impaired and, if practicable, the amount of interest income 
recognized using a cash-basis method of accounting.\138\
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    \138\ ASC 310-10-50. For the cash-basis method of accounting, 
income is recognized only when the interest payment is received.

ASU 2016-13 will eliminate the impaired loan concept and the above 
related disclosures.\139\
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    \139\ We discuss the ASU 2016-13 changes to the allowance and 
related disclosures in Section II.D below.

    U.S. GAAP also requires qualitative and quantitative information, 
by class of financing receivable, about TDRs for each period for which 
an income statement is presented. For example, for TDRs occurring 
during the period, registrants must disclose how the financing 
receivables were modified and the financial effects of the 
modifications. In addition, for TDRs that were completed within the 
previous 12 months and subsequently have payment defaults during the 
reporting periods, registrants must disclose the types and amounts of 
financing receivables that defaulted.\140\ Registrants also must 
disclose the amount of commitments, if any, to lend additional funds 
related to a TDR.\141\ In contrast, Guide 3 does not call for 
disclosures specific to TDR activity during the period, but calls for 
disclosure of the total balance of TDRs as of the end of the period. 
U.S. GAAP also requires specific disclosures about loans acquired with 
deteriorated credit quality \142\ for each balance sheet 
presented.\143\
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    \140\ ASC 310-10-50.
    \141\ ASC 310-40-50.
    \142\ ASC 310-30-20. These are loans that were acquired with 
evidence of deteriorated credit quality since their origination and 
for which it was probable, at acquisition, that the acquirer would 
be unable to collect all contractually required payments. Because 
these loans are identified as having credit risk at the time of 
acquisition, the accounting treatment is different than for newly 
originated loans. Any cash flows in excess of those expected at 
acquisition are recognized as interest income on a level-yield basis 
over the life of the loan.
    \143\ ASC 310-30-50 requires the following disclosures: 
Outstanding balance and related carrying amount of the loans at the 
beginning and end of the period; the amount of accretable yield at 
the beginning and end of the period, reconciled for additions, 
accretion, disposals of loans and reclassifications to/from 
nonaccretable difference during the period; for loans acquired 
during the period, the contractually required payments receivable, 
cash flows expected to be collected and fair value at the 
acquisition date; and the carrying amount as of acquisition date and 
at end of period of loans acquired with deteriorated credit quality 
for which income is not being recognized because the timing and 
amount of cash flows expected to be collected cannot be reasonably 
estimated.
    ASU 2016-13 revises these disclosures to require a 
reconciliation of the difference between the purchase price of these 
loans and the par value of the assets and removes the requirements 
described above.
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    The Division staff has observed that bank holding companies often 
discuss their loan portfolios and focus on changes in portfolio 
composition, delinquencies and nonperforming or restructured loans in 
the results of operations section of MD&A. The Division staff also has 
observed that BHC registrants with material amounts of nonaccrual loans 
sometimes provide a reconciliation of the beginning and ending balances 
of those loans, although they are not required by Commission rules to 
do so. As described previously, ASU 2016-13 will require disclosure of 
the beginning and ending nonaccrual loan balances, but will not require 
disclosure of activity during the period. Information about activity 
during the period may help investors understand remediation efforts 
related to the portfolio and changes in credit quality. Therefore, we 
are considering whether we should require disclosure of activity during 
the period in addition to beginning and ending balances.
    BHC registrants also may discuss higher-risk loans and declines in 
collateral value when they are reasonably expected to have a material 
impact on results of operations, liquidity or capital resources.\144\ 
For example, disclosures about interest-only and adjustable-rate 
mortgage loans, by year of reset, provide investors with information 
about a BHC registrant's exposure to higher-risk loans, including the 
potential effect that changes in repayment terms may have on future 
cash flows and liquidity. In addition, BHC registrants may disclose in 
their Commission filings quantitative and qualitative information about 
their loan portfolios and other significant balance sheet items with 
material country-specific risk.\145\
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    \144\ The Division has provided guidance in the form of a sample 
comment letter regarding provisions and allowance for loans losses. 
See Sample Letter Sent to Public Companies on MD&A Disclosure 
Regarding Provisions and Allowances for Loan Losses (Aug. 2009) 
(Sample MD&A Letter), available at https://www.sec.gov/divisions/corpfin/guidance/loanlossesltr0809.htm. Types of loans identified as 
``higher-risk'' included option adjustable-rate mortgage products, 
junior lien mortgages, high loan-to-value ratio mortgages, interest-
only loans, subprime loans and loans with initial teaser rates.
    \145\ In January 2012, the Division issued disclosure guidance 
providing the Division's views regarding disclosure related to 
registrants' exposures to certain European countries experiencing 
financial stress. See CF Disclosure Guidance: Topic No. 4, European 
Sovereign Debt Exposures.
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    BHC registrants often publish and furnish, on current reports, 
Forms 8-K, supplements to their earnings releases that include credit 
quality statistics that are adjusted or more disaggregated than those 
provided under Guide 3 or U.S. GAAP. These statistics may exclude 
certain types of loans that are not typically classified as 
nonaccrual.\146\
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    \146\ For example, the allowance to loan ratios may exclude 
credit cards and loans acquired with deteriorated credit quality. 
Registrants also may adjust credit quality statistics for 
significant sales, litigation settlements or regulatory changes.
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ii. Information Available Outside of SEC Filings
    Banking organizations must report loan amounts categorized by type 
of security, borrower or purpose in Call Reports.\147\ Loans past due 
and on nonaccrual status must be reported along with TDRs, both 
performing and on nonaccrual status.\148\ Certain banking organizations 
also must report specific information about mortgage banking 
activities, including carrying amount, originations, purchases and 
sales for both first lien and junior lien loans.\149\

[[Page 12770]]

Banking organizations also must report regulatory capital components 
and ratios, including the categorization of loans by risk weights.\150\
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    \147\ Call Report Schedule RC-C, Loans and Lease Financing 
Receivables, specifies more loan categories than Guide 3.
    \148\ Call Report Schedule RC-N, Past Due and Nonaccrual Loans, 
Leases, and Other Assets and Call Report Schedule RC-C.
    \149\ Call Report Schedule RC-P, Family Residential Mortgage 
Banking Activities, must be completed by (1) all banks with $1 
billion or more in total assets, and (2) banks with less than $1 
billion in total assets with greater than $10 million in mortgage 
banking activities (determined based on originations, sales or 
period-end balances) for two consecutive quarters.
    \150\ Call Report Schedule RC-R, Regulatory Capital.
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    Pillar 3 disclosures include a description of how banking 
organizations subject to the disclosure requirements \151\ measure 
credit risk in their loan portfolios, how they mitigate those risks and 
the associated regulatory risk weights of the assets. For example, 
these organizations must provide quantitative credit risk disclosures 
\152\ based on geography, industry and/or counterparty type. If a 
banking organization uses its own internal credit risk estimates, such 
as the probability of default, exposure at default and loss given 
default, those measures must be disclosed.\153\
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    \151\ Pillar 3 disclosure requirements apply to banking 
organizations with $50 billion or more in total assets. See 
Regulatory Capital Rules Release.
    \152\ The required quantitative credit risk disclosures include 
total credit risk exposures and average credit risk disclosures, 
after accounting for offsets in accordance with U.S. GAAP over the 
period, without taking into account the effect of credit risk 
mitigation techniques, categorized by major types of credit 
exposure. Information about impaired and past-due loans also is 
required.
    \153\ Regulatory Capital Rules Release, Section XI, Market 
Discipline and Disclosure Requirements.
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Request for Comment
    32. Do the loan portfolio disclosures called for by Guide 3 provide 
investors with information upon which they base investment and voting 
decisions? Would such information otherwise be provided under 
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any 
particular issues that BHC registrants face in providing these 
disclosures or that investors or analysts face in utilizing these 
disclosures?
    33. Do Commission rules or U.S. GAAP require the same or similar 
loan information as called for by Guide 3? If so, how is the 
information similar or dissimilar? Please provide a detailed 
comparison.
    34. What improvements to the existing loan disclosures should we 
consider that would be important for investors? For example, should 
loans held-for-sale or loans carried at fair value under the fair value 
option fall within the scope of our loan portfolio disclosures? In 
suggesting improvements, please indicate whether BHC registrants would 
face any challenges in preparing and providing the disclosures.
    35. How do investors use the TDR disclosures called for by Guide 3 
for investment decisions? Is the basis for a modification (i.e., credit 
risk management purposes versus commercial or other reasons) important 
in assessing the risk elements in a BHC registrant's loan portfolio?
    36. Should we require disclosures of all loan modifications by type 
of modification and/or credit quality of borrower? Would BHC 
registrants face any challenges in preparing and providing these 
disclosures?
    37. To promote comparability and consistency, should we prescribe 
the level of disaggregation that BHC registrants should employ for 
their loan portfolio disclosures? \154\ If so, what threshold should be 
used and why?
---------------------------------------------------------------------------

    \154\ While U.S. GAAP and IFRS standards include guidance about 
disaggregation, the requirements generally allow management to 
exercise judgment. For example ASC 310-10-50 includes disclosures by 
class of financing receivables and portfolio segment, but management 
determines the classes and segments. IFRS 7 requires disclosures by 
classes of financing instruments, which are defined as ``. . . 
classes that are appropriate to the nature of the information 
disclosed and that take into account the characteristics of those 
financial instruments.''
---------------------------------------------------------------------------

    38. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    39. While investors do not have experience with the disclosures 
that will be required by ASU 2016-13, is there information about loans 
that would be important for investors under an expected credit loss 
model? If so, please indicate which information and whether BHC 
registrants would face any challenges in preparing and providing the 
information? For example, upon effectiveness of ASU 2016-13, should we 
require disclosure of the current period activity for nonaccrual loans 
since the new standard will require disclosure of the beginning and 
ending nonaccrual balances only?
    40. Should we consider requiring that the loan portfolio 
disclosures called for by Guide 3 be presented in a structured data 
format, such as XBRL, to facilitate investor comparison of data across 
BHC registrants and usability of the disclosures? Why or why not? If 
so, what elements of these disclosures should be tagged so that they 
can be extracted in a structured data format?
    41. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    42. Should we require disclosure of the loan information provided 
in Call Reports or other regulatory filings? If so, what information 
and why?
    43. Should the loan portfolio disclosures called for by Guide 3 be 
extended to other registrants, such as those engaged in the financial 
services industry? If so, which registrants and which disclosures?

D. Summary of Loan Loss Experience

1. Background
    BHC registrants generally accept and manage significant amounts of 
credit risk, and most of their credit losses traditionally have come 
from loans and declines in the value of collateral underlying loans. 
The allowance for loan losses is a critical accounting estimate and is 
a primary focus of management, investors and the U.S. banking agencies. 
This discussion focuses on the allowance for loan loss methodology 
currently required by U.S. GAAP and highlights only the significant 
changes that will occur once the new standard, ASU 2016-13, becomes 
effective.\155\
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    \155\ The currently effective guidance for recognizing credit 
losses includes ASC 310-10-35-4, which states that an impairment is 
recognized when it is probable that a loss has been incurred. The 
new standard replaces the current incurred loss methodology with a 
methodology that reflects expected credit losses. ASU 2016-13 is not 
effective for registrants until fiscal years beginning after 
December 15, 2019, unless early adoption is elected. Early adoption 
is permitted for annual periods beginning after December 15, 2018, 
and interim periods therein.
---------------------------------------------------------------------------

    A BHC registrant's methodology for estimating loan losses is 
influenced by many factors, including the its size, organizational 
structure, business environment and strategy, loan portfolio 
characteristics, loan administration procedures and management 
information systems.\156\ Most methodologies for estimating loan losses 
include a risk classification process that involves categorizing loans 
into risk categories or ratings.\157\ U.S. GAAP also requires 
management to consider all available information reflecting past events 
and current conditions when developing its estimate of loan 
losses.\158\ Because estimating loan losses involves

[[Page 12771]]

a high degree of management judgment, the Commission issued a financial 
reporting release and the staff issued an accounting bulletin that 
provides its views on the development, documentation and application of 
a systematic methodology for determining an allowance for loan 
losses.\159\
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    \156\ See Interpretive Response to Question 2.A in Staff 
Accounting Bulletin Topic 6:L--Financial Reporting Release 28--
Accounting for Loan Losses By Registrants Engaged in Lending 
Activities (SAB Topic 6:L). The guidance was issued in 2001 based on 
the U.S. GAAP impairment model effective today and has not been 
updated for ASU 2016-13.
    \157\ The categorization normally is based on relevant 
information about the ability of borrowers to service their debt, 
such as current financial information, historical payment 
experience, credit documentation, public information and current 
trends.
    \158\ ASC 310-10-35. Examples of available information include 
existing industry, geographical, economic and political factors that 
are relevant to the collectibility of a loan.
    \159\ See Financial Reporting Release 28, Accounting for Loan 
Losses by Registrants Engaged in Lending Activities and SAB Topic 
6:L.
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    ASU 2016-13, once effective, will replace the current incurred loss 
methodology with a methodology that reflects expected credit losses and 
will require consideration of a broader range of reasonable and 
supportable information to inform credit loss estimates.\160\ The new 
methodology will require registrants to use forecasted information, in 
addition to past events and current conditions, when developing their 
estimates. In addition, it will not specify a method for measuring 
expected credit losses and will allow registrants to apply methods that 
reasonably reflect their expectations of the credit loss estimate. As a 
result of the broader range of items to consider and the required use 
of forward-looking information, the FASB expanded the disclosure 
requirements related to financial instruments and impairments.
---------------------------------------------------------------------------

    \160\ See ASU 2016-13.
---------------------------------------------------------------------------

    Loan loss disclosures, like those required by U.S. GAAP, provide 
investors with information about how a registrant analyzes and assesses 
credit risk when determining the allowance for loan losses and the 
reasons for any changes in how it determines the allowance.\161\
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    \161\ See ``What Are the Main Provisions?'' section of ASU 2010-
20.
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2. Current Guide 3 Disclosures
    Section IV.A of Guide 3 calls for a five-year analysis of loan loss 
experience,\162\ including the beginning and ending balances of the 
allowance for loan losses, charge-offs and recoveries by loan category 
\163\ and additions charged to operations. Section IV.A also calls for 
disclosure of the ratio of net charge-offs to average loans outstanding 
during the period.
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    \162\ This analysis of activity in the allowance for loan losses 
is known as a ``roll-forward'' of the allowance for loan losses.
    \163\ The loan categories presented in Section IV.A are the same 
as in Section III.
---------------------------------------------------------------------------

    Section IV.B calls for a breakdown of the allowance for loan losses 
by category along with the percentage of loans in each category. BHC 
registrants may, however, furnish a narrative discussion of the loan 
portfolio's risk elements and the factors considered in determining the 
amount of the allowance in lieu of providing a breakdown. The staff has 
observed that BHC registrants generally elect to use the tabular format 
and loan categories in Section IV.B to present the allocation of 
allowance for loan losses instead of the narrative discussion.
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 currently requires disclosure of the total allowance for 
loan losses on the balance sheet or in the footnotes to the financial 
statements and the changes in the allowance for loan losses for each 
period in which an income statement is presented in the footnotes.\164\ 
This requirement is identical to the Guide 3 disclosure.
---------------------------------------------------------------------------

    \164\ 17 CFR 210.9-03. The Commission has proposed to eliminate 
the changes in the allowance for loan losses disclosure in the 
Disclosure Update and Simplification Release.
---------------------------------------------------------------------------

    U.S. GAAP requires disclosure of loan loss information, including 
the related accounting policies, for each portfolio segment except 
loans measured at fair value.\165\ For example, the accounting policy 
disclosures shall include:
---------------------------------------------------------------------------

    \165\ ASC 310-10-20 defines a portfolio segment as the level at 
which an entity develops and documents a systematic methodology to 
determine its allowance for credit losses.
---------------------------------------------------------------------------

     A description of the methodology used to estimate the 
allowance for loan losses, including a description of the factors that 
influenced management's judgment; \166\
---------------------------------------------------------------------------

    \166\ ASC 310-10-50 states that both historical losses and 
existing economic conditions must be included in the description of 
factors.
---------------------------------------------------------------------------

     a discussion of risk characteristics relevant to each 
portfolio segment;
     the identification of any change in accounting policies or 
methodology from the prior period, the rationale for the change and the 
quantitative effect of the change; and
     a description of the policy for charging off uncollectible 
financing receivables.\167\
---------------------------------------------------------------------------

    \167\ ASC 310-10-50-11B.
---------------------------------------------------------------------------

    ASU 2016-13, once effective, will add new policy disclosures 
regarding the changes in the factors that influenced management's 
current estimate of expected credit losses and reasons for significant 
changes in the amount of write-offs. In addition, ASU 2016-13 will 
require disclosures related to the forecasted information management 
used in developing its allowance for credit losses.\168\ U.S. GAAP 
currently requires disclosure of the allowance for loan losses and the 
related investment in financing receivables to which the allowance 
pertains, disaggregated on the basis of a registrant's impairment 
methodology.\169\ Both before and after adoption of ASU 2016-13, U.S. 
GAAP requires a roll-forward of the activity in the allowance for loan 
losses for each period by portfolio segment.\170\
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    \168\ ASC 326-20-50 requires a description of the factors that 
influenced management's expected loss estimate, including a 
discussion of the reasonable and supportable forecasts used and a 
discussion of the reversion method applied for periods beyond the 
reasonable and supportable forecast period.
    \169\ To disaggregate the required information on the basis of 
the impairment methodology, U.S. GAAP provides that a registrant 
shall disclose the following amounts: (a) Amounts collectively 
evaluated for impairment, (b) amounts individually evaluated for 
impairment, and (c) amounts related to loans acquired with 
deteriorated credit quality. See ASC 310-10-50-11C.
     Since ASU 2016-13 requires the allowance methodology for all 
loans to reflect the current estimate of expected credit losses, it 
eliminates this disaggregation requirement.
    \170\ The staff has observed that some bank holding companies 
present their Guide 3 roll-forward using their U.S. GAAP portfolio 
segments instead of the loan categories specified in Guide 3 or 
Article 9 because Guide 3 provides latitude in determining loan 
categories.
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    Both before and after adoption of ASU 2016-13, U.S. GAAP requires 
qualitative information, by portfolio segment, about the impact of TDRs 
on the allowance for loan losses. For TDRs occurring during each period 
for which an income statement is presented, U.S. GAAP requires 
disclosure of how the modifications were factored into the 
determination of the allowance for loan losses. Similarly, for TDRs 
that were completed within the previous 12 months and subsequently have 
payment defaults during the reporting periods, U.S. GAAP requires 
disclosure of how the defaults were factored into the determination of 
the allowance for loan losses.\171\
---------------------------------------------------------------------------

    \171\ ASC 310-10-50.
---------------------------------------------------------------------------

    U.S. GAAP currently also requires specific disclosures about the 
impact that loans acquired with deteriorated credit quality have on the 
allowance for loan losses in periods subsequent to acquisition.\172\ 
For example, U.S. GAAP currently requires disclosure of the amount of 
any additions or reductions to the allowance for loan losses resulting 
from changes in estimated cash flows expected to be collected over the 
life of those loans, as well as the amount of the allowance pertaining 
to those loans at the beginning and end of the period.\173\ ASU 2016-13 
will change

[[Page 12772]]

the required disclosures because, under the new methodology, these 
loans will be recorded with an allowance for credit losses at the 
acquisition date. Therefore, there no longer will be separate 
disclosures related to changes in expected cash flows for these loans, 
but the roll-forward of the allowance by portfolio segment will include 
a separate line for the allowance recorded at acquisition.
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    \172\ Currently under U.S. GAAP, an allowance for loan losses is 
not recorded upon the acquisition of loans acquired with 
deteriorated credit quality. These loans are initially recorded at 
fair value, which factors in an estimate of expected credit losses. 
An allowance may subsequently be required to the extent that there 
is an adverse change in the estimated cash flows expected to be 
collected over the life of the loan.
    \173\ ASC 310-30-50.
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    The staff has observed that bank holding companies consider their 
methodology for determining the allowance for loan losses, when it 
could have a material impact on the financial condition or operation 
performance, to be a critical accounting estimate and provide a 
discussion of the material implications of uncertainties associated 
with their allowance methodology and assumptions in MD&A.\174\ These 
bank holding companies also discuss material fluctuations in their 
provision and allowance for loan losses in MD&A. The Division has 
provided its views on the appropriate disclosure in MD&A related to the 
current allowance for loan loss methodology, which includes the 
following information:
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    \174\ In the Interpretive Guidance on MD&A, the Commission 
reminded registrants that they should address the material 
implications of uncertainties associated with the methods, 
assumptions and estimates underlying their critical accounting 
measurements.
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     The historical loss data used as the starting point for 
estimating current losses;
     how economic factors affecting loan quality are 
incorporated into the allowance estimate;
     the level of specificity used to group loans for purposes 
of estimating losses;
     the application of loss factors to risk-rated loans; and
     any other estimation methods and assumptions used.\175\
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    \175\ Sample MD&A Letter. The Division is considering the impact 
that ASU 2016-13 will have on these disclosures and will take into 
consideration comments received in response to this request for 
comment as part of its analysis.
---------------------------------------------------------------------------

ii. Information Available Outside of SEC Filings
    Banking organizations must report the amount of loans charged off 
against the allowance for loan losses during the period, as well as the 
amount of recoveries of loans previously charged off by specified loan 
category in Call Reports.\176\ Banking organizations also must provide 
a reconciliation of the allowance for loan losses on an aggregate 
basis. This requirement is similar to the disclosures called for in 
Section IV.A of Guide 3, except that write-downs arising from transfers 
of loans to held for sale and any other adjustments must also be 
reported in the Call Reports.\177\ Banking organizations must disclose 
in their Call Reports the amount of allowance for loan losses 
established due to decreases in cash flows expected to be collected on 
loans acquired with deteriorated credit quality.\178\ Banking 
organizations with $1 billion or more in total assets also must report 
disaggregated data on the allowance for loan losses and the related 
recorded investment in loans.\179\ This requirement is similar to the 
U.S. GAAP requirement.
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    \176\ The loan categories specified by Call Report Schedule RI-
B, Charge-offs and Recoveries on Loans and Leases and Changes in 
Allowance for Loan and Lease Losses, are consistent with those 
specified by Schedule RC-C.
    \177\ Loans held for sale are measured at lower of cost or fair 
value. Therefore, when a loan measured at amortized cost is 
transferred to the held for sale category, it may result in a write-
down.
    \178\ Memoranda Item 4 in Schedule RI-B.
    \179\ The loan categories specified by Call Report Schedule RI-
C, Disaggregated Data on the Allowance for Loan and Lease Losses, 
represent general categories that best correspond to the 
characteristics of the related loans and leases, rather than the 
standardized loan categories defined in Schedule RC-C.
---------------------------------------------------------------------------

    Pillar 3 disclosures provide qualitative and quantitative 
information about the allowance for loan losses that are more detailed 
than the disclosures called for by Guide 3 and U.S. GAAP. For example, 
qualitative disclosures include a description of the approaches used to 
determine the allowance for loan losses, including statistical methods 
used and an explanation of the internal rating system and its 
relationship with external ratings by loan type. Quantitative 
disclosures include actual losses for the preceding period for each 
loan category, including how the amounts differ from past experience or 
the banking organization's estimates of losses compared to actual 
losses over a longer period.\180\
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    \180\ Pillar 3 instructions do not prescribe the period used for 
this assessment, but define the period as ``a period sufficient to 
allow for meaningful assessment of the performance of the internal 
ratings processes.''
---------------------------------------------------------------------------

Request for Comment
    44. Do the summary of loan loss experience disclosures called for 
by Guide 3 provide investors with information upon which they base 
investment and voting decisions? Would such information otherwise be 
provided under Commission rules (e.g., Regulation S-K) or U.S. GAAP? 
Are there any particular issues that BHC registrants face in providing 
these disclosures or that investors or analysts face in utilizing these 
disclosures?
    45. Do Commission rules or U.S. GAAP require the same or similar 
loan loss experience information as called for by Guide 3? If so, how 
is the information similar or dissimilar? Please provide a detailed 
comparison.
    46. What improvements to the existing summary of loan loss 
experience disclosures should we consider that would be important for 
investors? For example, should BHC registrants disclose the qualitative 
portion of their allowance or details about their allowance 
methodology, such as adjustments made due to existing economic 
conditions? In suggesting improvements, please indicate whether BHC 
registrants would face any challenges in preparing and providing the 
disclosures.
    47. To promote comparability and consistency, should we prescribe 
the level of disaggregation that BHC registrants should employ for 
their summary of loan loss disclosures? If so, what threshold should be 
used and why?
    48. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    49. While investors do not have experience with the disclosures 
that will be required by ASU 2016-13, is there information about loan 
impairment that would be important for investors under an expected 
credit loss model? If so, please indicate which information and whether 
BHC registrants would face any challenges in preparing and providing 
the information? For example, upon effectiveness of ASU 2016-13, should 
we require separate disclosure of the amount of provision that relates 
to loans originated during the period in the allowance for credit 
losses roll-forward? Why or why not?
    50. Should we require any of the suggested disclosures from the 
2009 Sample MD&A Letter? Why or why not? If so, which disclosures 
should we require and what challenges, if any, would BHC registrants 
face in preparing and providing them? For example, should we require 
the disclosure suggestions related to changes in practices such as the 
historical loss data used as the starting point for estimating current 
losses?
    51. Should we consider requiring that the summary of loan loss 
experience disclosures called for by Guide 3 be presented in a 
structured data format, such as XBRL, to facilitate investor comparison 
of data across BHC registrants and usability of the disclosures? Why or 
why not? If so, what elements of these disclosures

[[Page 12773]]

should be tagged so that they can be extracted in a structured data 
format?
    52. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    53. Should we require disclosure of any loan information provided 
in Call Reports or other regulatory filings? If so, what information 
and why?
    54. Should the summary of loan loss experience disclosures called 
for by Guide 3 be extended to other registrants, such as those engaged 
in the financial services industry? If so, which registrants and which 
disclosures?

E. Deposits

1. Background
    Deposits are generally the most significant liability on an FDIC-
insured institution's balance sheet, and interest paid on deposits 
generally represents a large portion of expenses. As of September 30, 
2016, deposits represented 76% of the total liabilities and capital of 
all FDIC-insured institutions.\181\ During times of economic stress, 
insured retail deposits have proven to be the most reliable funding 
source and, therefore, play an integral role in mitigating liquidity 
risk during crisis scenarios.\182\ FDIC-insured institutions also can 
generate funds by acquiring brokered deposits,\183\ which typically are 
obtained through arrangements with securities brokerage firms. The use 
of brokered deposits allows FDIC-insured institutions to raise large 
amounts of funds quickly with a predetermined maturity structure. 
Brokered deposits, however, are highly rate-sensitive and when they 
mature institutions need to match prevailing market rates to roll-over 
or renew them. FDIC rules limit access to brokered deposits for insured 
institutions that are not ``well capitalized'' for purposes of the 
applicable regulatory capital requirements.\184\
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    \181\ See FDIC Quarterly.
    \182\ See page 15 of OCC, Comptroller's Handbook--Liquidity 
(June 2012). Retail deposits include demand, savings and time 
deposits. In addition, retail deposits are assigned a low outflow 
rate of 3-10% for purposes of the LCR calculations whereas the rates 
for other types of liabilities (e.g., unsecured wholesale funding 
provided by a financial sector entity) may be as high as 100%. See 
LCR Adopting Release.
    \183\ As defined by the FDIC, brokered deposits are deposits 
accepted through a ``deposit broker'' or ``any person engaged in the 
business of placing deposits, or facilitating the placement of 
deposits, of third parties with insured depository institutions for 
the purpose of selling interests in those deposits to third 
parties.'' See Frequently Asked Questions Regarding Identifying, 
Accepting, and Reporting Brokered Deposits on the FDIC's Web site 
for additional information, available at https://www.fdic.gov/news/news/financial/2015/fil15051b.pdf.
    \184\ 12 CFR 337.6.
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    Deposit disclosures, together with the level of other disclosed 
funding sources,\185\ may provide transparency with respect to a 
registrant's sources of funding and liquidity risk profile. Disclosures 
about significant amounts of deposits from a small number of depositors 
also could indicate concentration risk. For example, disclosures about 
a BHC registrant's reliance on brokered deposits as a source of funding 
may inform investors that the BHC registrant's cost of funding could 
increase quickly when the brokered deposits mature.
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    \185\ ASC 942-470-50-3 requires disclosures related to debt 
agreements and Section VII of Guide 3 calls for disclosures about 
short-term borrowings as described below in Section II.G.
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2. Current Guide 3 Disclosures
    Section V.A of Guide 3 calls for presentation of the average 
amounts of and the average rates paid for specified deposit categories 
that exceed 10% of average total deposits.\186\ Most BHC registrants 
provide this disclosure by disaggregating the deposit categories in the 
average balance sheet required by Section I of Guide 3. Section V.A 
also calls for disclosure of the aggregate amount of deposits by 
foreign depositors in U.S. offices, if material. Sections V.D and V.E 
of Guide 3 focus on the disclosures of time certificates of deposits 
and other time deposits in amounts of $100,000 or more.\187\ Section 
V.D calls for a maturity analysis of time deposits,\188\ and Section 
V.E calls for disclosure of time deposits in excess of $100,000 issued 
by foreign offices.\189\
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    \186\ The specified deposit categories are: (1) Noninterest-
bearing demand deposits, (2) interest-bearing demand deposits, (3) 
savings deposits, (4) time deposits, (5) deposits of banks located 
in foreign countries including foreign branches of other U.S. banks, 
(6) deposits of foreign governments and official institutions, (7) 
other foreign demand deposits, and (8) other foreign time and 
savings deposits. Categories (1) to (4) are deposits in U.S. bank 
offices and categories (5) to (8) are deposits in foreign bank 
offices. Other categories may be used for U.S. bank offices if they 
more appropriately describe the nature of the deposits.
    \187\ The $100,000 thresholds were established in 1976 when the 
FDIC insurance limit was $40,000.
    \188\ The ranges of maturities are by time remaining until 
maturity: (1) 3 months or less, (2) over 3 through 6 months, (3) 
over 6 through 12 months, and (4) over 12 months.
    \189\ If the aggregate of certificates of deposit and time 
deposits over $100,000 issued by foreign offices represents a 
majority of total foreign deposit liabilities, this disclosure need 
not be provided if a statement to that effect is provided.
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3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 requires separate presentation on the balance sheet of 
noninterest-bearing deposits and interest-bearing deposits.\190\ U.S. 
GAAP requires limited disclosures about deposits. For example, U.S. 
GAAP requires disclosures about deposits received on terms other than 
those available in the normal course of business and the aggregate 
amount of time deposits equal to or exceeding the FDIC insurance 
limit,\191\ which is currently $250,000.\192\ The time deposit 
disclosure requirement previously contained a $100,000 threshold, 
similar to Guide 3. In March 2014, the FASB replaced the $100,000 
threshold with the term ``FDIC insurance amounts.'' \193\ As a result, 
BHC registrants generally provide separate time deposit disclosures at 
both the $100,000 and the $250,000 thresholds to comply with both Guide 
3 and U.S. GAAP.
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    \190\ 17 CFR 210.9-03. If the disclosures on foreign activities 
in Rule 9-05 apply, the amount of noninterest-bearing deposits and 
interest-bearing deposits in foreign banking offices also must be 
presented separately.
    \191\ ASC 942-405-50-1.
    \192\ https://www.fdic.gov/deposit/deposits.
    \193\ FASB Editorial and Maintenance Update 2014-07 (Mar. 17, 
2014), available at https://asc.fasb.org/imageRoot/89/51570489.pdf. 
In the update, the FASB states that the revision maintained the 
original intent of the disclosure and was made to accommodate any 
future changes to the FDIC insurance limit.
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    As part of the standard-setting process for ASU 2016-01, in 2013 
the FASB proposed a definition of ``core deposit liabilities'' and 
related disclosures.\194\ The proposal would have required registrants 
with core deposit liabilities to disclose the following by significant 
type of core deposit account:
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    \194\ ``Core deposit liabilities'' was defined as ``deposits 
without a contractual maturity that management considers to be a 
stable source of funds, which excludes surge balances due to 
seasonal factors or economic uncertainty and other balances that 
management believes are transient (such as highly interest rate 
sensitive accounts.)''
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     The core deposit liability balance;
     the implied weighted-average maturity period; and
     the estimated all-in-cost-to-service rate.\195\

    \195\ Proposed Accounting Standards Update (Apr. 12, 2013), 
available at https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176162349236&acceptedDisclaimer=true. The all-in-
cost-to-service rate was defined as ``a rate that includes the net 
direct costs to service core deposit liabilities, including interest 
paid on those deposits and the expense of maintaining a branch 
network minus fee income earned on those deposit accounts.''
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    The FASB did not include these disclosures in the final standard 
due to

[[Page 12774]]

input from financial statement preparers indicating that the cost of 
providing the information would be significant and that they could 
result in the disclosure of proprietary information. In addition, 
respondents expressed concern that the disclosures would not be 
comparable because the definition of core deposit liabilities would be 
based on management's determination.\196\ Because the respondents to 
the FASB proposal consisted mostly of preparers and included only one 
user,\197\ we are seeking feedback about whether there are additional 
disclosures about deposits, such as those considered by the FASB, that 
would be important for investors.
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    \196\ See ASU 2016-01, paragraph BC138.
    \197\ See https://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176162921974.
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    The staff has observed that BHC registrants generally discuss in 
MD&A material changes to or key metrics for deposits when deposits are 
a material source of liquidity.\198\ For example, many BHC registrants 
discuss loan-to-deposit ratios and some present this information by 
reportable segment. They also generally include a discussion of 
deposits as a source of funding, including a description of deposit 
inflows and outflows during the period, in the liquidity section of 
MD&A. Some include total deposits or time deposits in the maturity of 
contractual obligations table.\199\
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    \198\ Item 303 of Reg. S-K requires registrants to discuss their 
financial condition, material changes in financial condition, and a 
description of internal and external sources of liquidity.
    \199\ Deposits, including time deposits, normally do not meet 
the definition of long-term obligations in Item 303(a)(5)(ii) of 
Regulation S-K.
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ii. Information Available Outside of SEC Filings
    Banking organizations must separately report deposits held at U.S. 
bank offices and deposits held at foreign bank offices \200\ in their 
Call Reports.\201\ Maturity data for brokered deposits, time deposits 
less than $100,000, time deposits between $100,000 and $250,000, and 
time deposits of $250,000 or more must also be provided.\202\ Banking 
organizations must also provide quarterly average balances of interest-
bearing deposit transaction accounts and non-transaction accounts in 
Call Reports. Call Reports contain more information about deposits and 
categorize deposits by more and sometimes different factors than Guide 
3. For example, banking organizations must provide information about 
whether deposits are insured or uninsured and the intended uses of the 
deposit products in Call Reports.
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    \200\ For definitions of U.S. bank offices and foreign bank 
offices, see the Glossary in Instructions for Preparation of 
Consolidated Reports of Condition and Income (FFIEC 031 and 041).
    \201\ Call Report Schedule RC-E, Deposit Liabilities.
    \202\ The maturity periods specified by Schedule RC-E, are one 
year or less for brokered deposits and, for time deposits, (a) three 
months or less, (b) over three months through 12 months, (c) over 
one year and through three years, and (d) over three years.
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Request for Comment
    55. Do the deposit disclosures called for by Guide 3 provide 
investors with information upon which they base investment and voting 
decisions? Would such information otherwise be provided under 
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any 
particular issues that BHC registrants face in providing these 
disclosures or that investors or analysts face in utilizing these 
disclosures?
    56. Do Commission rules or U.S. GAAP require the same or similar 
deposits information as called for by Guide 3? If so, how is the 
information similar or dissimilar? Please provide a detailed 
comparison.
    57. What improvements to the existing deposits disclosures should 
we consider that would be important for investors? For example, should 
BHC registrants disclose the amount and maturity of brokered deposits? 
Should we require disclosures about core deposits and, if so, what 
disclosures? In suggesting improvements, please indicate whether BHC 
registrants would face any challenges in preparing and providing the 
disclosures.
    58. How do investors use the time deposit disclosures? Should we 
retain the $100,000 threshold for these disclosures or should we change 
it to another threshold, such as the FDIC insurance limit? Why or why 
not?
    59. Should we require disclosure of an estimate of the quantitative 
and qualitative benefits of using government guaranteed deposits?
    60. Should we consider requiring that the deposit disclosures 
called for by Guide 3 be presented in a structured data format, such as 
XBRL, to facilitate investor comparison of data across BHC registrants 
and usability of the disclosures? Why or why not? If so, what elements 
of these disclosures should be tagged so that they can be extracted in 
a structured data format?
    61. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    62. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    63. Should we require disclosure of any deposit information 
provided in Call Reports or other regulatory filings? If so, what 
information and why?
    64. Should the deposit disclosures called for by Guide 3 be 
extended to other registrants, such as those engaged in the financial 
services industry? If so, which registrants and which disclosures?

F. Return on Equity and Assets

1. Background
    Financial ratios allow investors to compare registrants in the same 
industry. Section VI of Guide 3 calls for disclosure of four specific 
ratios. Two are profitability ratios, one is an indicator of how much 
capital a BHC registrant returns to investors, and the other is an 
indicator of solvency.
    While useful to investors for comparing BHC registrants and making 
investment decisions, the ratios called for by Guide 3 are not specific 
to the financial services industry. Moreover, Guide 3 does not call for 
other industry-specific ratios, other than the ratio of net charge-offs 
to average loans outstanding in Section IV.A. Examples of industry-
specific ratios that investors may use to evaluate BHC registrants and 
make investment decisions include the efficiency ratio,\203\ allowance 
for loan losses to total loans, allowance for loan losses to total 
nonaccrual loans and nonaccrual loans to total loans. Although not 
specifically referenced in Guide 3, BHC registrants generally disclose 
these ratios. We are considering whether specific ratio disclosures for 
BHC registrants would be important for investors or whether these BHC 
registrants already disclose the ratios that are important for 
investors in response to Regulation S-K requirements.
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    \203\ The efficiency ratio measures the proportion of net 
operating revenues that are absorbed by overhead expenses, so that a 
lower value indicates greater efficiency. FDIC Quarterly.
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2. Current Guide 3 Disclosure Requirements
    Section VI of Guide 3 calls for the following ratios for each 
reported period:
     Return on assets (ROA);
     return on equity (ROE);
     dividend payout ratio; and
     equity to assets ratio.\204\

    \204\ Instruction 1 to Section VI calls for a dual presentation 
of the return on equity and equity to assets ratios if mandatorily 
redeemable preferred stock is outstanding. The dual presentation 
provides the ratios calculated both with and without preferred 
stock.

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[[Page 12775]]

Instruction 2 of Section VI indicates that BHC registrants should 
provide any other ratios they deem necessary to explain their 
operations.
3. Other Sources of Information
    No other Commission rules, U.S. accounting standards or bank 
regulatory requirements specifically require disclosure of the four 
ratios included in Guide 3. These ratios, however, can be calculated 
using financial information disclosed in Commission filings. ROA, ROE 
and equity to assets can be derived from amounts reported on the income 
statement and the average balance sheet called for by Section I.A of 
Guide 3.\205\ BHC registrants also generally disclose their ROA and ROE 
ratios in their earnings releases. The dividend payout ratio can be 
calculated based on the disclosures required by Article 3 of Regulation 
S-X.\206\ Also, although Commission rules do not specifically require 
these ratios, the Interpretive Guidance on MD&A highlights the 
potential need for disclosure of industry-specific or key performance 
measures when they are used to manage the business and would be 
material to investors.
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    \205\ In the case of average amounts, current and prior year 
amounts presented on the balance sheet can be used to calculate the 
average.
    \206\ 17 CFR 210.3-01 through 3-20. Rule 3-04 of Regulation S-X 
requires disclosure of dividends per common share in the changes in 
stockholders' equity and noncontrolling interests statement or 
footnote.
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    Bank holding companies also disclose non-GAAP measures in 
Commission filings. For example, they commonly present non-GAAP 
versions of ROE, return on average equity, and book value per common 
share using tangible equity \207\ instead of shareholders' equity. 
Another common non-GAAP measure used by bank holding companies is 
taxable equivalent interest income and the related net interest 
margin.\208\ In addition, banking organizations are subject to a 
minimum ``leverage ratio'' requirement as part of their regulatory 
capital requirements. The leverage ratio and its inputs are reported on 
the Call Report.\209\
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    \207\ Tangible equity is not defined in Commission rules or U.S. 
GAAP. Generally, tangible common equity is U.S. GAAP shareholders' 
equity minus any intangible asset (such as deferred costs or 
goodwill), net of deferred tax liabilities.
    \208\ Net interest income is adjusted to reflect tax-exempt 
income on an equivalent before-tax basis with a corresponding 
increase in income tax expense. See Staff Accounting Bulletin Topic 
11:G--Tax Equivalent Adjustment in Financial Statements of Bank 
Holding Companies (SAB Topic 11:G) for additional discussions 
related to tax equivalent adjustments.
    \209\ Tier 1 leverage ratio is calculated by dividing Tier 1 
capital, as defined by the U.S. banking agencies, by average total 
consolidated assets. Call Report Schedule RC-R, Regulatory Capital.
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Request for Comment
    65. Do the return on equity and assets disclosures called for by 
Guide 3 provide investors with information upon which they base 
investment and voting decisions? Would such information otherwise be 
provided under Commission rules (e.g., Regulation S-K) or U.S. GAAP? 
Are there any particular issues that BHC registrants face in providing 
these disclosures or that investors or analysts face in utilizing these 
disclosures?
    66. Do Commission rules or U.S. GAAP require the same or similar 
ratios as called for by Guide 3? If so, how are the ratios similar or 
dissimilar?
    67. What improvements to the existing return on equity and assets 
disclosures should we consider that would be important for investors? 
For example, should we require other industry-specific ratios, such as 
nonaccrual loans to total loans, and if so, which ones? In suggesting 
improvements, please indicate whether BHC registrants would face any 
challenges in preparing and providing the disclosures.
    68. What non-GAAP financial measures do BHC registrants disclose? 
Which of these measures help make investment decisions and why? Should 
we require disclosure of any of these measures to enhance the 
comparability of information for investors?
    69. Are there any bank regulatory capital metrics, such as risk-
weighted assets or liquidity ratios, that BHC registrants are not 
already required to disclose under accounting standards or Commission 
rules that would be important for investors? If so, which ones and how 
do investors use them?
    70. Banking organizations typically are afforded a transition 
period to comply with new bank regulatory capital metric requirements. 
For recently issued accounting standards that have not yet been 
adopted, registrants generally discuss the potential effects of 
adoption in registration statements and reports filed with the 
Commission.\210\ However, there is no related disclosure guidance for 
bank capital metrics that have been issued but not yet implemented. 
Would disclosure of the calculation of a new metric provide important 
information for investors even before the organization is required to 
comply with the requirement? What challenges, if any, would BHC 
registrants face in preparing and providing it?
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    \210\ See Staff Accounting Bulletin Topic 11:M--Disclosure Of 
The Impact That Recently Issued Accounting Standards Will Have On 
The Financial Statements Of The Registrant When Adopted In A Future 
Period. (SAB Topic 11:M)
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    71. Should we consider requiring that the return on equity and 
assets disclosures called for by Guide 3 be presented in a structured 
data format, such as XBRL, to facilitate investor comparison of data 
across BHC registrants and usability of the disclosures? Why or why 
not? If so, what elements of these disclosures should be tagged so that 
they can be extracted in a structured data format?
    72. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    73. Should the return on equity and assets disclosures called for 
by Guide 3 be extended to other registrants, such as those engaged in 
the financial services industry? If so, which registrants and which 
disclosures?

G. Short-Term Borrowings

1. Background
    BHC registrants often use short-term borrowings to supplement their 
deposits and diversify their funding sources. Short-term borrowings may 
include federal funds transactions,\211\ repurchase agreements,\212\ 
commercial paper,\213\ traditional loans from other banks, and any 
other short-term borrowings reflected on the BHC registrant's balance 
sheet.\214\ Federal funds transactions can be an important tool for 
managing liquidity, while repurchase agreements can provide a cost-
effective source of funds and may allow a BHC registrant to leverage 
its securities portfolio for liquidity and funding needs. Short-term 
borrowings and the reliance on them for financing are especially 
important to the liquidity of many of the largest BHC registrants

[[Page 12776]]

and, industry-wide, may have a global impact on the financial markets 
and systemic stability. Illiquidity in the markets as a whole can 
affect short-term borrowings, sometimes severely and rapidly, which can 
present increased risks for registrants that rely heavily on short-term 
borrowings as a funding source. Because of these potential risks, 
banking regulators across the globe have focused on liquidity and 
funding sources and have adopted new liquidity measures, such as the 
LCR and NSFR requirements. These new liquidity measures are designed to 
create incentives for certain large banking organizations to fund their 
activities with more stable sources of funding, which may cause banking 
organizations to replace some of their short-term borrowings, like 
federal funds purchased, with long-term debt. For example, the NSFR 
generally is calibrated assuming that long-term liabilities are more 
stable than short-term liabilities.\215\
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    \211\ The federal fund rate is the interest rate that banks 
charge one another for borrowing funds overnight. Federal funds are 
excess funds that banks deposit with the FRB for lending to other 
banks.
    \212\ ASC 860-10 defines a repurchase agreement as an 
arrangement under which a transferor (repo party) transfers a 
security to a transferee (repo counterparty or reverse party) in 
exchange for cash and concurrently agrees to reacquire the security 
at a future date for an amount equal to the cash exchanged plus a 
stipulated interest factor.
    \213\ Commercial paper consists of short-term promissory notes 
issued primarily by corporations. Maturities range up to 270 days 
but average about 30 days.
    \214\ 17 CFR 210.9-03.13(3).
    \215\ Basel III: the net stable funding ratio (October 2014), 
available at https://www.bis.org/bcbs/publ/d295.pdf.
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    A BHC registrant's use of short-term borrowings can fluctuate 
significantly during a reporting period. As a result, the presentation 
of period-end amounts alone may not accurately reflect a BHC 
registrant's funding needs or use of short-term borrowings during the 
period.
    The Guide 3 short-term borrowings disclosures provide investors 
with information beyond the period-end borrowings balance. These 
disclosures focus on the activity in short-term borrowings and related 
interest expense throughout the period and may help investors better 
understand the role of this form of financing and its related risks to 
BHC registrants.
2. Current Guide 3 Disclosures
    Section VII of Guide 3 calls for the following short-term 
borrowings disclosures by category:
     The period-end amount outstanding;
     the average amount outstanding during the period; and
     the maximum month-end amount outstanding.\216\

    \216\ Section VII refers to Rule 9-04.11 for categories of 
short-term borrowings. The correct reference, however, is Rule 9-
03.13. Registrants often provide the average short-term borrowings 
disclosures as part of their average balance sheet disclosures.

Section VII also calls for disclosure, by category of borrowing, of the 
weighted average interest rates at period-end and during the period, 
and the general terms of the borrowing. The disclosures in Section VII 
need not be provided for categories of short-term borrowings for which 
the average balance outstanding during the period was less than 30% of 
stockholders' equity at the end of the period.
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules 
and Accounting Standards
    Article 9 requires separate disclosure of the period-end balances 
of federal funds purchased and securities sold under agreements to 
repurchase, commercial paper and other short-term borrowings on the 
face of the financial statements or in the footnotes.\217\ U.S. GAAP 
requires disclosure of period-end balances of significant categories of 
borrowings.\218\ U.S. GAAP also requires disclosures about repurchase 
agreements and securities lending transactions. For example, BHC 
registrants must reconcile the amount of the gross liability for 
repurchase agreements and securities lending transactions accounted for 
as secured borrowings to the net liability amount presented on the 
balance sheet.\219\
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    \217\ 17 CFR 210.9-03.
    \218\ ASC 942-470-45.
    \219\ ASC 860-30-50 and ASC 210-20-50 permit offsetting of 
derivatives, repurchase agreements and securities lending 
transactions in the financial statements. ASC 860-30-50 requires 
disclosure of gross and net liabilities related to these 
transactions.
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    The staff has observed that BHC registrants typically discuss their 
sources of funding and outstanding borrowings in their liquidity 
section of MD&A. In 2010, the Commission issued interpretive guidance 
on liquidity and capital resources disclosures that highlighted 
important trends and uncertainties related to liquidity for registrants 
to consider in their MD&A disclosures.\220\ The guidance noted as 
examples of trends and uncertainties the reliance on commercial paper 
or other short-term financing arrangements for liquidity and intra-
period variations in borrowings in circumstances where borrowings 
during the period are materially different than the period-end amounts. 
The guidance also specifically indicated that bank holding companies 
should consider additional MD&A disclosures, including their policies 
and practices for meeting applicable bank regulatory guidance on 
funding and liquidity risk management, or any policies and practices 
that differ from applicable bank regulatory guidance.
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    \220\ Commission Guidance on Presentation of Liquidity and 
Capital Resources Disclosures in Management's Discussion and 
Analysis, Release No. 33-9144 (Sept. 17, 2010) [75 FR 59894].
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    Regulation S-K also requires a discussion of off-balance sheet 
arrangements when the arrangements have or are reasonably likely to 
have a current or future effect on the registrant's financial 
condition, results of operations, liquidity, capital expenditures or 
capital resources that is material to investors.\221\ When these 
disclosures were adopted in 2003, the definition of ``off-balance sheet 
arrangement'' focused on the means through which registrants typically 
structure off-balance sheet transactions or otherwise incur risks of 
loss that are not fully transparent to investors. For example, a 
registrant sometimes provides financial support as part of its 
involvement in activities of an unconsolidated entity.\222\ Commenters 
on the Regulation S-K Concept Release expressed differing views about 
whether the Commission should retain, expand or eliminate this 
disclosure item. One commenter recommended expanding it to include 
detailed information about the underlying assets of asset-backed 
securities.\223\ Commenters often cited redundancy with disclosures 
required by U.S. GAAP as the reason for eliminating the disclosure 
requirement.\224\ We are considering whether there are disclosures 
about off-balance sheet arrangements specific to BHC registrants that 
investors find important. Further, we are considering whether 
disclosures about off-balance sheet arrangements should be considered 
for other registrants in the financial services industry.
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    \221\ 17 CFR 229.303(a)(4).
    \222\ Disclosure in Management's Discussion and Analysis about 
Off-Balance Sheet Arrangements and Aggregate Contractual 
Obligations, Release No. 33-8182 (Jan. 28, 2003) [68 FR 5982] (Off-
Balance Sheet and Contractual Obligations Adopting Release).
    \223\ CFA Institute Letter.
    \224\ See, e.g., Chamber Letter; SIFMA Letter; KPMG LLP; Davis 
Polk Letter; and Financial Services Roundtable Letter.
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    Short-term borrowing levels and deposit levels also factor into the 
LCR calculation, because it is based on projected cash outflows during 
a 30-day stress period.\225\ Banking organizations subject to the LCR 
requirement typically disclose whether or not they comply with the rule 
in their Commission filings. We are considering whether to require 
additional quantitative and qualitative disclosures about funding and 
liquidity risks.
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    \225\ See LCR Adopting Release.

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[[Page 12777]]

ii. Information Available Outside of SEC Filings
    Banking organizations must report the year-end balance, quarterly 
average balances and interest expense on federal funds purchased and 
securities sold under agreements to repurchase, and other borrowings in 
their Call Reports.\226\ Global systemically important bank holding 
companies (GSIBs) are subject to a risk-based capital surcharge in 
excess of their minimum capital requirements.\227\ One of the methods 
for calculating the risk-based surcharge focuses on a GSIB's reliance 
on short-term wholesale funding because reliance on this type of 
funding may cause vulnerability to runs and fire sales. Pillar 3 
disclosures discuss risks related to borrowings and liquidity and 
include borrowings as an input to certain disclosure requirements, 
including the LCR and GSIB risk-based capital surcharge.
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    \226\ Year-end balances are required to be reported on Call 
Report Schedule RC, Balance Sheet. Quarterly average balances are 
required to be reported on Call Report Schedule RC-K, Averages. 
Interest expense is required to be reported on Call Report Schedule 
RI, Income Statement.
    \227\ Regulatory Capital Rules: Implementation of Risk-Based 
Capital Surcharges for Global Systemically Important Bank Holding 
Companies (Aug. 14, 2015) [80 FR 157]. The surcharge became 
effective on January 1, 2016.
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Request for Comment
    74. Do the short-term borrowings disclosures called for by Guide 3 
provide investors with information upon which they base investment and 
voting decisions? Would such information otherwise be provided under 
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any 
particular issues that BHC registrants face in providing these 
disclosures or that investors or analysts face in utilizing these 
disclosures?
    75. Do Commission rules or U.S. GAAP require the same or similar 
short-term borrowing information as called for by Guide 3? If so, how 
is the information similar or dissimilar? Please provide a detailed 
comparison.
    76. What improvements to the existing short-term borrowings 
disclosures should we consider? For example, should BHC registrants 
discuss the degree of reliance on wholesale or short-term funding 
sources? Should they describe the nature, timing, and extent of 
volatile short-term funding? In suggesting improvements, please 
indicate whether BHC registrants would face any challenges in preparing 
and providing the disclosures.
    77. Are there disclosures about off-balance sheet arrangements in 
the financial services industry that investors find important? If so, 
which disclosures? Would such information otherwise be provided under 
Commission rules (e.g., Regulation S-K) or U.S. GAAP? If not, in what 
manner should these disclosures be provided?
    78. Are there quantitative and qualitative disclosures that would 
add transparency about ongoing liquidity risk exposure for BHC 
registrants? For example, should BHC registrants describe the liquidity 
risks arising from their assets, derivatives and off-balance-sheet 
activities? If so, what disclosures would be important for investors 
and in what manner should they be provided? For example, should we 
require these BHC registrants to disclose their compliance with and the 
calculation of their bank regulatory LCR?
    79. What non-GAAP financial measures do BHC registrants provide 
concerning short-term funding? Should we require BHC registrants to 
disclose any of these measures to enhance the comparability of 
information for investors?
    80. Do the short-term borrowings disclosures properly balance the 
benefits to investors and the costs to BHC registrants? If no, why?
    81. Should we consider requiring disclosure of a liquidity mismatch 
index (MMI) \228\ or other measure of maturity mismatch for BHC 
registrants? If so, what measure would be useful for investors in 
making investment decisions?
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    \228\ MMI is a liquidity measure proposed by researchers from 
the National Bureau of Economic Research in 2011 to measure the 
mismatch between the market liquidity of assets and the funding 
liquidity of liabilities. See Brunnermeier, M.K., G. Gorton, and A. 
Krishnamurthy, 2011, Risk Topography, NBER Macroeconomics Annual., 
available at https://www.nber.org/chapters/c12412.
---------------------------------------------------------------------------

    82. Should we consider requiring that the short-term borrowings 
disclosures called for by Guide 3 be presented in a structured data 
format, such as XBRL, to facilitate investor comparison of data across 
BHC registrants and usability of the disclosures? Why or why not? If 
so, what elements of these disclosures should be tagged so that they 
can be extracted in a structured data format?
    83. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    84. Should the categories used for disaggregation of these Guide 3 
disclosures be closely aligned with those called for in Call Reports 
and other U.S. banking agency regulatory filings? If so, which ones and 
why?
    85. Should the short-term borrowings disclosures called for by 
Guide 3 be extended to other registrants, such as those engaged in the 
financial services industry? If so, which registrants and which 
disclosures?

H. Potential New Disclosures

    As originally published, Guide 3 focused on eliciting what the 
Division of Corporation Finance believed at the time to be the most 
significant statistical disclosures relating to the operations of bank 
holding companies. Over the intervening four decades, and particularly 
following the passage of the Gramm-Leach-Bliley Act,\229\ which 
repealed certain provisions of the Glass-Steagall Act,\230\ the scope 
of activities permitted to bank holding companies has expanded 
significantly. For example, today, some bank holding companies and 
financial holding companies may engage in operations involving physical 
commodities, insurance, investment management, asset management and 
broker-dealer activities that were limited or impermissible at the time 
of Guide 3's initial publication.
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    \229\ Public Law 106-102, 113 Stat. 1338 (1999).
    \230\ Public Law 73-66, 48 Stat. 162 (1933). The Glass-Steagall 
Act contained provisions limiting commercial bank securities 
activities and affiliations with investment banks. The Gramm-Leach-
Blilely Act repealed those anti-affiliation provisions and permitted 
banks to affiliate with companies engaged in a broad range of 
financial activities.
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    We are considering whether and to what extent refinement of Guide 3 
to account for the shifting landscape of the financial industry would 
yield important information for investors in their evaluation of BHC 
registrants. Part of this shifting landscape is supervisory or 
regulatory in nature. For example, in recent years CCAR, DFAST and 
resolution planning were implemented for certain large banking 
organizations.\231\ Consequently, we are seeking input about the 
effects of regulation on BHC registrants, including with regard to 
their operations, capital structures, dividend policies and treatment 
in bankruptcy.
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    \231\ Banking organizations with $50 billion or more in total 
consolidated assets are subject to the full scope of CCAR and DFAST. 
DFAST testing and disclosure requirements are significantly reduced 
for banking organizations with $10 billion to $50 billion in total 
consolidated assets.
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    We also are mindful of how our disclosure regime interacts with the 
various disclosure requirements of the U.S. banking agencies. In some 
cases, our disclosure regime and the regimes of the U.S. banking 
agencies require different types of information or present information 
in inconsistent ways; in

[[Page 12778]]

other cases, the various regimes may overlap with or duplicate one 
another. Guide 3 was originally intended to conform to the information 
required in reports to the U.S. banking agencies to the ``fullest 
extent possible, consistent with the public interest and the protection 
of investors,'' \232\ although gaps between the two regimes have formed 
over the decades. We are interested in understanding the 
interrelationships between the securities and banking disclosure 
regimes, how they differ and whether and how the existing banking 
disclosures can be leveraged to improve our own disclosure regime. We 
are cognizant of the fact that securities and banking disclosures serve 
different purposes in light of the different missions of their 
respective regulatory regimes. Where our disclosure regime serves our 
core missions of investor protection, fair, orderly, and efficient 
markets, and capital formation, the U.S. banking agency regulatory 
regime is premised largely on ensuring safety and soundness of banking 
organizations.
---------------------------------------------------------------------------

    \232\ Guide 3 Release.
---------------------------------------------------------------------------

    Guide 3 disclosures currently focus on interest-earning and 
interest-bearing activities and do not address other revenues that a 
BHC registrant may earn. Non-interest income represented more than 35% 
of total net operating revenue for all FDIC-insured institutions for 
the first three quarters of 2016.\233\ Examples of non-interest income 
include trading revenue, fee income from deposits and servicing income. 
Given the significance of non-interest income, it is important for 
investors to understand the reasons for its fluctuations. Non-interest 
income, generally, is a material component of net operating revenue for 
large FDIC-insured institutions. Trading revenues accounted for more 
than 24% of net operating revenues for FDIC-insured institutions, with 
more than $250 billion in assets for the first three quarters of 2016, 
but accounted for approximately 1% of net operating revenues for FDIC-
insured institutions with less than $1 billion in total assets.\234\ 
Banking organizations must report disaggregated information about their 
noninterest income activity in Call Reports.\235\ We are considering 
whether to expand Guide 3 to include disclosures on non-interest income 
activities.
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    \233\ See FDIC Quarterly.
    \234\ Id.
    \235\ Schedule RI-E, RC-P, and RC-T
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    We also are considering whether or not more prescriptive 
disclosures not related specifically to the financial statements would 
be important for investors. An example is risk management disclosure. 
In May 2012, the Financial Stability Board established the EDTF with 
the goal of improving risk disclosures in the financial services 
industry. In October 2012, the EDTF published a report containing a 
number of recommendations for enhancing risk disclosures.\236\ Since 
2012, the EDTF has published additional recommendations for enhancing 
disclosures and status reports on the implementation of the 2012 
recommendations.\237\ Several of the EDTF's recommended disclosures are 
already addressed by Commission rules, accounting standards or U.S. 
banking agency disclosure requirements.\238\ Some of the EDTF's 
recommendations are intended to help investors better compare banking 
organizations but would require more standardized or detailed 
disclosures than currently required by either Commission rules or U.S. 
GAAP.\239\ Comparability was a fundamental principle identified by the 
EDTF for risk disclosures, with a focus on global comparability. We are 
considering whether industry-specific rules or guidance for these non-
financial statement disclosures are needed to elicit more 
comparability.
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    \236\ Report of the Enhanced Disclosure Task Force to the 
Financial Stability Board, Enhancing the Risk Disclosures of Banks 
(Oct. 29, 2012), available at https://www.financialstabilityboard.org/publications/r_121029.pdf.
    \237\ See, e.g., the EDTF's position on the disclosure of 
emergency liquidity assistance (Dec. 7, 2015), available at https://www.fsb.org/2015/12/edtfs-position-on-the-disclosure-of-emergency-liquidity-assistance/.
    \238\ See, e.g., Items 305 and 503(c) of Regulation S-K and ASC 
815 for disclosures about derivatives and Pillar 3 for disclosures 
about risk-weighted assets.
    \239\ For example, the EDTF recommends a quantitative analysis 
of the components of the liquidity reserve held to meet liquidity 
needs, ideally by providing averages as well as period-end balances. 
The description would be complemented by an explanation of possible 
limitations on the use of the liquidity reserve maintained in any 
material subsidiary or currency.
---------------------------------------------------------------------------

    Finally, we are considering whether our disclosure regime should 
better utilize technological advances that have occurred over the years 
that allow information to be provided in a more accessible manner. For 
example, interactive data allows users to search disclosure documents 
and extract specific information and compare it to information from 
other companies, performance in past years and industry averages. 
Commission rules require registrants to provide their financial 
statements, including notes and financial statement schedules, in 
interactive data format using eXtensible Business Language Reporting 
(XBRL) by filing them with the Commission and posting them on their 
corporate Web sites.\240\ Commission rules do not require Guide 3 
disclosures to be submitted in XBRL format.
---------------------------------------------------------------------------

    \240\ Regulation S-K Item 601(b)(101) and Regulation S-T Item 
405. 17 CFR 229.601(b)(101) and 17 CFR 232.405.
---------------------------------------------------------------------------

Request for Comment
    86. Are there activities in which BHC registrants engage that are 
not covered by Guide 3 about which we should require disclosure? For 
example, should we require disclosure, in addition to that already 
required by accounting standards, about commodities, asset management 
or broker-dealer activities? If so, what information is important for 
investors and what challenges, if any, would BHC registrants face in 
preparing and providing it? What thresholds should trigger any 
disclosure requirements we consider?
    87. Are there additional disclosures, either potential new 
disclosures or disclosures required by other regimes, not already 
discussed in this request for comment that we should consider for BHC 
registrants that would be important for investors? If so, what 
disclosures and how are they similar or dissimilar to the disclosures 
called for by Guide 3? What challenges, if any, would BHC registrants 
face in preparing and providing them?
    88. Are there other Commission rules or disclosure guidance we 
should consider as part of this project that are not already discussed 
in this request for comment?
    89. Should we require disclosures about non-interest income and/or 
non-interest expense for BHC registrants? If so, what disclosures 
should we require and how should these disclosures be presented? For 
example, should we require statistical disclosures about trading 
revenue?
    90. Do the current distinctions between Guide 3 disclosures and the 
Call Reports and other bank regulatory filings enhance investor 
understanding or contribute to investor confusion? Please indicate 
which distinctions enhance investor understanding versus contribute to 
investor confusion and why.
    91. The Dodd-Frank Act requires bank holding companies with total 
consolidated assets of $50 billion or more and nonbank financial 
companies designated by the Financial Stability Oversight Council for 
supervision by the FRB to periodically submit resolution plans to the 
FRB and the FDIC.\241\ The plans describe the companies' strategies

[[Page 12779]]

for rapid and orderly resolution in the event of material financial 
distress or failure.\242\ The plans contain a confidential section and 
a section that the FRB and FDIC make available to the public. Should we 
require the disclosure in Commission filings of information related to 
the resolution plans? If so, what types of information should be 
included and to what extent should BHC registrants describe their 
plans? What challenges, if any, would BHC registrants face in preparing 
and providing this information?
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    \241\ Dodd-Frank Act Sec.  165(d).
    \242\ See https://www.federalreserve.gov/bankinforeg/resolution-plans.htm and https://www.fdic.gov/regulations/reform/resplans/.
---------------------------------------------------------------------------

    92. In recent years, BHC registrants have become subject to many 
new bank regulatory and capital requirements, including pursuant to the 
Dodd-Frank Act. Should we specifically require BHC registrants to 
discuss the effects, when material, of such regulations on their 
business, financial condition and results of operations? For example, 
should we require disclosure of the effects of these regulations on 
their dividend policy or disclosure of an estimate of the costs of such 
regulations? Why or why not?
    93. Should we require disclosure that summarizes the inputs and 
results of the various stress testing scenarios that bank holding 
companies perform? For example, should we require disclosures related 
to DFAST and its results. Why or why not?
    94. Should we require any of the disclosures recommended in the 
EDTF report that are not addressed specifically by Commission rules or 
U.S. GAAP? If so, which ones? For example, should a reconciliation of 
risk-weighted assets at the beginning and ending of the period be 
disclosed?
    95. For disclosure areas already addressed by Commission rules or 
U.S. GAAP, should we consider any EDTF recommendations that could 
potentially elicit additional or better information? If so, which ones?
    96. Should we expand the scope of our XBRL requirements to apply to 
the Guide 3 statistical tabular disclosures to facilitate investor 
comparison of data across BHC registrants? Why or why not?
    97. If we require the Guide 3 tabular disclosures to be submitted 
in XBRL, are the current requirements for the format and elements of 
the tables suitable for tagging? If not, how should they be revised?
    98. Should we require disclosure of any of the information provided 
in Call Reports or other regulatory filings? If so, what information 
and why? How should the information be presented or included in a 
Commission filing? Should we require hyperlinks directly to the Call 
Reports or other regulatory filings that are available on third-party 
government Web sites? Should it be incorporated by reference?

III. Applicability of Disclosure Requirements

A. Applicability to Registrants Other Than Bank Holding Companies

    Some Commission disclosure requirements and guidance, including 
Guide 3, apply only to bank holding companies.\243\ The staff, however, 
has indicated that such disclosures should also be provided by other 
registrants with material lending and deposit activities.\244\ We are 
considering whether to expand the applicability of those disclosures 
and others discussed in this request for comment to other registrants. 
For example, marketplace lenders generally have material amounts of 
lending activities and may be exposed to some of the same risks as bank 
holding companies.\245\ Insurance companies and real estate investment 
trusts are examples of registrants that also may have material 
activities in the disclosure areas discussed in this request for 
comment. Typically registrants in those industries have material 
investment portfolios and in some cases have material amounts of 
lending activities. Therefore, we are considering whether the 
disclosures discussed in this request for comment should employ an 
activity-based scope rather than a narrow industry-based scope. For 
example, using an activity-based approach, the disclosures called for 
by Section II and certain aspects of Section I of Guide 3 could be 
required to the extent that investments are material to a registrant's 
operations, whether or not the registrant is a bank holding company.
---------------------------------------------------------------------------

    \243\ General Instruction 1 to Guide 3 states that the guide 
applies to bank holding company Securities Act registration 
statements for which financial statements are required and to bank 
holding company registration statements on Form 10, proxy and 
information statements relating to mergers, consolidations, 
acquisitions and similar matters and reports filed on Form 10-K. 
Rule 9-01 of Regulation S-X indicates that Article 9 applies to 
consolidated financial statements filed for bank holding companies 
and to any financial statements of banks that are included in 
filings with the Commission.
    \244\ See SAB 11:K.
    \245\ Areya Aranoff, ``BankThink Line Between Banks and 
Marketplace Lenders Thinner than You Think.'' American Banker, March 
11, 2016, available at https://www.americanbanker.com/bankthink/line-between-banks-and-marketplace-lenders-thinner-than-you-think-1079840-1.html.
---------------------------------------------------------------------------

Request for Comment
    99. Should the disclosures called for by Guide 3 apply to 
registrants other than BHC registrants in the financial services 
industry? Why or why not? If so, which categories of non-BHC 
registrants should we consider?
    100. Should Guide 3 employ an activity-based approach? If so, how 
should the disclosures be triggered?
    101. Some Guide 3 disclosures, such as short-term borrowings, 
employ bright-line percentages or dollar amount thresholds to trigger 
disclosures. While the use of thresholds provides BHC registrants with 
certainty and promotes consistency, it does not allow BHC registrants 
to apply judgment to all facts and circumstances. Would employing a 
principles-based approach instead of using specific quantitative 
thresholds improve the effectiveness of the disclosures? Why or why 
not? What practical issues might arise if registrants apply judgment?

B. Applicability to Foreign Registrants

    Foreign registrants that qualify as foreign private issuers \246\ 
may present their financial statements in accordance with any of the 
following:
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    \246\ ``Foreign private issuers'' are foreign issuers (other 
than foreign governments) except issuers meeting the following 
conditions: (1) More than 50% of their outstanding voting securities 
are directly or indirectly owned of record by residents of the 
United States, and (2) any of the following: (a) The majority of 
their executive officers or directors are U.S. citizens or 
residents, (b) more than 50% of their assets are located in the 
United States, or (c) their businesses are administered principally 
in the United States. Securities Act Rule 405 and Exchange Act Rule 
3b-4(c). 17 CFR 230.405 and 17 CFR 240.3b-4(c).
---------------------------------------------------------------------------

     U.S. GAAP;
     another comprehensive body of accounting with 
reconciliation to U.S. GAAP; or
     IFRS as issued by the IASB without reconciliation to U.S. 
GAAP.\247\
---------------------------------------------------------------------------

    \247\ See Item 17(c) of Form 20-F.
---------------------------------------------------------------------------

    Foreign registrants that do not qualify as foreign private issuers 
must present their financial statements in accordance with U.S. GAAP 
and must use the same registration and reporting forms as domestic 
registrants. The staff has observed that most foreign registrants that 
are banking organizations meet the foreign private issuer definition 
and file their annual reports on Form 20-F or Form 40-F. As a result, 
most of the Commission disclosure requirements described in Section II 
of this request for comment apply to them.\248\ Instruction

[[Page 12780]]

6 to Guide 3 indicates that the disclosures apply to these registrants 
to the extent the information is available or can be compiled without 
unwarranted or undue burden or expense. The staff has observed that 
foreign registrants that are banking organizations typically provide 
the Guide 3 disclosures.
---------------------------------------------------------------------------

    \248\ Instructions to Item 4 of Form 20-F indicate that the 
information specified in any industry guide that applies to the 
registrant must be furnished. Form 20-F Items 4, 5 and 11 require 
disclosures similar to Regulation S-K Items 101 (Description of 
business), 303 (MD&A) and 305 (Quantitative and qualitative 
disclosures about market risk). Form 40-F does not have a similar 
requirement, but the staff has observed that Canadian foreign 
private issuers typically provide Guide 3 disclosures in their Form 
40-F filings.
---------------------------------------------------------------------------

    Because the categories and classifications specified by Guide 3 are 
influenced heavily by U.S. banking regulation and U.S. GAAP, some 
categories and classifications may not be relevant for understanding 
their operations. In addition, the Commission accepted IFRS without 
reconciliation to U.S. GAAP, for foreign private issuers, only in the 
last ten years, and Guide 3 was last substantively updated more than 30 
years ago. Therefore, Guide 3 does not address the fact that some of 
its disclosures are not recognized concepts under IFRS. As a result, 
the staff has observed diversity in the manner in which foreign 
registrants that are banking organizations and file IFRS financial 
statements provide this information. For example, because nonaccrual is 
not a recognized concept under IFRS, the staff has observed disclosure 
of total impaired loans or disclosure of all past due loans in lieu of 
providing the nonaccrual loan disclosures called for by Item III.C.1 of 
Guide 3. Similarly, because the concept of TDRs is not recognized under 
IFRS, the staff has observed disclosure of all loan modifications, 
regardless of whether they were undertaken for credit risk management 
purposes or for commercial or other reasons.
    Further, Guide 3 does not address the differences between U.S. GAAP 
and IFRS, which are significant. For example, the IASB issued a new 
accounting standard in July 2014, IFRS 9, that will have a significant 
impact on the accounting and disclosures for financial instruments. 
This standard differs from the FASB's two new financial instruments 
standards, ASU 2016-01 and ASU 2016-13.\249\ One main difference is 
that IFRS 9 will require a 12-month expected credit loss measurement 
unless there has been a significant increase in credit risk, in which 
case it is lifetime, whereas U.S. GAAP will require only the lifetime 
expected credit loss measurement. Another difference is that IFRS 9 
will allow a registrant to make an election at initial recognition to 
present subsequent changes in fair value in other comprehensive income 
for particular investments in equity instruments that otherwise are 
measured at fair value through profit or loss. At the same time the 
IASB issued IFRS 9, it also amended IFRS 7 to increase the financial 
instruments disclosure requirements when IFRS 9 is effective. For 
example, after adoption of IFRS 9, the standard will require more 
disclosures about how registrants measure expected credit losses and 
assess changes in credit risk. There is still no concept of TDRs, but 
IFRS 7 will require disclosure about financial assets where contractual 
cash flows have been modified during the period.\250\
---------------------------------------------------------------------------

    \249\ IFRS 9, Financial Instruments, is effective for annual 
periods beginning on or after January 1, 2018 and permits early 
application. Both IFRS 9 and ASU 2016-13 eliminate the current 
incurred loss model, but each standard approaches the expected 
credit loss model differently.
    \250\ Id.
---------------------------------------------------------------------------

    We are considering generally the applicability of the Guide 3 
disclosures to foreign registrants that are banking organizations, as 
well as the accommodation provided to them if the information is not 
available or cannot be compiled without unwarranted or undue burden or 
expense. We also are considering whether IFRS accounting and disclosure 
requirements elicit disclosures that are duplicative of or 
substantially similar to those called for by Guide 3, or whether the 
disclosures called for by Guide 3 should be different for foreign 
registrants that are banking organizations. Since there are significant 
differences between U.S. GAAP and IFRS, we are considering whether 
investors in foreign registrants that are banking organizations and 
that prepare their financial statements in accordance with IFRS would 
lose any important information if we eliminated all duplicative or 
overlapping Guide 3 disclosures in favor of those in U.S. GAAP.
Request for Comment
    102. Should foreign registrants that are banking organizations 
provide the disclosures discussed in this request for comment? Why or 
why not?
    103. Is the information called for by Guide 3 generally available 
to foreign registrants that are banking organizations without 
unwarranted or undue burden or expense such that an accommodation 
should no longer be provided to these registrants? Why or why not?
    104. Does IFRS require the same or similar information as called 
for by Guide 3? If so, how is the information similar or dissimilar? 
Please provide a detailed comparison.
    105. What concepts or disclosures called for by Guide 3 are not 
recognized or contradict with IFRS? Please provide a detailed list.
    106. Would investors in foreign registrants that are banking 
organizations and that prepare their financial statements in accordance 
with IFRS lose any important information if we were to eliminate all 
Guide 3 disclosures that are duplicative of or overlap with current 
U.S. GAAP? If so, which information would be lost?
    107. While investors do not have experience with the disclosures 
that will be required by IFRS 9, is there information about financial 
instruments under an expected credit loss model that would be useful 
for investors in making investment and voting decisions? If so, please 
indicate which and whether registrants would face any challenges in 
preparing and providing the information?

C. Size Thresholds and Reporting Periods

    Guide 3 applies to all bank holding company registrants, regardless 
of size. However, Guide 3 calls for those registrants with less than 
$200 million in total assets or less than $10 million of equity to 
provide scaled disclosures in terms of the number of periods 
presented.\251\ Commission rules also make certain scaled disclosures 
available to registrants that meet the definition of smaller reporting 
company and emerging growth company. Because the number of registrants 
eligible for scaled disclosures under those definitions is larger than 
the number that are eligible for Guide 3 scaled disclosures, we are 
considering whether the disclosures called for by Guide 3 should be 
scaled further.
---------------------------------------------------------------------------

    \251\ General Instruction 3 to Guide 3 provides that registrants 
below the prescribed thresholds may provide disclosures for each of 
the past two fiscal years instead of each of the past three or five 
years.
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    Guide 3 currently calls for five years of loan portfolio and 
summary of loan loss experience data and three years of data for all 
other information.\252\ In addition, Guide 3 reporting periods include 
interim periods only when necessary.\253\ Regulation S-X generally 
requires two years of balance sheets and three years of income 
statements,\254\ except that smaller reporting companies may present 
only two years of income statements \255\ and emerging growth companies 
may present only two years of financial statements for initial public

[[Page 12781]]

offerings of common equity securities.\256\ In some instances, U.S. 
GAAP and/or Regulation S-X require similar disclosures to those 
specified in Guide 3, but for different periods. For example, Guide 3, 
Article 9 and U.S. GAAP all contain categorized investment portfolio 
disclosures, but Article 9 and U.S. GAAP \257\ require disclosures for 
the balance sheet periods presented, generally two years, while Section 
II.A of Guide 3 calls for three years.
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    \252\ Guide 3 originally called for five years of disclosures 
for all items, but the reporting periods were generally reduced in 
1980. 1980 Guide 3 Amendments Release.
    \253\ Instruction 3(d) of Guide 3.
    \254\ 17 CFR 210.3-01 and 3-02.
    \255\ 17 CFR 210.8-02.
    \256\ Securities Act Sec.  7(a)(2)(A).
    \257\ ASC 320-10-45.
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    Guide 3's five-year presentation of loan portfolio and allowance 
for loan losses data provides a basis for statistical trend analysis 
and identifies unusual or non-recurring events which may have affected 
the loan portfolio and its related provision for loan losses.\258\ 
Similarly, the selected financial data requirement in Item 301 of 
Regulation S-K \259\ that generally requires five years of information 
\260\ was designed to highlight historical trends in significant data 
relating to financial condition and results of operations over a five-
year period.\261\ We are considering whether the Guide 3 reporting 
periods, which generally are greater than most Commission disclosure 
requirements except for interim periods, facilitates trend analysis 
that investors rely upon or if the periods should be modified to be 
consistent with the requirements of Regulation S-X for both annual and 
interim reporting.
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    \258\ Information about nonperforming loans was originally 
proposed to cover a three-year period but was increased to five 
years because the staff believed the data would show trends 
indicative of management policies concerning non-performing loans. 
Guide 3 Release.
    \259\ 17 CFR 229.301.
    \260\ Smaller reporting companies are not required to present 
selected financial data. See Item 301(c) of Regulation S-K. Emerging 
growth companies are not required to present selected financial data 
for any period earlier than the earliest audited period presented in 
connection with their initial public offerings. See Securities Act 
Sec.  7(a)(2)(A) and Exchange Act Sec.  13(a).
    \261\ See Staff Report on Review of Disclosure Requirements in 
Regulation S-K (Dec. 2013) available at https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. See also 
Amendments to Annual Report Form, Related Forms, Rules, Regulations 
and Guides; Integration of Securities Acts Disclosure Systems, 
Release No. 33-6231 (Sept. 2, 1980) [45 FR 63630] (stating that 
``the Commission believes that five-year information is relevant 
primarily where it can be related to trends in the registrant's 
continuing operations'').
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Request for Comment
    108. Should the reporting periods called for by Guide 3 be 
modified, and if so, how? For example, should the Guide 3 reporting 
periods be reduced to match the Regulation S-X requirements and the 
scaled disclosure requirements for smaller reporting companies and 
emerging growth companies?
    109. Should the Guide 3 reporting periods explicitly include 
interim periods so investors receive the information more frequently 
than once a year?
    110. Should we eliminate the reporting period size threshold in 
Guide 3? Why or why not?
    111. What is the minimum number of periods an investor needs to 
analyze and comprehend changes in trends? Do investors need five years 
of information to analyze and comprehend fully changes in trends in 
asset quality and loan losses?
    112. If the reporting periods are reduced, should BHC registrants 
without reporting histories or publicly available financial information 
provide additional years of disclosures?

IV. Closing

    This request for comment is not intended to limit the scope of 
comments, views, issues or approaches to be considered. In addition to 
investors and registrants, the Commission welcomes comment from other 
market participants and particularly welcomes statistical, empirical 
and other data from commenters that may support their views and/or 
support or refute the views or issues raised.

    By the Commission.

    Dated: March 1, 2017.
Brent J. Fields,
Secretary.
[FR Doc. 2017-04329 Filed 3-6-17; 8:45 am]
 BILLING CODE 8011-01-P