[Federal Register Volume 76, Number 224 (Monday, November 21, 2011)]
[Notices]
[Pages 71968-71975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-29874]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Proposed Agency Information Collection Activities; Comment
Request
AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY: On June 15, 1984, the Office of Management and Budget (OMB)
delegated to the Board of Governors of the Federal Reserve System
(Board) its approval authority under the Paperwork Reduction Act (PRA),
pursuant to 5 CFR 1320.16, to approve of and assign OMB control numbers
to collection of information requests and requirements conducted or
sponsored by the Board under conditions set forth in 5 CFR part 1320
Appendix A.1. Board-approved collections of information are
incorporated into the official OMB inventory of currently approved
collections of information. Copies of the
[[Page 71969]]
Paperwork Reduction Act Submission, supporting statements and approved
collection of information instruments are placed into OMB's public
docket files. The Federal Reserve may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
that has been extended, revised, or implemented on or after October 1,
1995, unless it displays a currently valid OMB control number.
DATES: Comments must be submitted on or before December 12, 2011.
ADDRESSES: You may submit comments, identified by FR Y-9C by any of the
following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include docket
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
Additionally, commenters should send a copy of their comments to
the OMB Desk Officer--Shagufta Ahmed--Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235 725 17th Street NW., Washington, DC 20503
or by fax to (202) 395-6974.
FOR FURTHER INFORMATION CONTACT: A copy of the PRA OMB submission,
including the proposed reporting form and instructions, supporting
statement, and other documentation will be placed into OMB's public
docket files, once approved. These documents will also be made
available on the Federal Reserve Board's public Web site at: http://www.federalreserve.gov/boarddocs/reportforms/review.cfm or may be
requested from the agency clearance officer, whose name appears below.
Federal Reserve Board Clearance Officer--Cynthia Ayouch--Division
of Research and Statistics, Board of Governors of the Federal Reserve
System, Washington, DC 20551 ((202) 452-3829) Telecommunications Device
for the Deaf (TDD) users may contact (202) 263-4869, Board of Governors
of the Federal Reserve System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
Request for Comment on Information Collection Proposals
The following information collections, which are being handled
under this delegated authority, have received initial Board approval
and are hereby published for comment. At the end of the comment period,
the proposed information collections, along with an analysis of
comments and recommendations received, will be submitted to the Board
for final approval under OMB delegated authority. Comments are invited
on the following:
a. Whether the proposed collection of information is necessary for
the proper performance of the Federal Reserve's functions; including
whether the information has practical utility;
b. The accuracy of the Federal Reserve's estimate of the burden of
the proposed information collection, including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Proposal to approve under OMB delegated authority the revision,
without extension, of the following report:
Report title: Financial Statements for Bank Holding Companies.\1\
---------------------------------------------------------------------------
\1\ This family of reports also contains the following mandatory
reports, which are not being revised: The Parent Company Only
Financial Statements for Large Bank Holding Companies (FR Y-9LP),
the Parent Company Only Financial Statements for Small Bank Holding
Companies (FR Y-9SP), the Financial Statements for Employee Stock
Ownership Plan Bank Holding Companies (FR Y-9ES), and the Supplement
to the Consolidated Financial Statements for Bank Holding Companies
(FR Y-9CS).
---------------------------------------------------------------------------
Agency form number: FR Y-9C.
OMB control number: 7100-0128.
Frequency: Quarterly.
Reporters: Bank holding companies.
Estimated annual reporting hours: 192,561 hours.
Estimated average hours per response: 47.15 hours.
Number of respondents: 1,021.
General description of report: This information collection is
mandatory (12 U.S.C. 1844(c)). Confidential treatment is not routinely
given to the data in these reports. However, confidential treatment for
the reporting information, in whole or in part, can be requested in
accordance with the instructions to the form, pursuant to sections
(b)(4), (b)(6), and (b)(8) of FOIA (5 U.S.C. 522(b)(4), (b)(6), and
(b)(8)).
Abstract: The FR Y-9C consists of standardized financial statements
similar to the Federal Financial Institutions Examination Council
(FFIEC) Consolidated Reports of Condition and Income (Call Reports)
(FFIEC 031 & 041; OMB No. 7100-0036) filed by commercial banks. The FR
Y-9C collects consolidated data from bank holding companies (BHCs). The
FR Y-9C is filed by top-tier BHCs with total consolidated assets of
$500 million or more. (Under certain circumstances defined in the
General Instructions, BHCs under $500 million may be required to file
the FR Y-9C.) The Federal Reserve proposes several changes to the FR Y-
9C reporting requirements to better understand BHCs' risk exposures, to
better support macroeconomic analysis and monetary policy purposes, and
to collect certain information prescribed by changes in accounting
standards.
Current Actions: The Federal Reserve proposes the following
revisions and clarifications to the FR Y-9C effective June 30, 2012:
(1) Add a section to Schedule HC-C, Loans and Lease Financing
Receivables, to collect information on the allowance for loan and lease
losses by loan category; (2) add two data items to Schedule HC-P, 1-4
Family Residential Mortgage Banking Activities, to collect the amount
of representation and warranty reserves for 1-4 family residential
mortgage loans sold; (3) add a data item to Schedule HC-N, Past Due and
Nonaccrual Loans, Leases, and Other Assets, to collect the outstanding
balance of purchased credit impaired loans by past due and nonaccrual
status; (4) add a schedule to Schedule HC-U, Loan Origination Activity
in Domestic Offices, to collect information on loan originations; and
(5) modify the reporting instructions to clarify the reporting and
accounting treatment of specific valuation allowances.
For the June 30, 2012, report date, institutions may report
reasonable
[[Page 71970]]
estimates for any new or revised data items in their FR Y-9C report for
if the information is not readily available.
Proposed Revisions--FR Y-9C
A. Proposed Revisions Related to Call Report Revisions
The Federal Reserve proposes to make the following revisions to the
FR Y-9C to parallel proposed changes to the Call Report. In the past,
BHCs have commented that changes should be made to the FR Y-9C in a
manner consistent with changes to the Call Report to reduce reporting
burden.
A.1 Allowance for Loan and Lease Losses by Loan Category (ALLL)
In July 2010, the Financial Accounting Standards Board (FASB)
published Accounting Standards Update No. 2010-20, Disclosures about
the Credit Quality of Financing Receivables and the Allowance for
Credit Losses (ASU 2010-20), which amended Accounting Standards
Codification (ASC) Topic 310, Receivables. The main objective of the
update was to provide financial statement users with greater
transparency about an entity's allowance for credit losses and the
credit quality of its financing receivables. Examples of financing
receivables included loans, credit cards, notes receivable, and leases
(other than an operating lease). The update was intended to provide
additional information to assist financial statement users in assessing
an entity's credit risk exposures and evaluating the adequacy of its
allowance for credit losses.
To achieve its main objective, ASU 2010-20 requires, in part, that
an entity disclose by portfolio segment ``[t]he balance in the
allowance for credit losses at the end of each period disaggregated on
the basis of the entity's impairment method'' and ``[t]he recorded
investment in financing receivables at the end of each period related
to each balance in the allowance for credit losses, disaggregated * * *
in the same manner.'' \2\ As defined in the ASC Master Glossary, a
portfolio segment is ``[t]he level at which an entity develops and
documents a systematic methodology to determine its allowance for
credit losses.'' For each portfolio segment, the disaggregation based
on impairment method requires separate disclosure of the allowance and
the related recorded investment amounts for financing receivables
collectively evaluated for impairment, individually evaluated for
impairment, and acquired with deteriorated credit quality.\3\ This
disaggregated disclosure requirement is effective for public entities
for the first interim or annual reporting period ending on or after
December 15, 2010, and for nonpublic entities for annual reporting
periods ending on or after December 15, 2011.
---------------------------------------------------------------------------
\2\ ASC paragraphs 310-10-51-11B(g) and (h).
\3\ ASC paragraph 310-10-51-11C. Allowances for amounts
collectively evaluated for impairment are determined under ASC
Subtopic 450-20, Contingencies-Loss Contingencies (formerly FASB
Statement No. 5, ``Accounting for Contingencies''), allowances for
amounts individually evaluated for impairment are determined under
ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement
(formerly FASB Statement No. 114, ``Accounting by Creditors for
Impairment of a Loan''), and allowances for loans acquired with
deteriorated credit quality are determined under ASC Subtopic 310-
30, Receivables-Loans and Debt Securities Acquired with Deteriorated
Credit Quality (formerly AICPA Statement of Position 03-3,
``Accounting for Certain Loans or Debt Securities Acquired in a
Transfer'').
---------------------------------------------------------------------------
Consistent with the ASU 2010-20 disclosure requirements described
above, the Federal reserve proposes to revise the June 2012 FR Y-9C
report to capture disaggregated detail of institutions' allowances for
loan and lease losses (ALLL) and related recorded investments for loans
and leases from institutions with $1 billion or more in total assets.
Disaggregated data would be reported for key loan categories for which
the recorded investments are reported in Schedule HC-C, Loans and Lease
Financing Receivables. The Federal Reserve also proposes to collect
this information on the basis of impairment method for each loan
category. To the extent that an institution uses multiple impairment
methods for a given loan category, the institution would report the
ALLL and recorded investment for each applicable impairment method for
that loan category. The Federal Reserve believes that the use of key
loan categories reported on Schedule HC-C for the proposed new
disaggregated disclosures is consistent with the meaning of the term
portfolio segment in ASU 2010-20 and with the banking agencies'
supervisory guidance on ALLL methodologies.\4\ More specifically, the
Federal Reserve proposes to collect from institutions with $1 billion
or more in total assets disaggregated allowance and recorded investment
data on the basis of impairment method (collectively evaluated for
impairment,\5\ individually evaluated for impairment, and acquired with
deteriorated credit quality) for following loan categories:
---------------------------------------------------------------------------
\4\ See the banking agencies' July 2001 ``Policy Statement on
Allowance for Loan and Lease Losses Methodologies and Documentation
for Banks and Savings Institutions'' at http://www.federalreserve.gov/boarddocs/srletters/2001/SR0117a1.pdf.
\5\ For loans collectively evaluated for impairment, an
institution would also report the amount of any unallocated portion
of its ALLL.
---------------------------------------------------------------------------
Construction, land development, and other land loans;
Revolving, open-end loans secured by 1-4 family
residential properties and extended under lines of credit;
Closed-end loans secured by 1-4 family residential
properties;
Loans secured by multifamily (5 or more) residential
properties;
Loans secured by nonfarm nonresidential properties; \6\
---------------------------------------------------------------------------
\6\ The first five loan categories would be reported on a
domestic office only basis.
---------------------------------------------------------------------------
Commercial and industrial loans;
Credit card loans to individuals for household, family,
and other personal expenditures;
All other loans to individuals for household, family, and
other personal expenditures; and
All other loans and all lease financing receivables.
Currently, the FR Y-9C report does not provide detail on the
components of the ALLL disaggregated by loan category in the manner
prescribed by ASU 2010-20. Rather, only the amount of the overall ALLL
is reported with separate disclosure of the total amount of the
allowance for loans acquired with deteriorated credit quality.\7\
Therefore, when conducting off-site evaluations of the level of an
individual institution's overall ALLL and changes therein, examiners
and analysts cannot determine whether the institution is releasing loan
loss allowances in some loan categories and building allowances in
others. Collecting more detailed ALLL information would allow the
Federal Reserve to more finely focus efforts related to the ALLL and
credit risk management and, in conjunction with past due and nonaccrual
data currently reported by loan category that are used in a general
assessment of an institution's credit risk exposures, to better
evaluate the appropriateness of its ALLL. As an example, it is
currently not possible to differentiate the ALLL allocated to
commercial real estate (CRE) loans from the remainder of the ALLL at
institutions with CRE concentrations. By collecting more detailed ALLL
information, examiners and analysts would then better understand how
institutions with such concentrations are building or releasing
allowances, the extent of ALLL coverage in relation to their CRE
portfolios, and
[[Page 71971]]
how this might differ among institutions.
---------------------------------------------------------------------------
\7\ Credit card specialty banks and other institutions with a
significant volume of credit card receivables also disclose the
amount, if any, of ALLL attributable to retail credit card fees and
finance charges.
---------------------------------------------------------------------------
The proposed additional detail on the composition of the ALLL by
loan category would also be useful for analysis of the depository
institution system. As of June 30, 2011, institutions with $1 billion
or more in total assets, which would report the additional detail under
this proposal, held nearly 92 percent of the ALLLs held by all
institutions. More granular ALLL information would assist the Federal
Reserve in understanding industry trends related to the build-up or
release of allowances for specific loan categories. The information
would also support comparisons of ALLL levels by loan category,
including the identification of differences in ALLL allocations by
institution size. Understanding how institutions' ALLL practices and
allocations differ over time for particular loan categories as economic
conditions change may also provide insights that can be used to more
finely tune supervisory procedures and policies.
The Federal Reserve requests public comment on the degree to which
the proposed disaggregated detail of institutions' ALLLs corresponds to
institutions' current allowance methodologies, both with respect to the
key loan categories included in the proposal and the separate reporting
of allowance amounts on the basis of impairment method for each loan
category. In addition, comment is invited on the appropriateness of
including an item in the FR Y-9C report in which institutions would
report the amount of any unallocated portion of the ALLL for loans
collectively evaluated for impairment.\8\ To the extent that the
proposed information is not captured in institutions' automated data
collection systems, the Federal Reserve requests comment on
institutions' ability to begin to capture this ALLL and related
recorded investment information associated with outstanding loans.
---------------------------------------------------------------------------
\8\ The Federal Reserve notes that the table in ASC paragraph
310-10-55-7 illustrating the required disclosure by portfolio
segment of the end-of-period balance of the ALLL disaggregated on
the basis of impairment method and the end-of-period recorded
investment in financing receivables related to each ALLL balance
includes an unallocated portion of the ALLL.
---------------------------------------------------------------------------
A.2 Loan Origination Activity
As highlighted by the recent financial crisis and its aftermath,
the ability to assess credit availability is a key consideration for
monetary policy, financial stability, and the supervision and
regulation of the banking system. However, the information currently
available to policymakers both within and outside the Federal Reserve
is insufficient to accurately monitor the extent to which depository
institutions are providing credit to households and businesses. In its
current form, the FR Y-9C report collects data on the amount of loans
to both households and businesses that are outstanding on institutions'
books at the end of each quarter. However, the underlying flow of loan
originations cannot be deduced from these quarter-end data owing to the
myriad of factors and banking activities (other than charge-offs for
which data are reported) that routinely affect the amount of
outstanding loans held by institutions, including activities such as
loan paydowns, extensions, purchases and sales, securitizations, and
repurchases. Direct reporting of loan originations would allow the
Federal Reserve to isolate the flow of credit creation from the effects
of these other banking activities.
Economic research points to a crucial link between the availability
of credit and macroeconomic outcomes.\9\ For example, the rapid
contraction in both total loans held on institutions' balance sheets
and in credit lines held off their balance sheets in the volatile
period following the collapse of Lehman Brothers in the fall of 2008
likely contributed to the depth of the economic recession as well as to
the subsequent weakness in the recovery in economic activity. As a
result, encouraging the expansion of banking organization loan supply
was a primary goal of most of the emergency liquidity facilities
established during the height of the crisis and of the Troubled Asset
Relief Program (TARP).\10\ Likewise, numerous authors have shown a
relationship between bank lending and changes in bank capital.\11\ For
example, during the early 1990s, lending was also significantly
depressed while banking organizations' capital cushions were being
rebuilt, leading some analysts to describe the period as a ``credit
crunch'' that resulted in a materially slower recovery in economic
activity.
---------------------------------------------------------------------------
\9\ See, for example, A. K. Kashyap and J. C. Stein (2000),
``What Do a Million Observations on Banks Say About the Transmission
of Monetary Policy,'' The American Economic Review, Vol. 90, No. 3,
pages 407-428. See also Michael Woodford, ``Financial Intermediation
and Macroeconomic Analysis,'' Journal of Economic Perspectives, Fall
2010, volume 24, issue 4, pages 21-44.
\10\ Chairman Ben S. Bernanke, ``Troubled Asset Relief Program
and the Federal Reserve's liquidity facilities,'' Testimony before
the Committee on Financial Services, U.S. House of Representatives,
November 18, 2008, at http://www.federalreserve.gov/newsevents/testimony/bernanke20081118a.htm.
\11\ See, for example, Joe Peek and Eric Rosengren (1995), ``The
Capital Crunch: Neither a Borrower nor a Lender Be,'' Journal of
Money, Credit and Banking, volume 27(3), pages 625-638, August. See
also Ben Bernanke and Cara Lown (1991), ``The Credit Crunch,''
Brookings Papers on Economic Activity, 2:1991, pages 205-239.
---------------------------------------------------------------------------
However, the lack of data on loan originations made it very
difficult for policymakers to assess the sources of the steep declines
in outstanding loans and credit lines during the recent crisis and
during the early 1990s ``credit crunch.'' In fact, a fall in
outstanding loans could be driven by reduced demand for credit, reduced
supply of credit by banking organizations, or both. Looking only at
changes in outstanding loan balances can give misleading signals and
mask important shifts in the supply of, and demand for, credit.
Policymakers may react differently in each of these cases.
The sources of loan growth--such as whether loans were made under
commitment or not under commitment--also contain important insights for
those monitoring financial stability or developing macroprudential
regulatory policies.\12\ As observed in the fall of 2008, strong loan
growth that is driven primarily by customers drawing down funds from
preexisting lending commitments can be a sign of stresses in financial
markets, and therefore a signal that the economy could be slowing down.
In contrast, strong growth in credit that includes robust extensions to
new customers could signal a broad pickup in demand for financing and
hence renewed economic growth, or it could suggest that institutions
have eased their lending standards. Accordingly, rapid loan growth can
be an important indicator of the safety and soundness of individual
institutions.\13\ Loan origination data, if collected from depository
institutions, would better identify when such developments warrant
greater supervisory scrutiny.
---------------------------------------------------------------------------
\12\ Moritz Schularick and Alan M. Taylor, ``Credit Booms Gone
Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-
2008,'' 2009, National Bureau of Economic Research, Inc., NBER
Working Papers: 15512.
\13\ William R. Keeton, ``Does Faster Loan Growth Lead to Higher
Loan Losses?'' Federal Reserve Bank of Kansas City Economic Review,
2nd Quarter 1999, volume 84, issue 2, pages 57-75, and Deniz Igan
and Marcelo Pinheiro, ``Exposure to Real Estate in Bank
Portfolios,'' Journal of Real Estate Research, January-March 2010,
volume 32, issue 1, pages 47-74.
---------------------------------------------------------------------------
Credit availability to small businesses is widely considered an
important driver of economic growth. As a result, the significant
contraction in business loans on institutions' books over the past
several years has generated calls from policymakers (and the public) to
better understand the credit flows of
[[Page 71972]]
small businesses.\14\ The collection of data on originations of loans
to businesses by the size of the original loan would provide a window
into the functioning of the important small business market.\15\
---------------------------------------------------------------------------
\14\ See Federal Reserve Board, Report to Congress on the
Availability of Credit to Small Business, 2007, at http://www.federalreserve.gov/boarddocs/rptcongress/smallbusinesscredit/sbfreport2007.pdf. See also testimony before the House Financial
Services Committee (May 18, 2010) at http://cybercemetery.unt.edu/archive/cop/20110401231854/http://cop.senate.gov/documents/testimony-051810-atkins.pdf and Congressional Oversight Panel
Oversight Report, The Small Business Credit Crunch and the Impact of
the TARP (May 13, 2010), at http://cybercemetery.unt.edu/archive/cop/20110402035902/http://cop.senate.gov/documents/cop-051310-report.pdf.
\15\ The Call Report and TFR currently collect the outstanding
amount of small dollar loans to businesses and farms where, for
loans to businesses, ``small dollar'' is defined as loans (not made
under commitments) that have original amounts of $1 million or less
and draws on commitments where the total commitment amount is $1
million or less.
---------------------------------------------------------------------------
In addition, if loan origination information were available, it
would also be valuable in designing, and assessing the effectiveness
of, government policies for depository institutions and other financial
markets. For instance, policymakers would be keenly attuned to whether,
and if so, to what extent, the changes to the capital and liquidity
requirements for large institutions that will be contained in
regulations implementing the Dodd-Frank Act and the international Basel
III agreement affect depository institution loan supply. Although these
new regulations would only directly affect a few dozen large banking
organizations, smaller banking organizations also may adjust their
lending policies in response to the changes at large banking
organizations.
Loan data currently available to the Federal Reserve provide
insufficient detail to accurately monitor credit creation by depository
institutions. The FR Y-9C report currently collects data on the
recorded amounts of a wide variety of loan categories in Schedule HC-C,
Loans and Lease Financing Receivables. Schedule HI-B, Part I, Charge-
Offs and Recoveries on Loans and Leases, collects the flow of gross
charge-offs and recoveries in many of the loan categories for which
recorded amounts are reported in Schedule HC-C. On Schedule HC-P, 1-4
Family Residential Mortgage Banking Activities (in Domestic Offices),
which was added to the FR Y-9C report in 2006, certain bank holding
companies report originations and purchases of residential mortgage
loans held for sale, but not originations of loans held for investment.
On Schedule HC-S, Servicing, Securitization, and Asset Sale Activities,
bank holding companies report the outstanding principal balance of
seven categories of loans sold and securitized for which the
institution has retained servicing or has provided recourse or other
credit enhancements.\16\ For these same seven loan categories, bank
holding companies also report the unpaid principal balance of loans
they have sold (not in securitizations) with recourse or other seller-
provided credit enhancements. No data exist for those loans bank
holding companies have sold without recourse or seller-provided credit
enhancements when servicing has not been retained.
---------------------------------------------------------------------------
\16\ The seven categories are (1) 1-4 family residential
mortgages, (2) home equity loans, (3) credit card loans, (4) auto
loans, (5) other consumer loans, (6) commercial and industrial
loans, and (7) all other loans, all leases, and all other assets
(commercial real estate loans, for example, are subsumed in this
category).
---------------------------------------------------------------------------
In contrast, savings associations currently report data on loan
originations, sales, and purchases in the Thrift Financial Report (TFR)
(OTS 1313; OMB No. 1550-0023). On TFR Schedule CF, Consolidated Cash
Flow Information, savings associations report by major loan category
the dollar amount of loans that were closed or disbursed, loans and
participations purchased, and loan sales during the quarter. In
addition, on TFR Schedule LD, Loan Data, savings associations report
the amount of net charge-offs, purchases, originations, and sales of
certain 1-4 family and multifamily residential mortgages with high
loan-to-value ratios.\17\
---------------------------------------------------------------------------
\17\ Savings associations will discontinue filing the TFR after
the December 31, 2011, report date, which means that these data, as
currently reported in the TFR, will no longer be collected going
forward.
---------------------------------------------------------------------------
The Federal Reserve proposes to begin collecting data on loan
originations because, as outlined in detail above, this information
would be of substantial benefit in light of the fact that the data
currently available for banking organizations are inadequate for
monetary policy and financial stability regulators to monitor and
analyze credit flows and because the proposed data will support the
Federal Reserve's supervisory efforts.
More specifically, the Federal Reserve proposes to collect
quarterly information on loan originations for several important loan
categories by introducing a new Schedule HC-U, Loan Origination
Activity (in Domestic Offices). Under this proposal, all institutions
would report in column A of Schedule HC-U, for certain loan categories
reported in Schedule HC-C, Loans and Lease Financing Receivables, the
quarter-end balance sheet amount for those loans originated during the
quarter that ended on the report date.\18\ Institutions with $1 billion
or more in total assets would also report, for relevant loan
categories, (1) the portion of this quarter-end amount that was
originated under a newly established commitment \19\ (column B of
Schedule HC-U) and (2) the portion that was not originated under a
commitment (column C of Schedule HC-U). In general, the additional data
that would be reported in columns B and C of Schedule HC-U by
institutions with $1 billion or more in total assets represent two ways
that institutions originate new loans, both of which affect the amounts
of loans on institutions' balance sheets.
---------------------------------------------------------------------------
\18\ For example, a loan was originated for $120,000 during the
quarter. As a result of principal payments received during the
quarter, the recorded amount of the loan as reported on the
institution's balance sheet (Schedule HC) and in the loan schedule
(Schedule HC-C) at quarter-end was $101,000. The institution would
report the $101,000 quarter-end recorded amount for this loan in
column A of proposed Schedule HC-U. In general, in reporting amounts
in column A, if a loan origination date is unknown, the reporting
institution would be instructed to use the date that the loan was
first booked by the institution.
\19\ A newly established commitment is one for which the terms
were finalized and the commitment became available for use during
the quarter that ended on the report date. A newly established
commitment also includes a commitment that was renewed during the
quarter that ended on the report date.
---------------------------------------------------------------------------
In the proposed originations schedule, all institutions would
report the amounts reported in Schedule HC-C, as of the quarter-end
report date that were originated during the quarter that ended on the
report date for the following loan categories:
1-4 family residential construction loans;
Other construction loans and all land development and
other land loans;
Revolving, open-end loans secured by 1-4 family
residential properties and extended under lines of credit;
Closed-end loans secured by first liens on 1-4 family
residential properties;
Closed-end loans secured by junior liens on 1-4 family
residential properties;
Loans secured by multifamily (5 or more) residential
properties;
Loans secured by nonfarm nonresidential properties; \20\
---------------------------------------------------------------------------
\20\ The first seven loan categories would be reported on a
domestic office only basis.
---------------------------------------------------------------------------
Loans to commercial banks and other depository
institutions in the U.S.;
Loans to banks in foreign countries;
Loans to finance agricultural production and other loans
to farmers;
Commercial and industrial loans to U.S. addressees with
original amounts of $1,000,000 or less;
[[Page 71973]]
Commercial and industrial loans to U.S. addressees with
original amounts of more than $1,000,000;
Consumer credit card loans;
Consumer automobile loans;
Other consumer loans; and
Loans to nondepository financial institutions.
In addition, for each of the preceding loan categories, except as
noted below, institutions with $1 billion or more in total assets would
separately disclose the portion of the quarter-end amount of loans
originated during the quarter that was originated under a newly
established commitment and the portion that was not originated under a
commitment. Closed-end loans secured by first liens on 1-4 family
residential properties, closed-end loans secured by junior liens on 1-4
family residential properties, and consumer automobile loans would be
excluded from both of these additional disclosures. Consumer credit
card loans and revolving, open-end loans secured by 1-4 family
residential properties and extended under lines of credit would be
excluded from the disclosure of loans not originated under a commitment
because it is assumed such loans are always extended under commitment.
Loan originations that were made under a newly established
commitment or a commitment that was renewed during the quarter are
likely to more closely reflect the current lending standards and loan
terms being applied by an institution, so an expansion or contraction
in this subset of loans is indicative of current supply and demand
conditions. In this regard, research has shown that loans not made
under a commitment are more sensitive to changes in monetary policy
than loans made under a commitment.\21\ In contrast, loans drawn under
previous commitments reflect lending standards and terms that were in
place at the time the loan agreements were reached. Hence, changes in
outstanding balances associated with previously committed lines are
more indicative of demand for funds from the firms that have these
lines, as institutions are less able to ration such credit.
---------------------------------------------------------------------------
\21\ Donald P. Morgan, ``The Credit Effects of Monetary Policy:
Evidence Using Loan Commitments,'' Journal of Money, Credit and
Banking, Vol. 30, No. 1 (Feb. 1998), pages 102-118.
---------------------------------------------------------------------------
As mentioned above, all savings associations, many of which are
small, have for many years reported in the TFR the dollar amount of
loans that were closed or disbursed, loans and participations
purchased, and loan sales during the quarter by major loan category.
Thus, the additional reporting burden of proposed Schedule HC-U may be
manageable for such institutions. Nevertheless, because bank holding
companies have not previously been required to report data pertaining
to loan originations for FR Y-9C reporting purposes, the Federal
Reserve recognizes that institutions' data systems may not at present
be designed to identify and capture data on loans originated during the
quarter that ended on the report date. The Federal Reserve requests
comment on the ability of institutions' existing loan systems to
generate the proposed data for Schedule HC-U, and if this information
is not currently available, how burdensome it would be to adapt current
systems to report origination data as proposed in Schedule HC-U. To the
extent that existing loan systems enable institutions to track data on
loans originated during the quarter by loan category in a different
manner than has been proposed, institutions are invited to suggest
alternative ways in which such origination data could be collected in
the FR Y-9C report and to explain how an alternative would meet the
Federal Reserve's data needs as described above in this section.
A.3 Past Due and Nonaccrual Purchased Credit Impaired Loans
The FR Y-9C report currently collects information regarding the
past due and nonaccrual status of loans, leases, and other assets in
Schedule HC-N. To determine whether an asset is past due for purposes
of completing this schedule, an institution must look to the borrower's
performance in relation to the contractual terms of the asset. Over the
past few years, there has been a substantial increase in the amount of
assets reported in Schedule HC-N as past due 90 days or more and still
accruing. At some institutions, a large portion of this increase is
related to loans subject to the accounting requirements set forth in
ASC Subtopic 310-30, Receivables--Loans and Debt Securities Acquired
with Deteriorated Credit Quality (formerly American Institute of
Certified Public Accountants Statement of Position 03-3, ``Accounting
for Certain Loans or Debt Securities Acquired in a Transfer''), i.e.,
purchased credit-impaired loans, that were acquired in business
combinations, including acquisitions of failed institutions, and other
transactions. Loans accounted for under ASC Subtopic 310-30 are
initially recorded at their purchase price (in a business combination,
fair value). To the extent that the cash flows expected to be collected
exceed the purchase price of the loans acquired and the acquiring
institution has sufficient information to reasonably estimate the
amount and timing of these cash flows, the institution recognizes
interest income using the interest method. Otherwise, the loans should
be placed in nonaccrual status.
Because loans accounted for under ASC Subtopic 310-30 are impaired
at the time of purchase, it is possible for institutions to hold on-
balance sheet assets purchased at a deep discount that are
contractually 90 days or more past due, but on which interest is being
accrued because the amount and timing of the expected cash flows on the
assets can be reasonably estimated. Currently, insufficient information
is collected in Schedule HC-N to determine the volume of purchased
credit-impaired loans included in the loan amounts reported as ``past
due 90 days or more and still accruing'' (or reported in the other past
due and nonaccrual categories in the schedule). As the volume of assets
reported in the three past due and nonaccrual columns in Schedule HC-N
has increased at many institutions that also report holdings of loans
accounted for under ASC Subtopic 310-30, the Federal Reserve cannot
determine whether this growth is due to purchased credit-impaired loans
or whether the source of the increase has been deterioration in the
credit quality and performance among the assets the institution
originated (or purchased without evidence of credit problems at
acquisition). Better understanding the source of these increases would
assist the Federal Reserve in determining the need to adjust
supervisory strategies for individual institutions.
Because of the significant number of acquisitions by depository
institutions of loans accounted for under ASC 310-30 over the past few
years and the expected number of future acquisitions, the Federal
Reserve proposes to collect additional information in Schedule HC-N to
segregate the amount of purchased credit-impaired loans that are
included in the past due and nonaccrual loans reported in this
schedule. New Memorandum items would be added to Schedule HC-N to
separately collect from all institutions the total outstanding balance
of purchased credit-impaired loans accounted for under ASC 310-30 that
are past due 30 through 89 days and still accruing, past due 90 days or
more and still accruing, and in nonaccrual status. The related carrying
amount of these loans (before any post-acquisition loan loss
allowances) would also be reported by past due and nonaccrual status.
This information would mirror the data
[[Page 71974]]
reported in Memorandum item 5, ``Purchased impaired loans held for
investment accounted for in accordance with AICPA Statement of Position
03-3,'' in Schedule HC-C. Based on the information reported in
Memorandum item 5, there are less than 300 institutions that hold
purchased credit-impaired loans and would be affected by the proposed
new Schedule HC-N Memorandum items.
A.4 Representation and Warranty Reserves
When institutions sell or securitize mortgage loans, they typically
make certain representations and warranties to the investors or other
purchasers of the loans at the time of the sale and to financial
guarantors of the loans sold. The specific representations and
warranties may relate to the ownership of the loan, the validity of the
lien securing the loan, and the loan's compliance with specified
underwriting standards. Under ASC Subtopic 450-20, Contingencies--Loss
Contingencies (formerly FASB Statement No. 5, ``Accounting for
Contingencies''), institutions are required to accrue loss
contingencies relating to the representations and warranties made in
connection with their mortgage securitization activities and mortgage
loan sales when it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. In October 2010, the
Division of Corporation Finance of the Securities and Exchange
Commission (SEC) sent a letter to certain public companies reminding
them of the need to ``provide clear and transparent disclosure
regarding your obligations relating to the[se] various representations
and warranties.'' \22\ A review of a sample of disclosures about
mortgage loan representations and warranties by public banking
organizations in their SEC filings since October 2010 reveals that
these disclosures tend to distinguish between obligations to U.S.
government-sponsored entities and other parties.
---------------------------------------------------------------------------
\22\ The Division of Corporation Finance's ``Sample Letter Sent
to Public Companies on Accounting and Disclosure Issues Related to
Potential Risks and Costs Associated with Mortgage and Foreclosure-
Related Activities or Exposures'' can be accessed at http://www.sec.gov/divisions/corpfin/guidance/cfoforeclosure1010.htm.
---------------------------------------------------------------------------
At present, BHCs with $1 billion or more in total assets and
smaller BHCs with significant 1-4 family residential mortgage banking
activities are required to complete Schedule HC-P, 1-4 Family
Residential Mortgage Banking Activities. These BHCs report the amount
of 1-4 family residential mortgage loans previously sold subject to an
obligation to repurchase or indemnify that have been repurchased or
indemnified during the quarter. However, the amount of representation
and warranty reserves attributable to residential mortgages as of
quarter-end included in other liabilities on these institutions'
balance sheets is not separately reported in Schedule HC-P.
Accordingly, building on the SEC's guidance concerning transparent
disclosure in this area, the Federal Reserve proposes to add two data
items to Schedule HC-P in which institutions required to complete this
schedule would report the quarter-end amount of representation and
warranty reserves for 1-4 family residential mortgage loans sold (in
domestic offices), including those mortgage loans transferred in
securitizations accounted for as sales. The amount of reserves for
representations and warranties made to U.S. government-sponsored
entities (the Federal National Mortgage Association or Fannie Mae, the
Federal Home Loan Mortgage Corporation or Freddie Mac, and the
Government National Mortgage Association or Ginnie Mae) (Schedule HC-P,
data item 7.a) would be reported separately from the amount of reserves
for representations and warranties made to other parties (Schedule HC-
P, data item 7.b).
A.5 Instructional Revisions
A.5.(1) Specific Valuation Allowances
Savings associations that currently file a Thrift Financial Report
(TFR) may create a ``Specific Valuation Allowance'' (SVA) in lieu of
taking a charge-off to record the loss associated with a loan when the
institution determines that it is likely that the amount of the loss
classification will change due to market conditions. The use of an SVA
allows a savings association to reduce or increase the amount of the
SVA as market conditions change. When a charge-off is taken, however,
the only way an institution can recover the loss is through an actual
cash recovery. A savings association is not permitted to use an SVA in
lieu of a charge-off when it classifies certain credits as losses such
as unsecured loans, consumer loans, and credit cards, and in instances
where the collateral underlying a secured loan will likely be acquired
through foreclosure or repossession. In those cases, only a charge-off
is appropriate.
As announced in 76 FR 53129 published on August 25, 2011, many
savings and loan holding companies (SLHCs) will be required to file the
FR Y-9C report, which would consolidate the SLHC savings association
subsidiary, beginning with the March 31, 2012, reporting period (unless
the institution elects to begin filing the FR Y-9C before that time).
Once SLHCs begin to file the FR Y-9C and savings associations begin to
file the Call Report, they will be required to follow FR Y-9C and Call
Report reporting instructions and the banking agencies' policies
regarding loss classifications, which would require a charge-off for
all confirmed losses and do not allow the creation or use of a SVA as
described above. Therefore, the use of SVAs will not be permitted for
any SLHC after December 31, 2011. Existing reporting instructions will
be modified to clarify this point. Also the Federal Reserve will issue
additional supplemental guidance to explain how any existing SVAs
should be treated when an institution no longer files the TFR.
A.5.(2) Capital Contributions in the Form of Cash or Notes Receivable
The Federal Reserve often encounters or receives questions about
capital contributions in the form of a note receivable. The capital
contribution may involve a sale of capital stock or a contribution to
additional paid-in capital (surplus) that often takes place, or is
expected to take place, at or shortly before a quarter-end report date.
In other cases, capital contributions are in the form of cash, with
some occurring before quarter-end and others occurring after quarter-
end. The regulatory reporting issue that arises with respect to these
capital contributions is when and under what circumstances can they be
reflected as an increase in the amount of equity capital reported on
the balance sheet and thereby be included in regulatory capital.
Although the accounting for capital contributions is not currently
addressed in the FR Y-9C reporting instructions, institutions are
expected to report capital contributions in their FR Y-9C report in
accordance with generally accepted accounting principles (GAAP). In
summary, capital contributions in the form of cash are appropriately
recognized in equity capital on the balance sheet when received.
Capital contributions in the form of a note receivable, executed prior
to quarter-end, increase an institution's equity capital at quarter-end
only when the note is collected prior to issuance of the institution's
financial statements (including its FR Y-9C) for that quarter. To
provide guidance to institutions and examiners on the appropriate
reporting of these capital contributions, the Federal Reserve proposes
to add a new Glossary entry to the FR Y-9C instructions.
[[Page 71975]]
Capital Contributions of Cash and Notes Receivable: An institution
may receive cash or a note receivable as a contribution to its equity
capital. The transaction may be a sale of capital stock or a
contribution to paid-in capital (surplus), both of which are referred
to hereafter as capital contributions. The accounting for capital
contributions in the form of notes receivable is set forth in ASC
Subtopic 505-10, Equity--Overall (formerly EITF Issue No. 85-1,
``Classifying Notes Received for Capital Stock'') and SEC Staff
Accounting Bulletin No. 107 (Topic 4.E., Receivables from Sale of
Stock, in the Codification of Staff Accounting Bulletins). This
Glossary entry does not address other forms of capital contributions,
for example, nonmonetary contributions to equity capital such as a
building.
A capital contribution of cash should be recorded in an
institution's balance sheet and income statement when received.
Therefore, a capital contribution of cash prior to a quarter-end report
date should be reported as an increase in equity capital in the
institution's reports for that quarter (in Schedule HI-A, item 5 or 6,
as appropriate). A contribution of cash after quarter-end should not be
reflected as an increase in the equity capital of an earlier reporting
period.
When an institution receives a note receivable, rather than cash,
as a capital contribution, ASC Subtopic 505-10 states that it is
generally not appropriate to report the note as an asset. As a
consequence, the predominant practice is to offset the note and the
capital contribution in the equity capital section of the balance
sheet, i.e., the note receivable is reported as a reduction of equity
capital. In this situation, the capital stock issued or the
contribution to paid-in capital should be reported in Schedule HC, item
23, 24, or 25, as appropriate, and the note receivable should be
reported as a deduction from equity capital in Schedule HC, item 26.c,
``Other equity capital components.'' No net increase in equity capital
should be reported in Schedule HI-A, Changes in Bank Holding Company
Equity Capital. In addition, when a note receivable is offset in the
equity capital section of the balance sheet, accrued interest
receivable on the note also should be offset in equity (and reported as
a deduction from equity capital in Schedule HC, item 26.c), consistent
with the guidance in ASC Subtopic 505-10. Because a nonreciprocal
transfer from an owner or another party to an institution does not
typically result in the recognition of income or expense, the accrual
of interest on a note receivable that has been reported as a deduction
from equity capital should be reported as additional paid-in capital
rather than interest income.
However, ASC Subtopic 505-10 provides that an institution may
record a note received as a capital contribution as an asset, rather
than a reduction of equity capital, only if the note is collected in
cash ``before the financial statements are issued.'' The note
receivable must also satisfy the existence criteria described below.
When these conditions are met, the note receivable should be reported
separately from an institution's other loans and receivables in
Schedule HC-F, item 6, ``Other [assets].''
For purposes of these reports, the financial statements are
considered issued at the earliest of the following dates:
(1) The submission deadline for the FR Y-9C (40 calendar days after
the quarter-end report date, except for year-end reporting, for which
the deadline is 45 calendar days after quarter-end);
(2) Any other public financial statement filing deadline to which
the institution is subject; or
(3) The actual filing date of the institution's public financial
reports, including the filing of its FR Y-9C report or a public
securities filing by the institution.
To be reported as an asset, rather than a reduction of equity
capital, as of a quarter-end report date, a note received as a capital
contribution (that is collected in cash as described above) meet the
definition of an asset under generally accepted accounting principles
by satisfying all of the following existence criteria:
(1) There must be written documentation providing evidence that the
note was contributed to the institution prior to the quarter-end report
date by those with authority to make such a capital contribution on
behalf of the issuer of the note;
(2) The note must be a legally binding obligation of the issuer to
fund a fixed and determinable amount by a specified date; and
(3) The note must be executed and enforceable before quarter-end.
If a note receivable for a capital contribution obligates the note
issuer to pay a variable amount, the institution must offset the note
and equity capital. Similarly, an obligor's issuance of several notes
having fixed face amounts, taken together, would be considered a single
note receivable having a variable payment amount, which would require
all the notes to be offset in equity capital as of the quarter-end
report date.
Dated: November 15, 2011.
Board of Governors of the Federal Reserve System.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-29874 Filed 11-18-11; 8:45 am]
BILLING CODE 6210-01-P