[Federal Register Volume 77, Number 193 (Thursday, October 4, 2012)]
[Notices]
[Pages 60695-60702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24482]
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FEDERAL RESERVE SYSTEM
Agency Information Collection Activities: Announcement of Board
Approval Under Delegated Authority and Submission to OMB
AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY: Notice is hereby given of the final approval of proposed
information collection by the Board of Governors of the Federal Reserve
System (Board) under OMB delegated authority, as per 5 CFR 1320.16 (OMB
Regulations on Controlling Paperwork Burdens on the Public). Board-
approved collections of information are incorporated into the official
OMB inventory of currently approved collections of information. Copies
of the Paperwork Reduction Act Submission, supporting statements and
approved collection of information instrument(s) are placed into OMB's
public docket files. The Federal Reserve may not conduct or sponsor,
and the respondent is not required to respond to, an information
collection that has been extended, revised, or implemented on or after
October 1, 1995, unless it displays a currently valid OMB control
number.
On July 6, 2012 the Federal Reserve published a notice in the
Federal Register (77 FR 40051) requesting public comment for 60 days to
extend for three years, with revision, the FR Y-14A/Q/M. The comment
period for this notice expired on September 4, 2012. The Federal
Reserve received eight comment letters. The substantive comments are
summarized and addressed below.
FOR FURTHER INFORMATION CONTACT: 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.
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.
Final approval under OMB delegated authority of the extension for
three years, with revision, of the following report:
Report title: Capital Assessments and Stress Testing information
collection.
Agency form number: FR Y-14A/Q/M.
OMB Control number: 7100-0341.
Effective Date: September 30, 2012.
Frequency: Annually, quarterly, and monthly.
Reporters: Large banking organizations that meet an annual
threshold of $50 billion or more in total consolidated assets (large
Bank Holding Companies or large BHCs), as defined by the Capital Plan
rule (12 CFR 225.8).\1\
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\1\ The Capital Plan rule applies to every top-tier large BHC.
This asset threshold is consistent with the threshold established by
section 165 of the Dodd-Frank Act relating to enhanced supervision
and prudential standards for certain BHCs.
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Estimated annual reporting hours: FR Y-14A: Summary, 25,080 hours;
Macro scenario, 930 hours; Counterparty credit risk (CCR), 2,292 hours;
Basel III/Dodd-Frank, 600 hours; and Regulatory capital, 600 hours. FR
Y-14 Q: Securities risk, 1,200 hours; Retail risk, 1,920 hours; Pre-
provision net revenue (PPNR), 75,000 hours; Wholesale corporate loans,
6,720 hours; Wholesale commercial real estate (CRE) loans, 6,480 hours;
Trading risk, 41,280 hours; Basel III/Dodd-Frank, 1,800 hours;
Regulatory capital, 3,600 hours; and Operational risk, 3,360 hours; and
Mortgage Servicing Rights (MSR) Valuation, 864 hours; Supplemental, 960
hours; and Retail Fair Value Option/Held for Sale (Retail FVO/HFS),
1,216 hours. FR Y-14M: Retail 1st lien mortgage, 129,000 hours; Retail
home equity, 123,840 hours; and Retail credit card, 77,400 hours. FR Y-
14 Implementation and On-Going Automation: Start-up for new
respondents, 79,200 hours; and Ongoing revisions for existing
respondents, 9,120 hours.
Estimated average hours per response: FR Y-14A: Summary, 836 hours;
Macro scenario, 31 hours; CCR, 382 hours; Basel III/Dodd-Frank, 20
hours; and Regulatory capital, 20 hours. FR Y-14Q: Securities risk, 10
hours; Retail risk, 16 hours; PPNR, 625 hours; Wholesale corporate
loans, 60 hours; Wholesale CRE loans, 60 hours; Trading risk, 1,720
hours; Basel III/Dodd-Frank, 20 hours; Regulatory capital, 40 hours;
Operational risk, 28 hours, MSR Valuation, 24 hours; Supplemental, 8
hours; and Retail FVO/HFS, 16 hours. FR Y-14M: Retail 1st lien
mortgage, 430 hours; Retail home equity, 430 hours; and Retail credit
card, 430 hours. FR Y-14 Implementation and On-Going
[[Page 60696]]
Automation: Start-up for new respondents, 7,200 hours; and On-going
revisions for existing respondents, 480 hours.
Number of respondents: 30.
General description of report: The FR Y-14 series of reports are
authorized by section 165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), which requires the Federal
Reserve to ensure that certain bank holding companies (BHCs) and
nonbank financial companies supervised by the Federal Reserve are
subject to enhanced risk based and leverage standards in order to
mitigate risks to the financial stability of the United States (12
U.S.C. 5365). Additionally, section 5 of the BHC Act authorizes the
Board to issue regulations and conduct information collections with
regard to the supervision of BHCs (12 U.S.C. 1844).
As these data are collected as part of the supervisory process,
they are subject to confidential treatment under exemption 8 of the
Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(8)). In addition,
commercial and financial information contained in these information
collections may be exempt from disclosure under FOIA exemption 4 (5
U.S.C. 552(b)(4)). Such exemptions will be made on a case-by-case
basis.
Abstract: The data collected through the FR Y-14A/Q/M provides the
Federal Reserve with the additional information and perspective needed
to help ensure that large BHCs have strong, firm-wide risk measurement
and management processes supporting their internal assessments of
capital adequacy and that their capital resources are sufficient given
their business focus, activities, and resulting risk exposures. The
annual Comprehensive Capital Analysis and Review (CCAR) is also
complemented by other Federal Reserve supervisory efforts aimed at
enhancing the continued viability of large BHCs, including (1)
continuous monitoring of BHCs' planning and management of liquidity and
funding resources, and (2) regular assessments of credit, market and
operational risks, and associated risk management practices.
Information gathered in this data collection is also used in the
supervision and regulation of these financial institutions. In order to
fully evaluate the data submissions, the Federal Reserve may conduct
follow up discussions with or request responses to follow up questions
from respondents, as needed. Respondent BHCs are required to complete
and submit up to 17 filings each year: one annual FR Y-14A filing, four
quarterly FR Y-14Q filings, and 12 monthly FR Y-14M filings. Compliance
with these information collections is mandatory.
The annual FR Y-14A collects large BHCs' quantitative projections
of balance sheet, income, losses, and capital across a range of
macroeconomic scenarios and qualitative information on methodologies
used to develop internal projections of capital across scenarios.\2\
The quarterly FR Y-14Q collects granular data on BHCs' various asset
classes and PPNR for the reporting period, which are used to support
supervisory stress test models and for continuous monitoring
efforts.\3\ The monthly FR Y-14M comprises three loan- and portfolio-
level collections, and one detailed address matching collection to
supplement the two loan level collections.
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\2\ BHCs that must re-submit their capital plan generally also
must provide a revised FR Y-14A in connection with their
resubmission.
\3\ BHCs are required to submit both quarterly and annual
schedules for third quarter data, and with the exception of the
Basel III/Dodd-Frank and Regulatory Capital Instruments schedules.
For these schedules, only data for the annual schedules are
submitted for the third quarter data.
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Under section 165 of the Dodd-Frank Act, the Federal Reserve is
required to issue regulations relating to stress testing (DFAST) for
certain BHCs and nonbank financial companies supervised by the Board.
On January 5, 2012, the Board published a proposal (77 FR 594) which
includes new reporting requirements found in proposed regulations at 12
CFR 252.134(a), 252.146(a), and 252.146(b) all related to stress
testing. The Federal Reserve anticipates that further detail regarding
these proposed reporting requirements and the PRA burden associated
with these requirements would be addressed in a future FR Y-14
proposal.\4\
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\4\ The proposed rules would implement the enhanced prudential
standards required to be established under section 165 of the Dodd-
Frank Act and the early remediation framework established under
section 166 of the Act. The enhanced standards include risk-based
capital and leverage requirements, liquidity standards, requirements
for overall risk management, single counterparty credit limits,
DFAST requirements, and debt-to-equity limits for companies that the
Financial Stability Oversight Council has determined pose a grave
threat to financial stability. The 2011 proposal implementing the FR
Y-14A and Q acknowledged the impending publication of the DFAST
reporting requirements under section 165 of the Dodd-Frank Act. That
proposal included a statement noting that revisions to the quarterly
and annual data collections, based on the enhanced standards
rulemaking, would be incorporated into the FR Y-14A and Q
information collection.
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Current actions: On July 6, 2012, the Federal Reserve published a
notice in the Federal Register (77 FR 40051) requesting public comment
for 60 days to extend for three years, with revision, the FR Y-14
information collection. The comment period expired on September 4,
2012. The Federal Reserve received eight comment letters from four BHCs
and six trade associations.\5\ All substantive comments are summarized
and addressed below. Also addressed are comments related to the
collection of data on legal reserves for pending and probable
litigation claims which were originally proposed in February 2012.\6\
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\5\ Three trade associations submitted a joint comment letter.
\6\ Notice of this proposal action was published in the Federal
Register (77 FR 10525, February 22, 2012). The Federal Reserve
received six comment letters addressing the proposed changes to the
FR 14A and Q. In response to public concerns over the sensitivity of
these legal reserves data, the Federal Reserve postponed
implementing the data items and reopened the public comment period
(77 FR 32970, June 4, 2012). The comment period expired on August 6,
2012 (77 FR 38289, June 27, 2012). The Federal Reserve received four
additional comment letters addressing the collection of the legal
reserves data items.
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The FR Y-14A/Q/M revisions proposed in the Federal Reserve's July
2012 Federal Register notice, effective September 30, 2012, included
(1) implementing three new quarterly reporting schedules (Mortgage
Servicing Rights Valuation, Supplemental, and Retail Fair Value Option/
Held For Sale schedules), (2) revising the respondent panel, (3)
enhancing data items previously collected on various schedules, (4)
deleting data items that are no longer needed, (5) adding attestation
of data accuracy, and (6) collecting contact information. The Federal
Reserve proposed the revisions based on experience gained from previous
capital review and stress testing efforts. The revisions provide the
Federal Reserve with new information to refine its analysis, while
removing data items that are no longer deemed necessary for such
analysis.
Summary of Comments
The Federal Reserve received comments from the industry by letter,
email, and orally through industry outreach calls. Most of the comments
received requested clarification of the instructions for the
information to be reported, or were technical in nature. Response to
these comments will be addressed in the final FR Y-14 reporting
instructions. The Federal Reserve also received a number of comments on
matters that were not directly related to the FR Y-14 information
collection, such as a request to use a consistent file format and
requests for clarification of general CCAR procedures and timeline. The
Federal Reserve plans to take these comments under consideration and
address them at a later date, as appropriate. The following is a
detailed discussion of aspects of the proposed FR
[[Page 60697]]
Y-14 collection for which the Federal Reserve received one or more
substantive comments and an evaluation of, and response to, the
comments received.
A. General
In general, commenters expressed support for the objectives of the
proposal to revise the FR Y-14; however, they expressed concerns about
the overall expansion of the information collection and the increased
granularity of the data being collected. Specifically, several
commenters noted that the proposal substantially increased the number
of data items on various schedules, leaving BHCs insufficient time to
make appropriate changes to their models, modify reporting systems, and
integrate these systems with internal controls structure. These
commenters also requested delayed implementation of the revisions to
several schedules or guidance for BHCs that have missing or incomplete
data. The commenters also provided suggestions around operational
aspects of the collection and requested additional clarification on the
proposed revisions.
The Federal Reserve weighed the potential increase in respondent
burden against the need to collect additional information to enhance
the Federal Reserve's ability to conduct supervisory stress testing and
made certain modifications to the proposal in response to the comments
received. Specifically, the Federal Reserve will eliminate certain
proposed data items from selected data schedules and also delay the
effective date of the new Mortgage Servicing Right (MSR) Valuation
schedule as noted below.
Commenters generally expressed concerns about the proposed
attestation requirement for the FR Y-14 submission. Several commenters
noted that the Federal Reserve has continued to revise the information
collection since first implementing it in 2011; therefore, the scope
and form of the information collection have not been sufficiently
solidified to allow BHCs to establish the infrastructure, general
controls, and system validation requirements to comply with the
proposed attestation requirement. Several commenters opposed a near-
term attestation requirement, requested that any future attestation
requirement be tailored to the FR Y-14, suggested various modifications
to the attestation requirement, and opposed an attestation requirement
for projected financial data. One commenter suggested a safe harbor
provision for any attestation of projected data.
The Federal Reserve acknowledges that BHCs require time to continue
developing and improving the infrastructure and controls needed to
accommodate the FR Y-14 collection and to support attestation. As such,
the final schedules and instructions do not include an attestation
requirement at this time to allow BHCs time to make these improvements.
However, the Federal Reserve believes appropriate controls are crucial
to ensure data quality and that attestation is an important affirmation
of data quality, and may revisit the attestation requirement in a
future proposal. The Federal Reserve also notes that under federal law,
BHCs are prohibited from making a false entry in a report to the
Federal Reserve.\7\
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\7\ See, for example, 18 U.S.C. 1005.
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One commenter indicated that foreign privacy and blocking laws may
restrict BHCs from reporting on the FR Y-14 any identifiable client
information about their foreign clients. In response to this comment,
the Federal Reserve will revise the final FR Y-14 reporting schedules
and instructions to provide that a BHC will not be required to report a
particular data item if a foreign law prohibits the BHC from providing
the information to the Federal Reserve. However, the Federal Reserve is
authorized by law to collect information from a BHC regarding its
credit exposures, including foreign exposures, and a BHC will be
required to include with its data submission a legal analysis of the
foreign law that prohibits reporting the data to the Federal
Reserve.\8\ As noted above, data collected through the FR Y-14
schedules is confidential information and the Federal Reserve has no
present intention to make the information public.
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\8\ See, for example, 12 U.S.C. 1844(c).
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One commenter noted the difficulty in completing FR Y-14Q/M
schedules during acquisitions as the acquiring institution would not
yet have the acquired institution's data on their general ledger or
loans systems on the date when the acquisition is finalized.
Referencing the final Federal Register notice issued on June 4,
2012,\9\ which noted that the Federal Reserve would consider requests
to file delayed submissions for newly acquired data following an
acquisition, the commenter asked the Federal Reserve to establish a
formal process and criteria for requesting and determining a grace
period. The Federal Reserve agrees with this comment and is considering
ways to formalize the process and criteria, as appropriate.
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\9\ During the public comment period for proposed revisions
implemented on June 30, 2012, a similar industry comment was
received. The comment was addressed in the final Federal Register
notice published on June 4, 2012 (77 FR 32970).
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Several commenters provided suggestions for reducing the burden
associated with the information collection, including suggestions
related to the use of consistent file formats. The Federal Reserve
appreciates these suggestions and will work to improve the data
collection process, considering all suggestions aimed at reducing
reporting burden. During the public comment period, the Federal Reserve
sought additional feedback from first-time respondents on ways to
reduce reporting burden. One commenter responded that a tailored
materiality threshold would increase, rather than decrease burden by
adding complexity. This commenter noted that a transition period that
takes into consideration related and overlapping deadlines would be
useful in reducing reporting burden. The Federal Reserve will provide
first-time respondents with a transition phase including extended
filing deadlines, as follows: For the Y-14Q schedules, the filing
deadline will be extended to (1) 90 days after the quarter-end for the
first two quarterly submissions and (2) 65 days after the quarter-end
for the third and fourth quarterly submissions. Beginning with the
fifth quarterly submission, these respondents will be required to
adhere to the standard Consolidated Financial Statements of BHCs (FR Y-
9C; OMB No. 7100-0128) reporting deadlines.\10\ For the Y-14M
schedules, the initial deadline will be 90 days after the end of the
reporting month, at which time data for all three intervening months
would be due. For example, a new respondent for the September 30
reporting period will be expected to submit data corresponding to the
September 30, October 31, and November 30 reporting periods by December
31. The Federal Reserve will implement the filing deadline for the Y-
14A schedules as proposed.
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\10\ The standard FR Y-9C reporting deadlines are: 40 calendar
days after the calendar quarter-end for March, June, and September
and 45 calendar days after the calendar quarter-end for December.
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B. FR Y-14A Summary Schedule
1. Income Statement and Balance Sheet Worksheets
The Federal Reserve proposed revising 14 of the 19 worksheets \11\
in
[[Page 60698]]
the Summary schedule (which, for the most part, collects current
quarter data plus nine quarters of projections for the same data
items), which included adding more granular breakouts on various
schedules. Several commenters noted that the proposed collection of
more granular projections data for portfolio balances and associated
losses does not align with BHCs' internal reporting and projections.
The Federal Reserve acknowledges the proposed increase in respondent
burden; however, the Federal Reserve believes that these additional
data items will substantially enhance the ability to evaluate BHCs'
stress test results consistently across BHCs. Each proposed product
type has a unique risk profile, and, therefore, projecting balances at
the granular product level should provide a better understanding of
BHCs' overall risk exposure.
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\11\ The worksheets include: Income Statement, Balance Sheet,
ASC 310-30, Retail Balance and Loss Projections, Retail Repurchase,
Securities OTTI by Portfolio, Securities OTTI Methodology,
Securities AFS Market Shock, Securities Market Value Sources,
Trading Risk, Counterparty Risk Worksheet, and three PPNR
worksheets.
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Originally, the Federal Reserve proposed adding to the Income
Statement and Balance Sheet worksheets granular breakouts of the
Allowance for Loan and Lease Losses (ALLL) and loan-loss provisions by
loan category. Two commenters questioned the need for the proposed
disaggregation of the ALLL, noting that the FR Y-14 proposal was not
consistent with the proposed revision to Schedule RI-C of the
commercial bank Consolidated Reports of Condition and Income (Call
Report; FFIEC 031 and 041; OMB No. 7100-0036), as described in the
Federal Register (76 FR 72035, November 21, 2011).\12\ The asset
categories on the Income Statement and Balance Sheet worksheets of the
FR Y-14A Summary schedule generally parallel those of the FR Y-9C and
Call Report, but differ when the stress testing process requires
different categorizations. At a more aggregate level, the categories
for the ALLL and loan-loss provisions are generally aligned with those
on the Income Statement and Balance Sheet worksheets. In order to
assess whether BHCs' provisions are consistent with projected losses,
the Federal Reserve will implement the revisions, as proposed.
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\12\ This revision to the Call Report has been proposed but not
yet implemented.
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2. Retail Balance and Loss Projections Worksheet
Several commenters noted that the proposed increase in the
granularity of balance and loss projections does not align with BHCs'
internal reporting and projections. The Federal Reserve acknowledges
that the increase in data items will increase respondent burden, but
believes that these data items will enhance the Federal Reserve's
ability to conduct supervisory stress tests. Each proposed product type
has a unique risk profile, therefore, projecting balances at the
granular product level should provide a better understanding of BHCs'
overall risk exposure. However, to reduce burden, the Federal Reserve
will reduce the granularity associated with certain product types to
which the industry generally has less exposure.
In an effort to streamline the Summary schedule, the Federal
Reserve proposed combining the Retail Balance and Loss Projections
worksheets, and adding data items to capture more details about balance
projections. The Federal Reserve proposed that BHCs break out projected
credit card balances into two segments: balance projections on existing
accounts and balance projections on new accounts. One commenter
suggested not collecting balance projections for credit card products
by vintage given that BHCs do not necessarily project credit card
balances by vintage. The Federal Reserve recognizes that there is
burden associated with breaking out balance projections by vintage, and
therefore will eliminate the projections by vintage for certain
portfolios to which the industry generally has less exposure.
3. Retail ASC 310-30 Worksheet
The Federal Reserve originally proposed significantly revising the
Retail ASC 310-30 worksheet, which collects data on purchased credit
impaired (PCI) loans, by expanding the number of data items requested
in order to better align with accounting definitions for the loans
reported in the PCI portfolio. The new data items would collect
information about the portfolios' carrying value, allowance, provisions
to and charge-offs from the allowance, estimates of cash flows to be
collected over the life of the loan, the nonaccretable difference and
its components, changes to the nonaccretable difference, and the
accretable yield and its components. Several commenters expressed
concern about their ability to split requested data items into
principal and interest components, the difficulty of projecting cash-
flows in the various macroeconomic scenarios, and the difficulty with
gathering the data requested from their loan processing systems and
accounting systems.
In response to the industry comments, the Federal Reserve will
revise the worksheet to reduce the number of required data items from
32 to 13. The Federal Reserve will remove the distinction between
principal and interest, as well as delete certain data items related to
cash flows, changes to the non-accretable difference, and changes to
the accretable yield. These will be replaced with data items requesting
unpaid principal balance, the total original contractual amount of PCI
loans that would be deemed charged off or identified as loss under a
non-PCI charge-off policy (i.e. losses in the quarter that would be
offset at some point against the non-accretable difference and/or the
PCI Allowance) and overall movement of the non-accretable difference.
The Federal Reserve believes that the revised schedule will
substantially alleviate the burden associated with procuring the data
from the BHCs information systems.
C. Summary Schedule (Capital Worksheet) and Annual Basel III/Dodd-Frank
Schedule
The Capital worksheet contained in the annual Summary schedule and
the annual Basel III/Dodd-Frank schedule are being modified to reflect
anticipated final rules that would implement the stress test
requirements under Dodd-Frank. The Capital worksheet instructions will
be modified to require BHCs to provide an additional Capital worksheet
for each of the adverse, baseline, and severely adverse scenarios using
capital assumptions that are required under any final stress testing
rules that the Federal Reserve may issue. The annual Basel III/Dodd-
Frank schedule instructions will be modified to require BHCs to provide
an additional schedule for the baseline scenario only using capital
assumptions that are required under any final stress testing rules that
the Federal Reserve may issue.
D. FR Y-14A/Q Pre-Provision Net Revenue (PPNR) Annual Worksheet and
Quarterly Schedule
In an effort to better understand the core drivers of BHCs revenues
and expenses, the Federal Reserve originally proposed revising certain
annual and quarterly PPNR data items, increasing granularity of several
data items, and adding a new business line into the components of
revenues (on the annual PPNR Projections worksheet and the quarterly
PPNR Submission worksheet).\13\
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\13\ The proposed revisions included: a new breakout for credit
card revenues would split interchange revenues from reward activity
and partner-sharing contra-revenue; revenue from the mortgage and
home equity business line would be split into production and
servicing income; provisions to reserves for representations and
warranties and repurchase obligations and other liabilities related
to sold mortgages also would be split out; revenue related to retail
and small business deposits would separate overdraft fees; and a new
business line for Merchant Banking/Private Equity would be added;
previously this business line had been included among the other
business lines, typically Investment Banking.
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[[Page 60699]]
One commenter noted that, in some instances, certain historical
data may not be available due to organizational restructuring. The
Federal Reserve agrees with this comment and is considering ways to
develop a process and criteria to address this issue, as appropriate.
Another commenter requested eliminating the disclosure of legal
reserves data to be consistent with other FR Y-14 schedules regarding
the level and frequency of reporting legal reserves data. In response
to the comment, the Federal Reserve will delete the data items for
``Provisions to Litigation Reserves/Liability Specific to Sold
Residential Mortgage Claims'' on the annual PPNR Projections worksheet
and on the quarterly Submission worksheet (PPNR Submission/
Projections). Such provisions will instead be reported, in the
aggregate, as part of the Operational Risk Expense in both the
quarterly PPNR schedule and annual PPNR worksheets. Furthermore, the
Federal Reserve will delete the ``Legal Expenses and Litigation
Settlements & Penalties (unrelated to Operational Risk and not reported
elsewhere)'' data item and instruct the BHCs to add the ``Legal
Expenses'' (i.e. the routine ``business as usual'' legal expenses) to
the ``Professional and Outside Services Expenses'' data item and the
``Litigation Settlements & Penalties'' to the ``Operational Risk
Expenses'' data item.
Currently, BHCs with deposits equal to at least one-third of
liabilities may choose either the PPNR Submission/Projections worksheet
or the PPNR Net Interest Income worksheet as ``Primary Net Interest
Income'' with the other worksheet designated as ``Supplementary Net
Interest Income.'' Reporting requirements are reduced on the net
interest income portion of the ``Supplementary'' worksheet. BHCs that
have deposits equal to less than one-third of total liabilities must
designate the PPNR Submission/Projections worksheet as Primary and are
not required to report any data on the PPNR Net Interest Income
worksheet. In the proposal that was published for comment, the Federal
Reserve proposed removing the Primary/Supplementary distinction and
making all data items mandatory (subject to certain criteria described
in the instructions).
The trade associations and one other commenter suggested retaining
the Primary/Supplementary distinction. One commenter also suggested
allowing BHCs to report average balances and yields on the PPNR Net
Interest Income worksheet at a lower level of detail than was proposed.
The commenters cited concerns including increased burden and limited
usefulness of data created for purposes outside BHCs' regular internal
practice. In response to these comments, the Federal Reserve will
retain the Primary/Supplementary designation but change how the
primary/supplementary designation is assigned and make all net interest
income data items mandatory (subject to certain criteria). Further, for
all BHCs with deposits above the threshold, the PPNR Net Interest
Income worksheet should be designated as ``Primary Net Interest
Income'' and for BHCs that are not required to complete the PPNR Net
Interest Income worksheet that the PPNR Submission/Projections
worksheet should be designated as ``Primary Net Interest Income.'' The
Federal Reserve also proposed lowering the reporting threshold for the
PPNR Net Interest Income worksheet to deposits equal to one-quarter of
total liabilities. Since no comments were specifically received, the
Federal Reserve will implement the reporting threshold revision as
proposed.
The trade associations commented that reporting the proposed data
items on the PPNR Net Interest Income worksheet would require time and
suggested providing a delayed submission deadline (as was done with the
submission deadline when the FR Y-14 was implemented in 2011). Although
the Federal Reserve acknowledges the increase in respondent burden for
certain BHCs, the Federal Reserve believes that these data items will
enhance the ability to identify the vulnerability of BHCs to
macroeconomic stress and will implement the revisions on the proposed
timeline.
Originally, the Federal Reserve proposed adding credit card rewards
and partner-sharing in the non-interest income and non-interest expense
sections of the PPNR Submission/Projections worksheets. The trade
associations requested additional guidance regarding credit and debit
card rewards and partner-sharing contra-revenue and expense data items.
In the case of credit cards, they also requested clarification around
how rewards and partner-sharing data should be reported across net
interest income, non-interest income, and non-interest expense
components of PPNR. In response, and to reduce burden, the Federal
Reserve will eliminate the breakout of credit card rewards and partner-
sharing on the PPNR Submission/Projections worksheets. The Federal
Reserve will also add a credit card rewards and partner sharing data
item to the PPNR Metrics worksheet. BHCs will be required to indicate
which data items on the PPNR Submission/Projections worksheet include
the credit card rewards and partner-sharing data item.
One commenter asked whether the ``Sales and Trading Segment/Prime
Brokerage/Total Revenue (incl. Net Interest Income)'' data item in the
PPNR Metrics worksheet should be defined as the combination of the
``Prime Brokerage'' non-interest income data item and the portion of
the ``Sales and Trading'' net interest income data item related to
prime brokerage in the PPNR Submission worksheet. To simplify the
reporting of these data items, the Federal Reserve will remove the
``Sales and Trading Segment/Prime Brokerage/Total Revenue (incl. Net
Interest Income)'' data item on PPNR Metrics worksheet and break out
Net Interest Income for the Sales and Trading data item into ``Prime
Brokerage'' and ``Other'' on the PPNR Submission/Projection worksheet.
One commenter requested clarification on the types of accounts that
should be included in the ``Total Deposit Accounts'' data item in the
``Retail and Small Business Segment'' on the PPNR Metrics worksheet.
The Federal Reserve will revise the data item to require the reporting
of only ``Total Open Checking and Money Market Accounts'' as of the end
of the reporting period.
One commenter requested clarification on the definition of the term
``curve'' in relation to the ``New Business Pricing for Time Deposits''
data item in the ``Average Retail Deposit Repricing Beta'' section of
the PPNR Metrics worksheet. To clarify the requested data item, the
Federal Reserve will provide an additional option for reporting ``New
Business Pricing for Time Deposits.'' Specifically, if BHCs only assume
a single maturity term for new issuances, then they would provide the
relative index and spread used to estimate new business pricing in lieu
of the curve.
E. FR Y-14Q MSR Valuation Schedule
Originally, the Federal Reserve proposed implementing the quarterly
MSR Valuation schedule that would collect information on the data that
BHCs use to value their MSRs and the sensitivities of those valuations
to changes in economic factors. Several
[[Page 60700]]
commenters stated that the proposal did not provide sufficient time to
properly modify and validate the MSR modeling changes required to
produce the data. The Federal Reserve agrees with the comments and
further concedes that BHCs should be allotted sufficient time to
implement model changes and validate the changes in compliance with SR
11-7 (Guidance for Model Risk Management). The Federal Reserve will
delay the implementation of the new quarterly MSR schedule until March
31, 2013.
One trade association expressed various concerns with the proposed
new MSR schedule, stating that: (1) It appeared to collect duplicative
data already available through other external reporting mechanisms,
including a survey conducted by the Office of the Comptroller of the
Currency (OCC); (2) the questions should be included in pre-examination
requests instead of requiring servicers to report the data on a
quarterly basis (if the purpose of the MSR schedule was to gather
information in advance of a safety and soundness examination); and (3)
many servicers are not part of a BHC and therefore, the schedule would
not necessarily include data from all major market makers that affect
fair value. Further, the commenter noted that the proposed restrictions
on MSR assets contained in the Basel III notices of proposed rulemaking
(NPR) \14\ may dramatically change the servicing competitive landscape,
with more and more servicing being performed by non-depository
institutions, and therefore, the overall data received could become
less meaningful.
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\14\ On August 30, 2012, the OCC, the Board, and the Federal
Deposit Insurance Corporation published for comment three NPRs that
would revise and replace the agencies' current capital rules (77 FR
52791, 52887, and 52997).
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Prior to proposing the new MSR schedule, the Federal Reserve
evaluated the feasibility of obtaining MSR data from external sources;
however, several potential supervisory concerns were noted with this
approach. First, not all BHCs supervised by the Federal Reserve
complete the external surveys mentioned above. Second, certain metrics
collected via external sources differ by type or by construct, or are
not collected at all, which may generate a lack of comparability across
BHCs. The Federal Reserve concluded that the proposed FR Y-14Q schedule
would facilitate the timely supervision of BHCs on both a continuous
monitoring and examination basis; therefore, the Federal Reserve will
implement the data requirements for the MSR schedule as proposed.
One commenter noted that the MSR schedule would not increase the
comparability of MSR valuations across all BHCs due to the range of
valuation techniques, various prepayment and default models, different
assumptions, and servicing portfolio characteristics unique to each
BHC. The Federal Reserve recognizes that modeling methodologies,
assumptions, and product structures are unique to each BHC, and these
differences are considered when evaluating BHC MSR valuation. In
addition, the Federal Reserve may augment this data collection with
other information, such as information collected from BHC examinations,
which will allow the Federal Reserve to better assess the risk of each
BHC's MSR portfolio.
One commenter stated that the proposed MSR valuation sensitivity
metrics in the MSR schedule, including metrics related to implied
swaption volatility, servicing cost, sensitivity to macroeconomic
conditions, and ancillary income, should be revised because they may
not be direct inputs into some of the models used by the industry. The
Federal Reserve believes that the delayed implementation, as well as
clarifying the instructions, will address these issues.
F. FR Y-14A Regulatory Capital Instruments Schedule
One commenter noted an error on the Capital Position Reconciliation
worksheet. In the draft schedule posted for public comment, the funded
instruments data items erroneously referred to the Proj. Actions &
Balances worksheet. The Federal Reserve will revise the annual
Regulatory Capital Instruments schedule to reflect the correct
references in the Capital Position Reconciliation worksheet.
G. FR Y-14A and Q Basel III/Dodd-Frank Schedule
Originally, the Federal Reserve proposed revising the annual and
quarterly Basel III/Dodd-Frank schedules. To both schedules, the
Federal Reserve proposed making definitional and calculation revisions
consistent with the final Market Risk Capital rulemaking (Market Risk
rule). To the FR Y-14A schedule, the Federal Reserve proposed adding
two worksheets and refining the Planned Action worksheet. To the FR Y-
14Q schedule, the Federal Reserve proposed adding worksheets and data
items.
Several commenters noted errors or inconsistencies in the draft
annual and quarterly schedules published for public comment. In
response to those comments, the Federal Reserve will shorten the
projection period for the annual schedule from 2019 to 2017, add a
Comprehensive Risk Measure (CRM) surcharge data item to the annual
schedule, and revise the quarterly schedule to include the correct
start date of third quarter 2012.
Due to the timing of the publication of the FR Y-14 initial Federal
Register and publication of the three capital NPRs, the Federal Reserve
published questions in the FR Y-14 initial Federal Register notice
directly soliciting feedback on the requirements for preparing both the
annual and quarterly Basel III/Dodd-Frank schedules. Together, three
trade associations provided a detailed comment requesting confirmation
whether, for purposes of CCAR 2013, BHCs' capital plans and the FR Y-
14A Basel III/Dodd-Frank schedule would be prepared (1) based upon the
proposed requirements in the Basel III NPR and the Advanced Approaches
NPR but (2) without regard to the proposed requirements in the
Standardized Approach NPR. While this comment was specific to the
annual schedule, the Federal Reserve will require BHCs to use the Basel
III NPR and the Advanced Approaches NPR to prepare the annual and
quarterly Basel III/Dodd-Frank schedules consistently instead of the
Basel Committee on Banking Supervision (BCBS) guidance which was used
during the prior CCAR exercise.
Specifically, the Federal Reserve will revise the Basel III/Dodd-
Frank schedules to be consistent with the NPRs, including (1) revising
the Accumulated Other Comprehensive Income calculator, (2) revising the
10% and 15% regulatory threshold deductions, (3) breaking out
additional Tier 1 capital deductions, (4) collecting data and
corresponding calculations consistent with the final Market Risk rule
and the proposed requirements of the Advanced Approaches NPR (for
applicable BHCs), (5) revising the Market RWA calculation to reflect
the Market Risk rule's CRM, (6) revising the Credit RWA associated with
Credit Valuation Adjustment capital charges, (7) collecting data
relevant to the Tier 1 Leverage Ratio and Supplementary Leverage Ratio,
and (8) revising data descriptions relevant to the Supplementary
Leverage Ratio.
H. FR Y-14Q Retail Risk Schedule
Originally, the Federal Reserve proposed revising the Retail Risk
schedule to remove data items no longer needed and add risk
characteristics to existing portfolios. One commenter noted that the
Domestic Auto portfolio was not included with the files posted
[[Page 60701]]
to the Federal Reserve Board's public Web site during the public
comment period, even though the OMB Supporting Statement noted that a
revision (from the Vintage segment to Age) was proposed for all FR Y-
14Q Retail schedules that included the Vintage segment. The Federal
Reserve acknowledges that the template was not provided and will apply
the revision consistently across all FR Y-14Q Retail templates,
including the Domestic Auto portfolio.
To the Domestic Student Loan portfolio, the Federal Reserve
originally proposed adding a segment variable to capture the level of
education being pursued by the borrower. One commenter suggested adding
a new category to the Level of Education segment in the FR Y-14Q
Domestic Student Loan portfolio to allow for the reporting of
consolidated loans for which level of education is not applicable. The
Federal Reserve will clarify the instructions to specify that, for
consolidated loans, the highest level of education pursued by the
borrower should be reported. Further, the Federal Reserve will add a
new category for instances in which the level of education of the
borrower is not available.
I. FR Y-14Q Supplemental Schedule
Originally, the Federal Reserve proposed implementing the quarterly
Supplemental schedule to ensure that they would have a consistent view
of BHCs' exposures that are collected at different levels of
granularity. The proposed schedule would allow the Federal Reserve to
identify factors contributing to the gaps between the FR Y-9C aggregate
data and the data collected in the FR Y-14. One commenter noted
material inconsistencies between definitions in the Supplemental
schedule and the Retail Small Business Loan worksheet, Retail Small
Business and Corporate Card worksheet, and Wholesale Corporate Loan
collection. The Federal Reserve agrees that inconsistencies in certain
definitions exist and will enhance the reporting requirements to allow
flexibility for BHCs to report the data in a way that is consistent
with the definitions in the other FR Y-14Q and M schedules.
J. FR Y-14Q Trading, Private Equity, and Other Fair Value Assets
(Trading Risk) Schedule
Originally, the Federal Reserve proposed revising various
worksheets and adding a worksheet to the Trading Risk schedule. Several
commenters made suggestions related to the Corporate Credit--Advance,
Corporate Credit--Emerging, IDR,\15\ and Credit Correlation worksheets,
including: adding a row to capture exposures that do not readily fit
into the specified segments, making the reporting categories across
worksheets consistent, and deleting the crossover category in the
Corporate Credit worksheet as it could be implied from market
observations. The Federal Reserve will revise the worksheets to make
them consistent and add new rows to capture exposures that do not
readily fit into the specific segments. While the Federal Reserve
agrees that the way in which the crossover category was presented
leaves ambiguity as to what was requested, the Federal Reserve does not
agree that the underlying information is sufficiently implied from
market observations. As such, the Federal Reserve will adjust the
Corporate Credit--Advanced, Corporate Credit--EM, Credit Correlation,
and IDR--Corporate Credit worksheets to more precisely capture the
information in the crossover and related indexes.
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\15\ IDR is defined as Incremental Default Risk.
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One commenter noted that the attachment/detachment points in the
Credit Correlation worksheet are not feasible for market values and
notionals since the positions would have very large overlapping
attachment and detachment points. Further, the commenter suggested
simplifying the long and short breakout tables to only three buckets
for clarity and consistency: (1) An ``Equity Tranche'' bucket for a
position that has an attachment point of 0%, (2) a ``Mezzanine
Tranche'' for any position that has a non-0% attachment and non-100%
detachment, and (3) a ``Super Senior Tranche'' for positions with a
detachment point of 100%.
The Federal Reserve agrees that, for bespoke products, the
breakouts in the proposal would be challenging to report. However, for
index tranches, which are standardized, the Federal Reserve believes
that the breakouts in the proposal will be feasible. Further, having
such breakouts will enhance the ability to understand correlation
sensitivity. Therefore, the Federal Reserve will implement the approach
suggested by the commenter for bespoke products but will implement the
more granular breakouts for index tranches as originally proposed.
One commenter noted that the schedule currently requires the
reporting of corporate owned and business owned life insurance (COLI/
BOLI) on the Other Sector/Industry row of the Other Fair Value Assets
worksheet, and suggested creating a separate category so that BHCs
could explicitly state how much exposure BHCs have to COLI/BOLI. Given
the size of these exposures, the Federal Reserve agrees with this
comment, and will add a row to capture COLI/BOLI separate from the
Other Sector/Industry exposures.
One commenter suggested disaggregating the Municipal worksheet into
taxable and tax exempt bonds. While the Federal Reserve agrees that the
suggested disaggregation has merit, they believe such disaggregation
might be more challenging for some BHCs than for others and will
investigate the challenges further before disaggregating the worksheet.
K. FR Y-14Q Operational Risk Schedule
The February 2012 proposal requested event level data for each
legal reserve and required that BHCs (1) associate each reserve with an
accounting date, Basel level 1 event type and business line; (2) note
whether the reserve had been included in the BHCs' capital models; (3)
give the amount of the reserve and (4) provide a description for events
over $250k. Several commenters expressed concern with the proposed
method as they feared if the data were to be disclosed, or if it became
discoverable as part of ongoing litigation, it would risk prejudicing
the outcome of a pending case. Additionally, commenters stated that
because the reserve amount was often highly dependent on the judgment
of BHCs' legal counsel, it could be a violation of attorney-client
privilege. In a letter dated May 24, 2012, the joint trade associations
submitted several possible alternatives.
In response to the comments, the Federal Reserve held a meeting on
July 16, 2012, to discuss alternative methods proposed by both the
Federal Reserve and the joint trade associations. The Federal Reserve
circulated a document that articulated three alternative methods. The
commenters expressed concern that these methods did not adequately
address the possibility of deriving event-specific reserve information
by combining the proposed data with other available data.
During the extended comment period, the Federal Reserve held three
discussions with industry representatives and put forth two additional
methods (for a total of five alternative methods) for collecting the
legal reserves data in an effort to address concerns over the sensitive
nature of the data. One of these methods suggested comingling legal
reserve data with the
[[Page 60702]]
BHC's entire operational loss data set submitted under the FR Y-14Q and
eliminating the requirement of a detailed description item. The
commenters felt that this alternative did not address their overall
concerns. Another method suggested that the BHCs submit quarterly the
frequency of events, aggregated by Basel level I event type, business
line, and quarter of establishment; and a total BHC-wide aggregated
legal reserve dollar amount. This level of aggregation would reduce the
possibility that an outside observer could identify the existence and
value of reserves related to any particular event. Commenters continued
to express concern that the relationship between the yearly total
reserve amount and an individual reserve might be inferred when a BHC
reserved for a small number of events over a given year. However, the
commenters also noted that this method appeared to be the most viable
method of submitting legal reserve data that would allow the Federal
Reserve to conduct its capital assessment and stress testing.
Based on the comments received and discussions with the industry,
the Federal Reserve will revise the FR Y-14Q Operational Risk schedule
to implement the latter method as described above. BHCs will report, on
a quarterly basis, the number of legal reserves, categorized by quarter
of establishment (starting in 2008), Basel level I event type, and
business line.
As part of the proposal to revise the FR Y-14 as of September 30,
2012, the Federal Reserve proposed collecting various data items
related to legal reserves on the FR Y-14A Summary schedule. One
commenter requested that the Federal Reserve ensure that any other
references to legal reserves be consistent with the decision reached on
the FR Y-14Q Operational Risk schedule. Based on the concerns over data
sensitivity expressed by the industry, the Federal Reserve will not
implement the legal reserves data items specifically for litigation
involving retail mortgage repurchases/claims on three worksheets in the
Summary schedule: Retail Repurchase, PPNR Projections, and Income
Statement. The Federal Reserve has previously used data on legal
reserves related to repurchase litigation to adjust downward the
supervisory mortgage repurchase loss projections, and anticipates that
it may do so again. However, several BHCs commented that their
repurchase litigation reserves were immaterial to their capital
projections and the BHCs would prefer not to reveal them even if the
Federal Reserve were not to use them to adjust the supervisory
projections. Accordingly, the Federal Reserve will establish a
voluntary data item related to repurchase litigation reserves. The
Federal Reserve will only adjust its supervisory mortgage repurchase
loss projections if the BHCs provided that data in a new FR Y-14A
Operational Risk schedule (described below).
L. FR Y-14A New Operational Risk Schedule
Based on the comments received related to legal reserves data and
in an effort to streamline the collection of annual operational risk
data, the Federal Reserve will implement a new FR Y-14A Operational
Risk schedule. The schedule will contain two worksheets related to
operational risk data submitted annually. The Legal Reserves worksheet
will collect the mandatory ``Legal Reserves'' data item, and the
voluntary data item, ``Legal Reserves Pertaining to Repurchase
Litigation.'' \16\ In addition, the OpRisk Historical Capital worksheet
(currently contained within the Summary schedule), which collects only
historical data (not projection data as with the other worksheets
contained within the Summary schedule) will be moved from the current
FR Y-14A Summary schedule to the new Operational Risk schedule. As with
the Summary schedule, only Basel II Mandatory or ``Opt-In'' BHCs will
be required to complete the OpRisk Historical Capital worksheet in the
new FR Y-14A Operational Risk schedule.
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\16\ In each firm's first submission of the FR Y-14A Operational
Risk Schedule, it would be required to provide the historical data
of the Legal Reserves data item annually as of September 30 of each
year starting with 2008.
Board of Governors of the Federal Reserve System, September 28,
2012.
Margaret McCloskey Shanks,
Associate Secretary of the Board.
[FR Doc. 2012-24482 Filed 10-3-12; 8:45 am]
BILLING CODE 6210-01-P