Proposed Agency Information Collection Activities; Comment Request

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

FEDERAL RESERVE SYSTEM

FEDERAL DEPOSIT INSURANCE CORPORATION

Proposed Agency Information Collection Activities; Comment

Request

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury;

Board of Governors of the Federal Reserve System (Board); and Federal

Deposit Insurance Corporation (FDIC).

ACTION: Notice and request for comment.

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SUMMARY: In accordance with the requirements of the Paperwork Reduction

Act of 1995 (44 U.S.C. chapter 35), the OCC, the Board, and the FDIC

(the ``agencies'') 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 Office of Management and Budget (OMB)

control number. The Federal Financial Institutions Examination Council

(FFIEC), of which the agencies are members, has approved the agencies'

publication for public comment of proposed revisions to the

Consolidated Reports of Condition and Income (Call Report), which are

currently approved collections of information. At the end of the

comment period, the comments and recommendations received will be

analyzed to determine the extent to which the FFIEC should modify the

proposed revisions prior to giving its final approval. The agencies

will then submit the revisions to OMB for review and approval.

DATES: Comments must be submitted on or before November 30, 1998.

ADDRESSES: Interested parties are invited to submit written comments to

any or all of the agencies. All comments, which should refer to the OMB

control number(s), will be shared among the others.

OCC: Written comments should be submitted to the Communications

Divisions, Office of the Comptroller of the Currency, 250 E Street,

S.W., Third Floor, Washington, D.C. 20219; Attention: Paperwork Docket

No. 1557-0081 [FAX number (202) 874-5274; Internet address:

[email protected]]. Comments will be available for inspection

and photocopying at that address.

Board: Written comments should be addressed to Jennifer J. Johnson,

Secretary, Board of Governors of the Federal Reserve System, 20th and C

Streets, N.W., Washington, D.C. 20051, or delivered to the Board's mail

room between 8:45 a.m. and 5:15 p.m., and to the security control room

outside of those hours. Both the mail room and the security control

room are accessible from the courtyard entrance on 20th Street between

Constitution Avenue and C Street, N.W. Comments received may be

inspected in room M-P-500 between 9:00 a.m. and 5:00 p.m., except as

provided in Sec. 261.12 of the Board's Rules Regarding Availability of

Information, 12 CFR 261.12(a)

FDIC: Written comments should be addressed to Robert E. Feldman,

Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance

Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments

may be hand delivered to the guard station at the rear of the 550 17th

Street Building (located on F Street), on business days between 7:00

a.m. and 5:00 p.m. (Fax number: (202) 898-3838; Internet address:

[email protected]). Comments may be inspected and photocopied in the

FDIC Public Information Center, Room 100, 801 17th Street, N.W.,

Washington, D.C., between 9:00 a.m. and 4:30 p.m. on business days

A copy of the comments may also be submitted to the OMB desk

officer for the agencies: Alexander T. Hunt, Office of Information and

Regulatory Affairs, Office of Management and Budget, New Executive

Office Building, room 3208, Washington, D.C. 20503.

FOR FURTHER INFORMATION CONTACT:

A copy of the proposed revisions to the collections of information may

be requested from any of the agency clearance officers whose names

appear below

OCC: Jessie Gates, OCC Clearance Officer, or Camille Dixon, (202)

874-5090, Office of the Comptroller of the Currency, 20 E Street, S.W.,

Washington, D.C. 20219.

Board: Mary M. McLaughlin, Chief, Financial Reports Section, (202)

452-3829, Division of Research and Statistics, Board of Governors of

the Federal Reserve System, 20th and C Streets, N.W., Washington, D.C.

20551. Telecommunications Device for the Deaf (TDD) users may contact

Diane Jenkins, (202) 452-3544, Board of Governors of the Federal

Reserve System, 20th and C Streets, N.W., Washington, D.C. 20551.

FDIC: Steven F. Hanft, FDIC Clearance Officer, (202) 898-3907,

Office of the

[[Page 52795]]

Executive Secretary, Federal Deposit Insurance Corporation, 550 17th

Street N.W., Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION: Proposal to revise the following currently

approved collections of information:

Report Title: Consolidated Reports of Condition and Income.

Form Number: FFIEC 031, 032, 033, 034.\1\

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\1\ The FFIEC 031 report form is filed by banks with domestic

and foreign offices. The FFIEC 032 report form is filed by banks

with domestic offices only and total assets of $300 million or more.

The FFIEC 033 report form is filed by banks with domestic offices

only and total assets of $100 million or more but less than $300

million. The FFIEC 034 report form is filed by banks with domestic

offices only and total assets of less than $100 million.

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Frequency of Response: Quarterly.

Affected Public: Business or other for-profit.

For OCC

OMB Number: 1557-0081.

Estimated Number of Respondents: 2,650 national banks.

Estimated Time per Response: 39.92 burden hours.

Estimated Total Annual Burden: 423,205 burden hours.

For Board

OMB Number: 7100-0036.

Estimated Number of Respondents: 994 state member banks.

Estimated Time per Response: 45.80 burden hours.

Estimated Total Annual Burden: 182,101 burden hours.

For FDIC

OMB Number: 3064-0052.

Estimated Number of Respondents: 5,985 insured state nonmember

banks.

Estimated Time per Response: 29.67 burden hours.

Estimated Total Annual Burden: 710,300 burden hours.

The estimated time per response is an average which varies by

agency because of differences in the composition of the banks under

each agency's supervision (e.g., size distribution of banks, types of

activities in which they are engaged, and number of banks with foreign

offices). The time per response for a bank is estimated to range from

15 to 400 hours, depending on individual circumstances.

General Description of Report

This information collection is mandatory: 12 U.S.C. 161 (for

national banks), 12 U.S.C. 324 (for state member banks), and 12 U.S.C.

1817 (for insured state nonmember commercial and savings banks). Except

for select sensitive items, this information collection is not given

confidential treatment. Small businesses (i.e., small banks) are

affected.

Abstract

Banks file Consolidated Reports of Condition and Income with the

agencies each quarter for the agencies' use in monitoring the condition

and performance of reporting banks and the industry as a whole. In

addition, Call Reports provide the most current statistical data

available for evaluating bank corporate applications such as mergers,

for identifying areas of focus for both on-site and off-site

examinations, and for monetary and other public policy purposes. Call

Reports are also used to calculate all banks' deposit insurance and

Financing Corporation assessments and national banks' semiannual

assessment fees.

Current Actions

The agencies are proposing to delete the existing items for the

amortized cost and fair value of high-risk mortgage securities and for

losses deferred pursuant to 12 U.S.C. 1823(j). The deferred loss items

appear only on the FFIEC 034 report forms. New Items would be added for

accumulated gains (losses) associated with cash flow hedges and for the

year-to-date changes in this new component of equity capital. A new or

revised item would distinguish nonmortgage servicing assets from other

intangible assets. A number of instructional changes would be made,

primarily to incorporate recent changes in accounting standards, to

further conform with generally accepted accounting principles in other

areas, and to improve the reporting of certain regulatory capital

information.

Type of Review: Revision of a currently approved correction.

The proposed revisions to the Consolidated Reports of Condition and

Income (Call Report) have been approved for publication by the FFIEC.

Unless otherwise indicated, the agencies would implement these proposed

Call Report changes as of the March 31, 1999, report date and the

revisions would apply to all four sets of report forms (FFIEC 031, 032,

033, and 034). Nonetheless, as is customary for Call Report changes,

banks are advised that, for the March 31, 1999, report date, reasonable

estimates may be provided for any new or revised item for which the

requested information is not readily available. The specific wording of

the captions for the new Call Report items should be regarded as

preliminary.

Reductions in Detail

The agencies are proposing to eliminate two items applicable to all

banks and two items on the report forms for smaller banks, as follows:

(1) Schedule RC-B--Securities: Banks report the amortized cost and

fair value of ``High-risk mortgage securities'' in Memorandum items 8.a

and 8.b, respectively. The definition of high-risk mortgage securities

was taken from the Supervisory Policy Statement on Securities

Activities, which the FFIEC approved and the agencies adopted in

December 1991, effective February 10, 1992 (57 FR 4029, February 3,

1992). In April 1998, the FFIEC and the agencies rescinded this policy

statement and approved in its place a Supervisory Policy Statement on

Investment Securities and End-User Derivatives Activities, effective

May 26, 1998 (63 FR 20191, April 23, 1998). In adopting the new policy

statement, the agencies removed the previous policy statement's

specific constraints concerning investments in high-risk mortgage

securities, including its ``high risk'' tests, and substituted broader

guidance covering all investment securities, including the

establishment by each institution of appropriate risk limits.

Accordingly, the agencies are proposing to eliminate the two memorandum

items for high-risk mortgage securities.

(2) Schedule RC--Balance Sheet: The balance sheet on the FFIEC 034

report forms includes two items in which banks participating in the

agencies' agricultural loan loss deferral programs, which were mandated

by 12 U.S.C. 1823(j) in 1987, have reported the unamortized amount of

their deferred agricultural loan losses. Under these programs, all

deferred losses must be fully amortized by December 31, 1998. Because

participating banks will no longer have any deferred losses to report

after 1998, items 12.b, 12.c, 28.b, and 28.c will be deleted from the

balance sheet of the Call Report for small banks.

Accumulated Gains (Losses) Associated With Cash Flow Hedges

The Financial Accounting Standards Board (FASB) issued Statement

No. 133, Accounting for Derivative Instruments and Hedging Activities

(FAS 133), on June 16, 1998. This statement takes effect for fiscal

years beginning after June 15, 1999, with earlier application

encouraged. Banks must adopt FAS 133 for Call Report purposes upon its

effective date based on their fiscal year, with earlier application

permitted as described in the standard. Most banks have calendar year

fiscal years and, therefore, will not need this accounting

[[Page 52796]]

standard until January 1, 2000. However, some banks, primarily FDIC-

supervised savings banks, have fiscal years that will require them to

begin applying FAS 133 during 1999, e.g., beginning on July 1, 1999.

Furthermore, the earliest date as of which an institution can choose to

adopt this new accounting standard is July 1, 1998.

Under FAS 133, all derivatives must be reported as either assets or

liabilities on the balance sheet and must be carried at fair value. If

certain conditions are met, a derivative may be specifically designated

as a ``cash flow hedge.'' In a cash flow hedge, to the extent the hedge

is effective, the gain or loss on the derivative is initially reported

outside of earnings in a component of equity capital. The gain or loss

will subsequently go through earnings in the period or periods when the

transaction being hedged affects earnings. The ineffective portion of

the hedge is reported in earnings immediately.\2\

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\2\ If certain other conditions are met, a derivative may be

specifically designated as a ``fair value hedge'' or as a hedge of

the foreign currency exposure of a net investment in a foreign

operation. In these situations, the gain or loss on the derivative

is reported in a different manner than the gain or loss on a cash

flow hedge. If a derivative is not designated as a hedging

instrument, the gain or loss on the derivative is recognized in

current earnings.

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As part of the disclosure requirements of FAS 133, an entity must

disclose the accumulated gains (losses) associated with cash flow

hedges that are included in equity capital as of the balance sheet

date. An entity also must disclose the related net change associated

with cash flow hedging transactions during the reporting period and the

net amount of any reclassification of these gains (losses) into

earnings. Accordingly, the agencies are proposing to add two new items.

Banks would report the accumulated gains (losses) associated with cash

flow hedges, as of the report date, in a new item in the equity capital

section of the balance sheet (Schedule RC, item 26.c). Banks also would

report the year-to-date change in these accumulated gains (losses)

(i.e., net of any reclassification adjustment) in the changes in equity

capital schedule (Schedule RI-A, item 11.b). Existing item 11 on

Schedule RI-A would be remembered as item 11.a.

After a bank adopts FAS 133, derivatives held for purposes other

than trading must be reported as fair value on the balance sheet

(Schedule RC) in item 11, ``Other assets,'' or item 20, ``Other

liabilities,'' as appropriate. Derivatives held for trading will

continue to be reported at fair value on the balance sheet in Item 5,

``Trading assets,'' or item 15.b, ``Trading liabilities,'' as

appropriate.

The agencies request comment on whether banks will be adopting FAS

133 in 1998 or 1999, either earlier than required or because of the

beginning date of their fiscal year.

Nonmortgage Servicing Assets

On August 10, 1998, the agencies published a final rule amending

their regulatory capital treatment of servicing assets (63 FR 42668).

Under this amendment, nonmortgage servicing assets (NMSAs) will be

recognized (rather than deducted) for regulatory capital purposes.

However, these servicing assets are subject to the 25 percent of Tier 1

capital sublimit that previously applied only to purchased credit card

relationships (PCCRs). To date, banks have reported their NMSAs as part

of ``All other identifiable intangible assets,'' in item 6.b.(2) of

Call Report Schedule RC-M. This is because these intangibles generally

have been deducted in full from Tier 1 capital and from assets in

regulatory capital calculations. As a result of the revised regulatory

capital treatment of NMSAs, these assets need to be distinguished from

``All other identifiable intangible assets.'' This change is needed to

enable the agencies to verity the regulatory capital amounts that banks

report in the Call Report and to calculate their regulatory capital

ratios.

Therefore, the agencies are considering two reporting alternatives

to respond to this change in regulatory capital standards. One

alternative is to add a new item 6.b.(2) for ``Nonmortgage servicing

assets'' to Schedule RC-M and to renumber existing item 6.b.(2), ``All

other identifiable intangible assets,'' as item 6.b.(3). Another

alternative is to revise Schedule RC-M, item 6.b.(1). ``Purchased

credit card relationships,'' to include NMSAs because these two types

of intangibles are subject to the same Tier 1 capital sublimit. The

proposed caption for this item is ``Purchased credit card relationships

and nonmortgage servicing assets.'' Comments are requested on these two

alternatives.

Instructional Changes

Computer Software Costs

In March 1998, the American Institute of Certified Public

Accountants (AICPA) issued Statement of Position (SOP) 98-1, Accounting

for the Costs of Computer Software Developed or Obtained for Internal

Use. SOP 98-1 provides guidance on whether costs of internal-use

software should be capitalized (and then amortized) or expensed as

incurred. Internal-use software has the following characteristics: (a)

the software is acquired, internally developed, or modified solely to

meet the entity's internal needs, and (b) during the software's

development or modification, no substantive plan exists or is being

developed to market the software externally. This SOP is effective for

financial statements for fiscal years beginning after December 15,

1998. The SOP encourages earlier application in fiscal years for which

annual financial statements have not been issued. For Call Report

purposes, banks must adopt this SOP upon its effective date based on

their fiscal year. Early application is permitted in the Call Report in

accordance with the transition guidance in the SOP's. The Call Report

instructions will be revised to conform with SOP 98-1, including

replacing the current Glossary entry for ``Internally Developed

Computer Software'' with a new entry on computer software costs that

summarizes SOP 98-1 and other relevant accounting standards.

Costs of Start-Up Activities

In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of

Start-Up Activities. SOP 98-5 requires costs of start-up activities,

including organization costs, to be expensed as incurred. SOP 98-5

defines start-up activities broadly as ``those one-time activities

related to opening a new facility, introducing a new product or

service, conducting business in a new territory, conducting business

with a new class of customer or beneficiary, initiating a new process

in an existing facility, or commencing some new operation.'' This SOP

is effective for financial statements for fiscal years beginning after

December 15, 1998. The SOP encourages earlier application in fiscal

years for which annual financial statements have not been issued. For

Call Report purposes, banks must adopt this SOP upon its effective date

based on their fiscal year. Early application is permitted in the Call

Report in accordance with the transition guidance in the SOP. The Call

Report instructions will be revised to conform with SOP 98-5, including

replacing the current Glossary entry for ``Organization Costs'' with a

new entry on the costs of start-up activities that summarizes SOP 98-5.

Unsuitable Investment Practices

As mentioned above, the FFIEC and the agencies rescinded the

Supervisory Policy Statement on Securities Activities in April 1998 and

approved

[[Page 52797]]

in its place a Supervisory Policy Statement on Securities on Investment

Securities and End-User Derivatives Activities. The latter policy

statement does not retain the section of the former policy statement

addressing the reporting of securities activities, including a

description of practices considered unsuitable when conducted in a

institution's investment portfolio. In their Federal Register notice

publishing the Supervisory Policy Statement on Investment Securities

and End-User Derivatives Activities (63 FR 20191), the agencies stated

their intent to separately issue supervisory guidance on the reporting

of investment securities. The agencies are proposing to add guidance on

this reporting matter to the Glossary section of the Call Report

instructions. This approach will make guidance more readily accessible

to banks as they prepare their Call Reports.

Re-Booking Charged-Off Loans

When a bank makes a full or partial direct write-down of a loan or

lease that is uncollectible, the bank establishes a new cost basis for

the asset. Some banks have later attempted to reverse the previous

write-down and ``re-book'' the charged-off loan or lease after

concluding that the prospects for recovering the charge-off have

improved. Re-booking a charged-off loan is not an acceptable practice

under generally accepted accounting principles, and therefore, is not

acceptable for Call Report purposes. The Glossary entry for ``allowance

for loan and lease losses'' will be revised to indicate that once a new

cost basis has been established for a loan or lease through a direct

write-down of the asset, this cost basis may not be ``written up'' at

later date.

Goodwill Transactions

Under generally accepted accounting principles, goodwill and

similar intangible assets ordinarily cannot be disposed of apart from

an enterprise as a whole. However, an exception is made when a large

segment or separable group of assets of an acquired company or an

entire acquired company is sold or otherwise liquidated. In that case,

some or all of the unamortized goodwill recognized in the acquisition

should be included in the cost of the assets sold. GAAP further

provides that an intangible asset such as goodwill should not be

written off in the period of acquisition. Instead, an intangible asset

should be amortized over its estimated life. Some banks have attempted

to remove goodwill from their balance sheets by ``selling'' or

``dividending'' this asset to their parent hold company or by charging

it off in the year of acquisition. Because these transactions are not

appropriate under generally accepted accounting principles, the

agencies will revise the Glossary entry for ``business combinations''

and the instructions for Schedule RC-M, item 6.c, ``Goodwill,'' to

explain that these transactions are not acceptable for Call Report

purposes.

Reporting of Net Risk-Weighted Assets by Banks Subject to the Market

Risk Capital Guidelines

Banks that are subject to the market risk capital guidelines must

report the amount of their ``Market risk equivalent assets'' in

Schedule RC-R, item 3.d.(2). These banks report their ``Net risk-

weighted assets'' in item 3.d.(1) of this schedule, but the

instructions for this item specifically tell banks to exclude market

risk equivalent assets. The sum of the amounts reported in items

3.d.(1) and 3.d.(2) is the denominator of the bank's total risk-based

capital ratio.

In the Board's FR Y-9C bank holding company report, bank holding

companies that are subject to the market risk capital guidelines must

also report their ``market risk equivalent assets'' and their ``Net

risk-weighted assets.'' However, in contrast to the Call Report

instructions, the FR Y-9C instructions for reporting net risk-weighted

assets direct bank holding companies to include market risk equivalent

assets. This means that, for bank holding companies, the amount

reported for net risk-weighted assets is the denominator of the holding

company's total risk-based capital ratio.

In order to achieve greater consistency between the two reports,

the Call Report instructions for reporting ``Net risk-weighted assets''

will be revised to include market risk equivalent assets. The caption

for item 3.d.(2) of Schedule RC-R will be modified to read ``Market

risk equivalent assets included in net risk-weighted assets above.''

Because fewer than 20 banks are subject to the market risk capital

guidelines, this change will not affect the remaining 9,800 banks that

are not covered by these guidelines.

Calculating the Allowable Amount of the Allowance for Credit Losses for

a Bank With Low Level Recourse Transactions

The instructions for reporting low level recourse transactions in

Schedule RC-R--Regulatory Capital were revised in the first quarter of

1998 to give banks the option of using either the ``gross-up method''

or the ``direct reduction method.'' However, when this revision was

made, the instructions did not clearly explain how banks choosing the

``direct reduction method'' should calculate the amount of the

allowance for credit losses that can be included in Tier 2 capital. In

order to provide the necessary guidance on this calculation, the

instructions for Schedule RC-R will be revised. These instructions will

indicate that, for purposes of determining the Tier 2 capital limit on

the allowance for credit losses, a bank using the ``direct reduction

method'' for reporting its low level recourse transactions should

multiply its ``maximum contractual dollar amount of recourse exposure''

(as defined in the instructions) by 12.5 and include this product in

its gross risk-weighted assets. This gross risk-weighted-assets figure

multiplied by 1.25 percent would be the bank's Tier 2 limit on the

allowance for credit losses. The limit on the allowance would be fixed

at this amount and would not be changed after the bank calculates its

institution-specific add-on factor for low level recourse under the

``direct reduction method.'' Thus, a bank would measure its Tier 2

capital and its total risk-based capital prior to its application of

the ``direct reduction method'' and would not recalculate these two

amounts once the add-on factor was known.

Request for Comment

Comments submitted in response to this Notice will be shared among

the agencies and will be summarized or included in the agencies'

requests for OMB approval. All comments will become a matter of public

record. Written comments should address the accuracy of the burden

estimates and ways to minimize burden as well as other relevant aspects

of the information collection request. Comments are invited on:

Whether the proposed revisions to the Call Report collections of

information are necessary for the proper performance of the agencies'

functions including whether the information has practical utility;

The accuracy of the agencies' estimate of the burden of the

information collections as they are proposed to be revised, including

the validity of the methodology and assumptions used; Ways to enhance

the quality, utility, and clarity of the information to be collected;

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

Estimates of capital or start up costs and costs of operation,

maintenance,

[[Page 52798]]

and purchase of service to provide information.

Dated: September 23, 1998.

Karen Solomon,

Director, Legislative and Regulatory Activities Division, Office of the

Comptroller of the Currency.

Board of Governors of the Federal Reserve System, September 24,

1998.

Jennifer J. Johnson,

Secretary of the Board.

Dated at Washington, D.C., this 25th day of September, 1998.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 98-26225 Filed 9-30-98; 8:45 am]

BILLING CODES 4810-33-M, 6210-01-M, 6714-01-M