[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18230-18240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06753]
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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: The Board of Governors of the Federal Reserve System (Board)
is adopting a proposal to extend for three years, with revision, the
Financial Statements for Holding Companies (FR Y-9 reports; OMB No.
7100-0128). The revisions are applicable as of March 31, 2020, June 30,
2020, and March 31, 2021.
FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance
Officer--Nuha Elmaghrabi--Office of the Chief Data Officer, Board of
Governors of the Federal Reserve System, Washington, DC 20551, (202)
452-3829. Office of Management and Budget (OMB) Desk Officer--Alex
Goodenough--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. A
copy of the Paperwork Reduction Act (PRA) OMB submission, including the
reporting form and instructions, supporting statement, and other
documentation will be placed into OMB's public docket files. These
documents also are available on the Federal Reserve Board's public
website at https://www.federalreserve.gov/apps/reportforms/review.aspx
or may be requested from the agency clearance officer, whose name
appears above.
SUPPLEMENTARY INFORMATION: On June 15, 1984, OMB delegated to the Board
authority under the PRA to approve and assign OMB control numbers to
collections of information conducted or sponsored by the Board. Board-
approved collections of information are incorporated into the official
OMB inventory of currently approved collections of information. Copies
of the PRA Submission, supporting statements, and approved collection
of information instrument(s) are placed into OMB's public docket files.
Final Approval Under OMB Delegated Authority of the Extension for Three
Years, With Revision of the Following Information Collection
Report Title: Financial Statements for Holding Companies.
Agency form number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR
Y-9CS.
OMB control number: 7100-0128.
Effective Date: March 31, 2020, June 30, 2020, March 31, 2021.
Frequency: Quarterly, semiannually, and annually.
Respondents: Bank holding companies, savings and loan holding
companies,\1\ securities holding companies, and U.S. intermediate
holding companies (collectively, HCs).
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\1\ An SLHC must file one or more of the FR Y-9 series of
reports unless it is: (1) A grandfathered unitary SLHC with
primarily commercial assets and thrifts that make up less than 5
percent of its consolidated assets; or (2) a SLHC that primarily
holds insurance-related assets and does not otherwise submit
financial reports with the SEC pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934.
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Estimated number of respondents: FR Y-9C (non-advanced approaches
HCs CBLR) with less than $5 billion in total assets): 71; FR Y-9C (non-
advanced approaches HCs CBLR) with $5 billion or more in total assets):
35; FR Y-9C (non-advanced approaches HCs non-CBLR) with less than $5
billion in total assets): 84; FR Y-9C (non-advanced approaches HCs non-
CBLR) with $5 billion or more in total assets): 154; FR Y-9C (advanced
approaches HCs): 19; FR Y-9LP: 434; FR Y-9SP: 3,960; FR Y-9ES: 83; FR
Y-9CS: 236.
Estimated average hours per response:
Reporting
FR Y-9C (non-advanced approaches HCs CBLR) with less than $5
billion in total assets): 29.14 hours; FR Y-9C (non-advanced approaches
HCs CBLR) with $5 billion or more in total assets): 35.11 hours; FR Y-
9C (non-advanced approaches HCs non-CBLR) with less than $5 billion in
total assets): 40.98 hours; FR Y-9C (non-advanced approaches HCs non-
CBLR) with $5 billion or more in total assets): 46.95 hours; FR Y-9C
(advanced approaches HCs): 48.59 hours; FR Y-9LP: 5.27 hours; FR Y-9SP:
5.40 hours; FR Y-9ES: 0.50 hours; FR Y-9CS: 0.50 hours.
Recordkeeping
FR Y-9C (non-advanced approaches HCs with less than $5 billion in
total assets), FR Y-9C (non-advanced approaches HCs with $5 billion or
more in total assets), FR Y-9C (advanced approaches HCs), and FR Y-9LP:
1.00 hour; FR Y-9SP, FR Y-9ES, and FR Y-9CS: 0.50 hours.
[[Page 18231]]
Estimated annual burden hours:
Reporting
FR Y-9C (non-advanced approaches HCs CBLR) with less than $5
billion in total assets): 8,276 hours; FR Y-9C (non-advanced approaches
HCs CBLR) with $5 billion or more in total assets): 4,915 hours; (non-
advanced approaches HCs non-CBLR) with less than $5 billion in total
assets): 13,769 hours; FR Y-9C (non-advanced approaches HCs non-CBLR)
with $5 billion or more in total assets): 28,921 hours; FR Y-9C
(advanced approaches HCs): 3,693 hours; FR Y-9LP: 9,149 hours; FR Y-
9SP: 42,768 hours; FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.
Recordkeeping
FR Y-9C: 1,452 hours; FR Y-9LP: 1,736 hours; FR Y-9SP: 3,960 hours;
FR Y-9ES: 42 hours; FR Y-9CS: 472 hours.
General description of report:
The FR Y-9C consists of standardized financial statements similar
to the Call Reports filed by commercial banks.\2\ The FR Y-9C collects
consolidated data from HCs and is filed quarterly by top-tier HCs with
total consolidated assets of $3 billion or more.\3\
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\2\ The Call Reports consist of the Consolidated Reports of
Condition and Income for a Bank with Domestic Offices Only and Total
Assets Less Than $5 Billion (FFIEC 051), the Consolidated Reports of
Condition and Income for a Bank with Domestic Offices Only (FFIEC
041) and the Consolidated Reports of Condition and Income for a Bank
with Domestic and Foreign Offices (FFIEC 031).
\3\ Under certain circumstances described in the FR Y-9C's
General Instructions, HCs with assets under $3 billion may be
required to file the FR Y-9C.
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The FR Y-9LP, which collects parent company only financial data,
must be submitted by each HC that files the FR Y-9C, as well as by each
of its subsidiary HCs.\4\ The report consists of standardized financial
statements.
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\4\ A top-tier HC may submit a separate FR Y-9LP on behalf of
each of its lower-tier HCs.
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The FR Y-9SP is a parent company only financial statement filed
semiannually by HCs with total consolidated assets of less than $3
billion. In a banking organization with total consolidated assets of
less than $3 billion that has tiered HCs, each HC in the organization
must submit, or have the top-tier HC submit on its behalf, a separate
FR Y-9SP. This report is designed to obtain basic balance sheet and
income data for the parent company, and data on its intangible assets
and intercompany transactions.
The FR Y-9ES is filed annually by each employee stock ownership
plan (ESOP) that is also an HC. The report collects financial data on
the ESOP's benefit plan activities. The FR Y-9ES consists of four
schedules: A Statement of Changes in Net Assets Available for Benefits,
a Statement of Net Assets Available for Benefits, Memoranda, and Notes
to the Financial Statements.
The FR Y-9CS is a free-form supplemental report that the Board may
utilize to collect critical additional data deemed to be needed in an
expedited manner from HCs. The data are used to assess and monitor
emerging issues related to HCs, and the report is intended to
supplement the other FR Y-9 reports. The data items included on the FR
Y-9CS may change as needed.
Legal authorization and confidentiality: The Board has the
authority to impose the reporting and recordkeeping requirements
associated with the Y-9 family of reports on bank holding companies
(``BHCs'') pursuant to section 5 of the Bank Holding Company Act (``BHC
Act''), (12 U.S.C. 1844); on savings and loan holding companies
pursuant to section 10(b)(2) and (3) of the Home Owners' Loan Act, (12
U.S.C. 1467a(b)(2) and (3)), as amended by sections 369(8) and
604(h)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (``Dodd-Frank Act''); on U.S. intermediate holding companies
(``U.S. IHCs'') pursuant to section 5 of the BHC Act, (12 U.S.C. 1844),
as well as pursuant to sections 102(a)(1) and 165 of the Dodd-Frank
Act, (12 U.S.C. 511(a)(1) and 5365); \5\ and on securities holding
companies pursuant to section 618 of the Dodd-Frank Act, (12 U.S.C.
1850a(c)(1)(A)). The obligation to submit the FR Y-9 series of reports,
and the recordkeeping requirements set forth in the respective
instructions to each report, are mandatory.
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\5\ Section 165(b)(2) of Title I of the Dodd-Frank Act, (12
U.S.C. 5365(b)(2)), refers to ``foreign-based bank holding
company.'' Section 102(a)(1) of the Dodd-Frank Act, (12 U.S.C.
5311(a)(1)), defines ``bank holding company'' for purposes of Title
I of the Dodd-Frank Act to include foreign banking organizations
that are treated as bank holding companies under section 8(a) of the
International Banking Act, (12 U.S.C. 3106(a)). The Board has
required, pursuant to section 165(b)(1)(B)(iv) of the Dodd-Frank
Act, (12 U.S.C. 5365(b)(1)(B)(iv)), certain foreign banking
organizations subject to section 165 of the Dodd-Frank Act to form
U.S. intermediate holding companies. Accordingly, the parent
foreign-based organization of a U.S. IHC is treated as a BHC for
purposes of the BHC Act and section 165 of the Dodd-Frank Act.
Because Section 5(c) of the BHC Act authorizes the Board to require
reports from subsidiaries of BHCs, section 5(c) provides additional
authority to require U.S. IHCs to report the information contained
in the FR Y-9 series of reports.
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With respect to the FR Y-9C report, Schedule HI's item 7(g) ``FDIC
deposit insurance assessments,'' Schedule HC-P's item 7(a)
``Representation and warranty reserves for 1-4 family residential
mortgage loans sold to U.S. government agencies and government
sponsored agencies,'' and Schedule HC-P's item 7(b) ``Representation
and warranty reserves for 1-4 family residential mortgage loans sold to
other parties'' are considered confidential commercial and financial
information. Such treatment is appropriate under exemption 4 of the
Freedom of Information Act (``FOIA''), (5 U.S.C. 552(b)(4)), because
these data items reflect commercial and financial information that is
both customarily and actually treated as private by the submitter, and
which the Board has previously assured submitters will be treated as
confidential. It also appears that disclosing these data items may
reveal confidential examination and supervisory information, and in
such instances, this information would also be withheld pursuant to
exemption 8 of the FOIA, (5 U.S.C. 552(b)(8)), which protects
information related to the supervision or examination of a regulated
financial institution.
In addition, for both the FR Y-9C report and the FR Y-9SP report,
Schedule HC's memorandum item 2.b., the name and email address of the
external auditing firm's engagement partner, is considered confidential
commercial information and protected by exemption 4 of the FOIA, (5
U.S.C. 552(b)(4)), if the identity of the engagement partner is treated
as private information by HCs.
Aside from the data items described above, the remaining data items
on the FR Y-9C report and the FR Y-9SP report are generally not
accorded confidential treatment. The data items collected on FR Y-9LP,
FR Y-9ES, and FR Y-9CS \6\ reports, are also generally not accorded
confidential treatment. As provided in the Board's Rules Regarding
Availability of Information (12 CFR part 261), however, a respondent
may request confidential treatment for any data items the respondent
believes should be withheld pursuant to a FOIA exemption. The Board
will review any such request to determine if confidential treatment is
appropriate, and will inform the respondent if the request for
confidential treatment has been denied.
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\6\ The FR Y-9CS is a supplemental report that may be utilized
by the Board to collect additional information that is needed in an
expedited manner from HCs. The information collected on this
supplemental report is subject to change as needed. Generally, the
FR Y-9CS report is treated as public. However, where appropriate,
data items on the FR Y-9CS report may be withheld under exemptions 4
and/or 8 of the Freedom of Information Act, (5 U.S.C. 552(b)(4) and
(8)).
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To the extent that the instructions, to the FR Y-9C, FR Y-9LP, FR
Y-9SP, and FR Y-9ES reports, each respectively direct a financial
institution to retain the workpapers and related materials
[[Page 18232]]
used in preparation of each report, such material would only be
obtained by the Board as part of the examination or supervision of the
financial institution. Accordingly, such information may be considered
confidential pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)).
In addition, the financial institution's workpapers and related
materials may also be protected by exemption 4 of the FOIA, to the
extent such financial information is treated as confidential by the
respondent (5 U.S.C. 552(b)(4)).
Current Actions
Overview
On December 27, 2019, the Board published an initial notice in the
Federal Register (84 FR 71414) requesting public comment for 60 days on
the extension for three years, with revision, of the FR Y-9 reports.
The comment period for this notice expired on February 25, 2020. The
Board proposed revisions to the FR Y-9 reports that would have
implemented, for regulatory reporting purposes, various recent changes
to the Board's regulatory capital rule.\7\ The changes to the Board's
regulatory capital rule included in the December 2019 notice related to
the capital simplifications rule, the community bank leverage ratio
(CBLR) rule, the standardized approach for counterparty credit risk
(SA-CCR) on derivative contracts, and the high volatility commercial
real estate (HVCRE) land development rule, all discussed further below.
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\7\ 12 CFR part 217.
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The Board also proposed, in the December 2019 notice, instructional
revisions for the reporting of operating lease liabilities and home
equity lines of credit (HELOCs) that convert from revolving to non-
revolving status.
The Board received one comment, from a bankers' association, on the
proposed extension, with revision, of the FR Y-9 reports.
In connection with the December 2019 notice, the Board also
considered comments submitted regarding a proposal to make similar
revisions to the Call Reports \8\ in order to promote consistency
between the Call Reports and the FR Y-9 reports. The Board, Federal
Deposit Insurance Corporation (FDIC), and Office of the Comptroller of
the Currency (OCC) (the agencies) received comments on the proposed
Call Report changes from four entities: Three bankers' associations and
one savings association. These comments are addressed in the following
sections of this notice.
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\8\ 85 FR 4780 (January 27, 2020)
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After considering the comments received on the December 2019
notice, as well as the comments on the recent proposed changes to the
Call Report, the Board is adopting the reporting changes proposed in
the December 2019 notice with modifications discussed in the following
sections of this notice.
The Board has adopted final rules for all of the regulatory capital
rulemakings addressed in the December 2019 notice. The capital-related
reporting changes discussed in the December 2019 notice will be
effective in the same quarters as the effective dates of the various
final capital rules.
Proposed Revisions to the FR Y-9C
Simplifications Rule
The Board proposed to revise the FR Y-9C to implement the Board's
final rule to simplify certain aspects of the capital rule
(simplifications rule), which made a number of changes to the
calculation of common equity tier 1 (CET1) capital, additional tier 1
capital, and tier 2 capital for non-advanced approaches holding
companies that do not apply to advanced approaches
institutions.9 10 The simplifications rule results in
different calculations for these tiers of regulatory capital for non-
advanced approaches holding companies and advanced approaches HCs. To
reflect the effects of the simplifications rule for non-advanced
approaches HCs, the Board proposed to adjust the existing regulatory
capital calculations reported on Schedule HC-R, Part I. Although the
proposed report would have included two sets of calculations (for non-
advanced approaches HCs and advanced approaches HCs), a HC would have
been required to complete only the set applicable to that holding
company.
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\9\ 84 FR 35234 (July 22, 2019).
\10\ In general, an advanced approaches HC, as defined in the
Board's Regulation Q, has consolidated total assets of $250 billion
or more, has consolidated total on-balance sheet foreign exposure of
$10 billion or more, has a subsidiary depository institution that
uses the advanced approaches to calculate its total risk-weighted
assets, or elects to use the advanced approaches to calculate its
total risk-weighted assets. See 12 CFR 217.100.
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The simplifications rule provides for certain amendments to the
capital rule, associated with the proposed reporting revisions to the
FR Y-9C, with an effective date of April 1, 2020. On October 29, 2019,
the Board issued a final rule that permits non-advanced approaches
banking organizations to implement the simplifications rule on January
1, 2020.\11\ As a result, non-advanced approaches HCs have the option
to implement the simplifications rule on the revised effective date of
January 1, 2020, or wait until the quarter beginning April 1, 2020. The
Board proposed revisions to Schedule HC-R, Regulatory Capital, to
implement the associated changes to the capital rule effective as of
the March 31, 2020, report date, consistent with the simplifications
rule's optional effective date.
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\11\ 84 FR 61804 (November 13, 2019).
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The Board proposed a number of revisions that would have simplified
the capital calculations on Schedule HC-R, Part I and Part II, and
thereby reduced burden. As previously mentioned, the proposed FR Y-9C
would have included two sets of calculations (one that incorporates the
effects of the simplifications rule and another that does not);
therefore, a holding company would have been required to complete only
the column for the set of calculations applicable to that holding
company. For the March 31, 2020, report date, non-advanced approaches
HCs that elect to adopt the simplifications rule on January 1, 2020,
would have been required to complete the column for the set of
calculations that incorporates the effects of the simplifications rule.
Non-advanced approaches HCs that elect to wait to adopt the
simplifications rule on April 1, 2020, and all advanced approaches
holding companies would have been required to complete the column for
the set of calculations that does not reflect the effects of this rule
(i.e., that reflects the capital calculation in effect for all holding
companies before this revision). Beginning with the June 30, 2020,
report date, all non-advanced approaches holding companies would have
been required to complete the column for the set of calculations that
incorporates the effects of the simplifications. The advanced
approaches holding companies would have been required to complete the
column that does not reflect the effects of the simplifications rule.
Currently, the regulatory capital calculations in FR Y-9C Schedule
HC-R provide that a holding company's capital cannot include mortgage
servicing assets (MSAs), certain temporary difference deferred tax
assets (DTAs), and significant investments in the common stock of
unconsolidated financial institutions in an amount greater than 10
percent of CET1 capital, on an individual basis, and that those three
data items combined cannot comprise more than 15 percent of CET1
capital. Under the simplifications rule, the Board increased the
threshold for MSAs, DTAs that could not be realized
[[Page 18233]]
through net operating loss carrybacks (temporary difference DTAs),\12\
and investments in the capital of unconsolidated financial institutions
for non-advanced approaches HCs. The Board proposed to revise Schedule
HC-R to permit non-advanced approaches HCs to include as capital MSAs
and temporary difference DTAs up to 25 percent of CET1 capital, on an
individual basis. In addition, the 15 percent aggregate limit would
have been be removed, and, the Board would have revised the capital
calculation for minority interest included in the various capital
categories for non-advanced approaches HCs and the calculation of the
capital conservation buffer.
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\12\ The Board notes that the Tax Cuts and Jobs Act, Public Law
115-97, 131 Stat. 2054 (2017), eliminated the concept of net
operating loss carrybacks for U.S. federal income tax purposes,
although the concept may still exist in particular jurisdictions for
state or foreign income tax purposes.
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The simplifications rule also combined the current three categories
of investments in financial institutions (non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are in the form of common stock, and significant investments in
the capital of unconsolidated financial institutions that are not in
the form of common stock) into a single category: Investments in the
capital of unconsolidated financial institutions. The simplifications
rule will apply a limit of 25 percent of CET1 capital on the amount of
these investments that can be included in capital. Any investments in
excess of the 25 percent limit would be deducted from capital using the
corresponding deduction approach.\13\ The Board proposed to revise the
FR Y-9C to implement this change.
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\13\ See 84 FR 35234 (July 22, 2019).
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Consistent with the current capital rule, a holding company must
risk weight MSAs, temporary difference DTAs, and investments in the
capital of unconsolidated financial institutions that are not deducted.
As a result of the simplifications rule, non-advanced approaches
banking organizations will not be required to differentiate among
categories of investments in the capital of unconsolidated financial
institutions. The risk weight for such equity exposures generally will
be 100 percent, provided the exposures qualify for this risk
weight.\14\ For non-advanced approaches banking organizations, the
simplifications rule eliminates the exclusion of significant
investments in the capital of unconsolidated financial institutions in
the form of common stock from being eligible for a 100 percent risk
weight.\15\ The application of the 100 percent risk weight (i) requires
a banking organization to follow an enumerated process for calculating
the adjusted carrying value, and (ii) mandates the inclusion of equity
exposures to determine whether the threshold has been reached. Equity
exposures that do not qualify for a preferential risk weight will
generally receive risk weights of either 300 percent or 400 percent,
depending on whether the equity exposures are publicly traded.\16\ The
Board proposed to revise the FR Y-9C to implement this change, as
discussed below.
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\14\ Note that for purposes of calculating the 10 percent
nonsignificant equity bucket, the capital rule excludes equity
exposures that are assigned a risk weight of zero percent or 20
percent and community development equity exposures and the effective
portion of hedge pairs, both of which are assigned a 100 percent
risk weight. In addition, the 10 percent non-significant bucket
excludes equity exposures to an investment firm that would not meet
the definition of traditional securitization were it not for the
application of criterion 8 of the definition of traditional
securitization, and has greater than immaterial leverage.
\15\ Equity exposures that exceed, in the aggregate, 10 percent
of a non-advanced approaches banking organization's total capital
would then be assigned a risk weight based upon the approaches
available in sections 217.52 and 217.53 of the capital rule. 12 CFR
217.52 and .53.
\16\ See 84 FR 35234 (July 22, 2019).
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In order to implement these regulatory capital changes, a number of
revisions were proposed to Schedule HC-R, Part I, for non-advanced
approaches HCs. Specifically, the Board proposed to create two columns
for existing items 11 through 19 on the FR Y-9C. Column A would have
been reported by non-advanced approaches HCs that elect to adopt the
simplifications rule on January 1, 2020, in the March 31, 2020, FR Y-9C
report and by all non-advanced approaches HCs beginning in the June 30,
2020, FR Y-9C report using the definitions under the simplifications
rule. Column A would not have included items 11 or 16, and items 13
through 15 would have been designated as items 13.a, column A through
item 15.a, column A to reflect the new calculation methodology. Column
B would have been reported by advanced approaches HCs and by non-
advanced approaches HCs that elect to wait to adopt the simplifications
rule on April 1, 2020, in the March 31, 2020, FR Y-9C report and only
by advanced approaches HCs beginning in the June 30, 2020, FR Y-9C
report using the existing definitions. Existing items 13 through 15
would have been designated as items 13.b, column B through item 15.b,
column B to reflect continued use of the existing calculation
methodology.
With respect to the revisions related to the capital calculation
for minority interests, the Board proposed to modify the FR Y-9C
instructions to reflect the ability of non-advanced approaches HCs to
use the revised method under the simplifications rule to calculate
minority interest in existing items 4, 22, and 39 (CET1, additional
tier 1, and tier 2 minority interest, respectively).
In addition, as a result of certain changes made by the capital
simplifications rule, the Board proposal would have clarified when a
holding company must report the amount of distributions and
discretionary bonus payments in Schedule HC-R, Part I, item 48 (which
would have been renumbered as item 52). The Board would have clarified
the instructions for renumbered item 52 to explain that an institution
must report the amount of distributions and discretionary bonus
payments made during the calendar quarter ending on the report date, if
the amount of its capital conservation buffer that it reported for the
previous calendar quarter-end report date was less than its applicable
required buffer percentage on that previous calendar quarter-end report
date. This change would have enhanced the Board's ability to monitor
compliance with the limitations on distributions and discretionary
bonus payments. Holding companies would have been required to comply
with this instructional clarification beginning with the March 31,
2020, report date.
The Board received no comments regarding the proposed revisions to
the FR Y-9C related to the capital simplifications rule, and the
comments received on the Call Reports were not applicable to these
proposed revisions. The Board has adopted the proposed revisions to the
FR Y-9C related to the simplifications rule without modification.
Community Bank Leverage Ratio
The Board proposed to revise the FR Y-9C to implement a simplified
alternative measure of capital adequacy, the community bank leverage
ratio (CBLR), for qualifying HCs with less than $10 billion in total
consolidated assets. The proposed revisions would have aligned the FR
Y-9C with the CBLR final rule,\17\ which implemented section 201 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA).\18\ The
[[Page 18234]]
proposed revisions to the FR Y-9C would have become effective for the
March 31, 2020, report date, the first report date in respect of which
a HC could elect to opt into the framework established by the community
leverage bank ratio final rule (CBLR framework).
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\17\ 84 FR 61776 (November 13, 2019).
\18\ See Public Law 115-174, 132 Stat. 1296 (2018).
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Under the CBLR final rule, HCs that have less than $10 billion in
total consolidated assets, meet risk-based qualifying criteria, and
have a leverage ratio of greater than 9 percent would be eligible to
opt into the CBLR framework. A HC that opts into the CBLR framework,
maintains a leverage ratio of greater than 9 percent, and continues to
meet the other qualifying criteria will be considered to have satisfied
the generally applicable risk-based and leverage capital requirements
and any other capital or leverage requirements to which it is
subject.\19\
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\19\ 84 FR 61776 (November 13, 2019).
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Under the CBLR final rule, a holding company that opts into the
CBLR framework (CBLR HC) may opt out of the CBLR framework at any time,
without restriction, by reverting to the generally applicable capital
requirements in the Board's capital rule and reporting its regulatory
capital information in the FR Y-9C Schedule HC-R, ``Regulatory
Capital,'' Parts I and II, at the time of opting out.
As described in the CBLR final rule, a CBLR HC that no longer meets
the qualifying criteria for the CBLR framework will be required within
two consecutive calendar quarters (grace period) either to satisfy once
again the qualifying criteria or demonstrate compliance with the
generally applicable capital requirements. During the grace period, the
HC would continue to be treated as a CBLR HC and would be required to
report its leverage ratio and related components in FR Y-9C Schedule
HC-R, Part I.\20\ A CBLR HC that ceases to meet the qualifying criteria
as a result of a business combination (such as a merger) will receive
no grace period, and will immediately become subject to the generally
applicable capital requirements. Similarly, a CBLR HC that fails to
maintain a leverage ratio greater than 8 percent would not be permitted
to use the grace period and would immediately become subject to the
generally applicable capital requirements.\21\
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\20\ For example, if the CBLR HC no longer meets one of the
qualifying criteria as of February 15, and still does not meet the
criteria as of the end of that quarter, the grace period for such an
HC will begin as of the end of the quarter ending March 31. The
banking organization may continue to use the CBLR framework as of
June 30, but will need to comply fully with the generally applicable
rule (including the associated reporting requirements) as of
September 30, unless the HC once again meets all qualifying criteria
of the CBLR framework, including a leverage ratio of greater than 9
percent, by that date.
\21\ 84 FR 61776 (November 13, 2019).
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The Board proposed to incorporate revisions related to the CBLR
framework into Schedule HC-R, Part I. As provided in the CBLR final
rule, the numerator of the community bank leverage ratio will be tier 1
capital, which is currently reported on Schedule HC-R, Part I, item 26.
Therefore, the Board did not propose any changes related to the
numerator of the CBLR.
As provided in the planned CBLR final rule, the denominator of the
community bank leverage ratio will be average total consolidated
assets. Specifically, average total consolidated assets would be
calculated in accordance with the existing reporting instructions for
Schedule HC-R, Part I, items 36 through 39. The Board did not propose
any substantive changes related to the denominator of the community
bank leverage ratio. However, the Board proposed to move existing items
36 through 39 of Schedule HC-R, Part I, and renumber them as items 27
through 30 of Schedule HC-R, Part I, to consolidate all of the CBLR-
related capital items earlier in Schedule HC-R, Part I.
As provided in the CBLR final rule, an HC will calculate its
community bank leverage ratio by dividing tier 1 capital by average
total consolidated assets (as adjusted), and the community bank
leverage ratio would be reported as a percentage, rounded to four
decimal places. Since this calculation is essentially identical to the
existing calculation of the tier 1 leverage ratio in Schedule HC-R,
Part I, item 44, the Board did not propose a separate item for the
community bank leverage ratio in Schedule HC-R, Part I. Instead, the
Board proposed to move the tier 1 leverage ratio from item 44 of Part I
and renumber it as item 31, and rename the item to the Leverage Ratio,
as this ratio would apply to all HCs (as the community bank leverage
ratio for qualifying HCs or the tier 1 Leverage Ratio for all other
HCs).
As provided in the CBLR final rule, a CBLR bank will need to
satisfy certain qualifying criteria in order to be eligible to opt into
the CBLR framework. The proposed items identified below would have
collected information necessary to ensure that a HC continuously meets
the qualifying criteria for using the CBLR framework.
Qualifying Criteria for Using the CBLR Framework
A HC will need to satisfy certain qualifying criteria to be
eligible to opt into the CBLR framework. The proposed items below would
have collected the information necessary to ensure that an HC
continuously meets the qualifying criteria for using the CBLR
framework. Specifically, a qualifying HC must not be an advanced
approaches HC and must meet the following criteria:
A leverage ratio of greater than 9 percent;
Total consolidated assets of less than $10 billion;
Total trading assets and trading liabilities of 5 percent
or less of total consolidated assets; and
Total off-balance sheet exposures (excluding derivatives
other than sold credit derivatives and unconditionally cancelable
commitments) of 25 percent or less of total consolidated assets.\22\
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\22\ As provided in the CBLR final rule, the Board would reserve
the authority to disallow the use of the CBLR framework by an HC
based on the risk profile of the HC. This authority derives from the
general reservation of authority included in the Board's Regulation
Q, in which the CBLR framework is codified. See 12 CFR 217.1(d).
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Accordingly, the Board proposed to collect the items described
below from CBLR HCs only:
In proposed item 32 of Schedule HC-R, Part I, a CBLR HC
would have reported total assets, as reported in Schedule HC, item 12.
In proposed item 33, a CBLR HC would have reported the sum
of trading assets from Schedule HC, item 5, and trading liabilities
from Schedule HC, item 15, in Column A. The HC would also have reported
that sum divided by total assets from Schedule HC, item 12, and
expressed as a percentage in Column B. As provided in the CBLR final
rule, trading assets and trading liabilities would have been added
together, not netted, for purposes of this calculation. Also as
discussed in the CBLR final rule, a HC would not meet the definition of
a qualifying community banking organization for purposes of the CBLR
framework if the percentage reported in Column B were greater than 5
percent.
In proposed items 34.a through 34.d, a CBLR HC would have
reported information related to commitments, other off-balance sheet
exposures, and sold credit derivatives.
--In proposed item 34.a, a CBLR HC would have reported the unused
portion of conditionally cancellable commitments. This amount would
have been the amount of all unused commitments less the amount of
[[Page 18235]]
unconditionally cancellable commitments, as discussed in the CBLR final
rule and defined in the agencies' capital rule.\23\ This item would
have been calculated consistent with the sum of Schedule HC-R, Part II,
items 18.a and 18.b, Column A.
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\23\ See definition of ``unconditionally cancellable'' in 12 CFR
217.2.
---------------------------------------------------------------------------
--In proposed item 34.b, a CBLR HC would have reported total securities
lent and borrowed, which would have been the sum of Schedule HC-L,
items 6.a and 6.b.
--In proposed item 34.c, a CBLR HC would have reported the sum of
certain other off-balance sheet exposures and sold credit derivatives.
Specifically, a CBLR HC would have reported the sum of self-
liquidating, trade-related contingent items that arise from the
movement of goods; transaction-related contingent items (performance
bonds, bid bonds, warranties, and performance standby letters of
credit); sold credit protection in the form of guarantees and credit
derivatives; credit-enhancing representations and warranties; financial
standby letters of credit; forward agreements that are not derivative
contracts; and off-balance sheet securitizations. A CBLR HC would not
have included derivatives that are not sold credit derivatives, such as
foreign exchange swaps and interest rate swaps, in proposed item 34.c.
--In proposed item 34.d, a CBLR HC would have reported the sum of
proposed items 34.a through 34.c in Column A. The HC would also have
reported that sum divided by total assets from Schedule HC, item 12,
and expressed as a percentage in Column B. As discussed in the CBLR
final rule, a HC would not have been eligible to opt into the CBLR
framework if this percentage is greater than 25 percent.
In proposed item 35, a CBLR HC would have reported the
total of unconditionally cancellable commitments, which would have been
calculated consistent with the instructions for existing Schedule HC-R,
Part II, item 19. This item would not have been used specifically to
calculate a HC's eligibility for the CBLR framework. However, the Board
proposed to collect this information in order to monitor balance sheet
exposures that are not reflected in the CBLR framework and to identify
any CBLR HCs with elevated concentrations in unconditionally
cancellable commitments.
In proposed item 36, a CBLR HC would have reported the
amount of investments in the capital instruments of an unconsolidated
financial institution that would qualify as tier 2 capital. Since the
CBLR framework does not have a total capital requirement, a CBLR HC is
neither required to calculate tier 2 capital nor make any deductions
that would be taken from tier 2 capital. Therefore, if a CBLR HC has
investments in the capital instruments of an unconsolidated financial
institution that would qualify as tier 2 capital of the CBLR HC under
the generally applicable capital requirements (tier 2 qualifying
instruments), and the CBLR HC's total investments in the capital of
unconsolidated financial institutions exceed 25 percent of its CET1
capital, the CBLR HC is not required to deduct the tier 2 qualifying
instruments. A CBLR HC is required to make a deduction from CET1
capital or T1 capital only if the sum of its investments in the capital
of an unconsolidated financial institution is in a form that would
qualify as CET1 capital or T1 capital instruments of the CBLR HC and
the sum exceeds the 25 percent CET1 threshold. However, the Board
believes it is important to continue collecting information on the
amount of investments in these capital instruments in order to identify
any instances where such activity potentially creates an unsafe or
unsound practice or condition.
Because a CBLR HC would not be subject to the generally applicable
capital requirements, a CBLR HC would not have been required to
complete any of the items in Schedule HC-R, Part I, after proposed item
36, nor would the holding company have been required to complete
Schedule HC-R, Part II, Risk-Weighted Assets.
In connection with moving the leverage ratio calculations and
inserting items for the CBLR qualifying criteria in Schedule HC-R, Part
I, existing items 27 through 35 of Schedule HC-R, Part I, would have
been renumbered as items 37 through 45. Existing items 40 through 43
would have been renumbered as items 46 through 49, while existing items
46 through 48 would have been renumbered as items 50 through 52. For
advanced approaches HCs, existing item 45 for total leverage exposure
and the supplementary leverage ratio, would have been renumbered as
item 53.
A CBLR HC would have indicated that it has elected to apply the
CBLR framework by completing Schedule HC-R, Part I, items 32 through
36. HCs not subject to the CBLR framework would have been required to
report all data items in Schedule HC-R, Part I, except for items 32
through 36.
Comments Received and Final CBLR Rule Reporting Revisions
The Board did not receive any comments on the FR Y-9C report
related to the CBLR changes. However, the Board considered comments
received on the Call Report proposal, and adopted changes on the FR Y-
9C to maintain consistency with the Call Report. Several comments were
received on the Call Report proposal related to the CBLR proposed
changes. One commenter supported the proposed line item additions to
Schedule RC-R, Part I, to support changes to the leverage ratio, but
another commenter recommended removing proposed items 35 through 38.c
(items 37 through 38.c are not applicable to the FR Y-9C) of Part I
because the data to be reported are not qualifying criteria under the
CBLR framework. Two commenters did not favor the proposal to move
existing items 36 through 39 of Schedule RC-R, Part I, which are used
to measure total assets for the leverage ratio, and existing item 44,
``Tier 1 leverage ratio,'' from their present locations in Part I of
the schedule to an earlier position in Part I where all of the CBLR-
related items would have been reported, with these five items
renumbered as items 27 through 31. One of the commenters stated that,
although this proposed change in the presentation of Part I of Schedule
RC-R would not affect the results of individual items in Part I, the
proposed new presentation could be confusing to end users of the
schedule. The second commenter expressed concern about inserting the
data items for the CBLR framework within existing Schedule RC-R, Part
I, rather than in a separate version of the schedule, as had been
originally proposed in April 2019, because the insertion of these data
items would be confusing and could lead to reporting errors. Thus, this
commenter suggested a break-up of the proposed revised structure of
Part I of Schedule RC-R into three separate parts, with existing Part
II of Schedule RC-R becoming the fourth part of the schedule. In
addition, this commenter noted that an institution that is eligible to
opt into the CBLR framework may opt into and out of the framework at
any time, and that there is a grace period for an institution that no
longer meets the qualifying criteria for the CBLR framework.
The Board has considered these comments on the Call Report and will
retain proposed FR Y-9C items 35 through 36 for reporting by CBLR
[[Page 18236]]
holding companies in Schedule HC-R, Part I, as proposed for the reasons
cited in the December 2019 notice. While these items are not used
specifically to calculate a holding company's eligibility for the CBLR
framework, the Board considers collecting information on
unconditionally cancellable commitments or investments in the tier 2
capital instruments important for identifying instances where such
activity potentially creates an unsafe or unsound practice or
condition.
The Board will also retain the proposed movement of the data items
related to the leverage ratio to a position immediately after the
calculation of tier 1 capital (designated items 27 through 31 of
Schedule HC-R, Part I, as it would be revised) as well as the placement
of the proposed data items to be completed only by CBLR holding
companies, including those within the grace period (designated items 32
through 36 of Schedule HC-R, Part I, as it would be revised). Because
all holding companies are subject to a leverage ratio requirement, all
institutions must calculate and report the ratio's numerator, which is
tier 1 capital, and its denominator, which is based on average total
assets. As a consequence, items 1 through 31 of Part I would be
applicable to and completed by all institutions. Moving the leverage
ratio data items as proposed would allow CBLR holding companies to
avoid completing the remainder of Schedule HC-R after item 36 of Part
I. The Board considers this option less confusing for CBLR holding
companies than having to complete the leverage ratio items in their
current location, which is after numerous items that will not be
applicable to CBLR holding companies.
Furthermore, the Board will modify the formatting of Schedule HC-R,
Part I, to better distinguish the data items that should be completed
only by CBLR holding companies and those that should be completed only
by those institutions applying the generally applicable capital
requirements. This will be accomplished by improving the captioning
before Schedule HC-R, Part I, item 32, which is the first data item to
be completed only by CBLR holding companies, and between items 36,
which is the final data item only for CBLR holding companies banks, and
item 37, which is the first data item applicable only to other
institutions subject to the generally applicable capital requirements.
The portion of Schedule HC-R, Part I, applicable only to CBLR holding
companies also will be marked by bordering. These modifications to the
formatting of Part I should functionally achieve an outcome similar to
the comment suggesting that Part I be split into Parts 1, 2, and 3 with
existing Part II then renumbered as Part 4.
In addition, the Board acknowledges that, under the CBLR final
rule, a holding company that is eligible to opt into the CBLR framework
may choose to opt into or out of this framework at any time and for any
reason. Accordingly, the Board agrees with the commenter's
recommendation that an institution should report its status as of the
report date regarding the use of the CBLR framework. Therefore, the
Board will add a ``yes/no'' item 31.a to Schedule HC-R, Part I, after
item 31, ``Leverage ratio,'' in which each holding company would report
whether it has a CBLR framework election in effect as of the quarter-
end report date. An institution would answer ``yes'' if it qualifies
for the CBLR framework (even if it is within the grace period) and has
elected to adopt the framework as of that report date. Otherwise, the
institution would answer ``no.'' Captioning after the ``yes/no''
response to item 31.a would indicate which of the subsequent data items
in Schedule HC-R should be completed based on the response to item
31.a. This ``yes/no'' response should assist a holding company in
understanding which specific data items it should complete in the rest
of Schedule HC-R. The response also should assist users of Schedule HC-
R in understanding the regulatory capital regime an institution is
following as of the report date. The Board is not adopting a
commenter's recommendation to add additional data items relating to use
of the CBLR, for example by differentiating between holding companies
that currently meet the CBLR qualifying criteria and those that are
within the grace period, as the Board does not need this additional
level of detail in the FR Y-9C report.
The Board is adopting modifications to the format and structure of
Part I of Schedule HC-R to limit the burden on reporting institutions
and lessen possible confusion for both qualifying community
institutions that elect to adopt the CBLR framework and other data
users.
Aside from these changes, the Board has adopted the proposed
revisions to the FR Y-9C related to the CBLR.
Standardized Approach for Counterparty Credit Risk on Derivatives
The Board proposed to revise the FR Y-9C instructions to implement
changes to the capital rule regarding how to calculate the exposure
amount of derivative contracts (the standardized approach for
counterparty credit risk, or ``SA-CCR'') that were implemented by final
rule (the ``SA-CCR final rule'').\24\
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\24\ 85 FR 4362 (January 24, 2020).
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The SA-CCR final rule amends the capital rule by replacing the
current exposure methodology (CEM) with SA-CCR for advanced approaches
HCs. The final rule requires holding companies subject to Category I
and II standards (Category I and II holding companies) under the
Board's tailoring final rule \25\ to use SA-CCR to calculate their
standardized total risk-weighted assets and permits non-advanced
approaches banking organizations the option of using SA-CCR in place of
CEM to calculate the exposure amount of their noncleared and cleared
derivative contracts.
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\25\ 84 FR 59230 (November 1, 2019).
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Category I and II banking organizations will have to choose either
SA-CCR or the internal models methodology (IMM) to calculate the
exposure amount of their noncleared and cleared derivative contracts in
connection with calculating their risk-based capital under the advanced
approaches. The SA-CCR final rule provides for the eventual elimination
of the current methods for Category I and II banking organizations to
determine the risk-weighted asset amount for their default fund
contributions to a central counterparty (CCP) or a qualifying central
counterparty (QCCP) and implements a new and simpler method that would
be based on the banking organization's pro rata share of the CCP's and
QCCP's default fund. However, the final rule allows banking
organizations that elect to use SA-CCR to continue to use method 1 and
method 2 under CEM to calculate the risk-weighted asset amount for
default fund contributions until January 1, 2022.
Under the SA-CCR final rule, a non-advanced approaches HC will be
able to use either CEM or SA-CCR to calculate the exposure amount of
any noncleared and cleared derivative contracts and to determine the
risk-weighted asset amount of any default fund contributions under the
standardized approach. A HC that meets the criteria for a banking
organization subject to Category III standards \26\ will also use
[[Page 18237]]
SA-CCR for calculating its supplementary leverage ratio if it chooses
to use SA-CCR to calculate its derivative and default fund exposures.
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\26\ The Board's final tailoring rule, approved on October 10,
2019, describes a Category III banking organization generally as a
banking organization with $250 billion or more in total consolidated
assets that is not a global systemically important bank (GSIB) nor
has significant international activity, or a banking organization
with total consolidated assets of $100 billion or more, but less
than $250 billion, that meets or exceeds other specified risk-based
indicators. See ``Prudential Standards for Large Bank Holding
Companies, Savings and Loan Holding Companies, and Foreign Banking
Organizations,'' 84 FR 59032 (November 1, 2019).
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Accordingly, the Board proposed to revise the instructions for HC-R
Part II, consistent with the SA-CCR final rule. Generally, the proposed
revisions to the reporting of derivatives elements in Schedule HC-R,
Part II, were driven by differences in the methodology for determining
the exposure amount of a derivative contract under SA-CCR relative to
CEM. The General Instructions for Schedule RC-R, Part II, and the
instructions for Schedule RC-R, Part II, items 20, 21, and Memorandum
items 1 through 3 would have been revised. These proposed revisions
would have been effective for the June 30, 2020, report date, the same
quarter as the effective date of the SA-CCR final rule, with a
mandatory compliance date of January 1, 2022.
Comments Received and Instructions for Reporting Derivatives
The Board received a comment from a bankers' association requesting
additional clarification to the FR Y-9C instructions that conform to
changes on the Call Report related to certain derivatives reporting
issues. The Call Report commenters sought clarification as to whether,
for purposes of reporting derivatives referred to as settled-to-market
contracts in Memorandum item 3, the remaining maturity of such
derivatives should be the remaining maturity used to determine the
conversion factor for the calculation of the potential future exposures
(PFE) of these contracts or the contractual remaining maturity of these
contracts. The derivatives information reported in Memorandum items 1
through 3 of Schedule HC-R, Part II, is collected to assist the Board
in understanding, and assessing the reasonableness of, the credit
equivalent amounts of the over-the-counter derivatives and the
centrally cleared derivatives reported in Schedule HC-R, Part II, items
20 and 21, column B. Accordingly, when reporting settled-to-market
centrally cleared derivative contracts in Memorandum item 3, the
remaining maturity used to determine the applicable conversion factor
should be the basis for reporting. The Board revised the instructions
for Schedule HC-R, Part II, Memorandum item 3, to clarify the reporting
of settled-to-market centrally cleared derivative contracts.
The commenter on the Call Report proposal also expressed concerns
related to the reporting of notional amounts in Schedule HC-R by
institutions that use SA-CCR. The commenter recommended that the
notional amounts for institutions that use SA-CCR should be based on
the contractual notional amount, i.e., the notional amount as defined
in U.S. generally accepted accounting principles, consistent with
current practice in Schedule HC-R. Institutions report the notional
amounts of over-the-counter and centrally cleared derivative contracts
by remaining maturity in Schedule HC-R, Part II, Memorandum items 2 and
3. After considering this comment, the Board will clarify the
instructions for Schedule HC-R, Part II, Memorandum items 2 and 3, to
indicate that all institutions, including those that use SA-CCR to
calculate exposure amounts, should report contractual notional amounts.
The Board also clarified the reporting instructions to Schedule HC-L
that all notional amounts should be based on U.S. GAAP contractual
notional amounts.
The commenter recommended that the Board revise the FR Y-9C
instructions on reporting of notional amounts in Schedule HC-L,
Derivatives and Off-Balance Sheet Items, and Schedule HC-R, Part II,
Risk-Weighted Assets, for derivatives that have matured, but have
associated unsettled receivables or payables that are reported as
assets or liabilities, respectively, on the balance sheet as of the
quarter-end report date. In seeking clarification of the reporting
requirements for such situations, the commenter recommended not
reporting the notional amounts for derivatives that have matured. The
Board agrees and has clarified the FR Y-9C, Schedule HC-L and Schedule
HC-R, instructions to exclude reporting of the notional amounts of
derivatives that have matured. The Board considered another comment
received on the Call Report regarding clarification on whether the
client facing leg of a derivative cleared through a central
counterparty or a qualified central counterparty should be reported as
an OTC or centrally cleared derivative. The Board has clarified the FR
Y-9C instructions for HC-R, Part II, items 20 and 21 to clarify that
such derivatives should be reported in HC-R, Part II, item 20, as an
over-the-counter derivative.
Two Call Report commenters addressed the reporting of the fair
value of collateral held against over-the-counter (OTC) derivative
exposures by type of collateral and type of derivative counterparty in
Schedule RC-L, item 16.b, and questioned whether this information is
meaningful. One commenter requested clarification of the purpose for
collecting this information while the other recommended no longer
collecting this information. The data items for reporting the fair
value of collateral are applicable to institutions with total assets of
$10 billion or more. In general, the Board uses this information
collected on the FR Y-9C in its oversight and supervision of holding
companies engaging in OTC derivative activities. The breakdown of the
fair value of collateral posted for OTC derivative exposures in
Schedule HC-L, item 15.b provides the Board with important insights
into the extent to which collateral is used as part of the credit risk
management practices associated with derivative credit exposures to
different types of counterparties and changes over time in the nature
and extent of the collateral protection.
Aside from the changes discussed above, the Board has adopted the
proposed revisions to the FR Y-9C relating to SA-CCR.
High Volatility Commercial Real Estate (HVCRE)
The Board proposed to revise the FR Y-9C instructions to implement
changes to the HVCRE exposure definition in section 2 of the capital
rule \27\ to conform to the statutory definition of an HVCRE
Acquisition, Development, or Construction (ADC) loan (HVCRE final
rule).\28\ The revisions align the capital rule with section 214 of the
EGRRCPA to exclude from the definition of HVCRE exposure credit
facilities that finance the acquisition, development, or construction
of one- to four-family residential properties.\29\
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\27\ 12 CFR part 217.2.
\28\ 84 FR 68019 (December 13, 2019).
\29\ Section 214 became effective upon enactment of the EGRRCPA.
Accordingly, on July 6, 2018, the Board, along with the Office of
the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation (FDIC), issued a statement advising
institutions that, when determining which loans should be subject to
a heightened risk weight, they may choose to continue to apply the
current regulatory definition of HVCRE exposure, or they may choose
to apply the heightened risk weight only to those loans they
reasonably believe meet the definition of ``HVCRE ADC loan'' set
forth in section 214 of the EGRRCPA. See Board, FDIC, and OCC,
Interagency statement regarding the impact of the Economic Growth,
Regulatory Relief, and Consumer Protection Act (EGRRCPA). https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180706a1.pdf.
The Board temporarily implemented this revision to the FR Y-9C
through an emergency PRA clearance that permitted, but did not
require, a HC to use the definition of HVCRE ADC loan in place of
the existing definition of HVCRE loan.
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The HVCRE final rule also clarifies the definition of HVCRE
exposure in the capital rule by adding a new paragraph that provides
that the exclusion for one-
[[Page 18238]]
to four-family residential properties would not include credit
facilities that solely finance land development activities, such as the
laying of sewers, water pipes, and similar improvements to land,
without any construction of one- to four-family residential structures.
In order for a loan to be eligible for this exclusion, the credit
facility is required to include financing for construction of one- to
four-family residential structures.
The Board proposed to make conforming revisions to the instructions
for Schedule HC-R, Part II, items 4.b and 5.b in order to implement the
HVCRE final rule for all reporting HCs.
The Board received no comments on these proposed revisions for
HVCRE and will implement them as proposed.
Operating Lease Liabilities
In February 2016, the FASB issued ASU No. 2016-02, ``Leases,''
which added Topic 842, Leases, to the Accounting Standards Codification
(ASC). Once ASU 2016-02 is effective for a holding company, the ASU's
accounting requirements, as amended by certain subsequent ASUs,
supersede ASC Topic 840, Leases.
The most significant change that ASC Topic 842 makes to the
previous lease accounting requirements is to lessee accounting. Under
the lease accounting standards in ASC Topic 840, lessees recognize
lease assets and lease liabilities on the balance sheet for capital
leases, but do not recognize operating leases on the balance sheet. The
lessee accounting model under Topic 842 retains the distinction between
operating leases and capital leases, which the new standard labels
finance leases. However, the new standard requires lessees to record a
right-of-use (ROU) asset and a lease liability on the balance sheet for
operating leases. (For finance leases, a lessee's lease asset also is
designated an ROU asset.) In general, the new standard permits a lessee
to make an accounting policy election to exempt leases with a term of
one year or less at their commencement date from on-balance sheet
recognition.
For HCs that are public business entities, as defined under U.S.
GAAP, ASU 2016-02 is effective for fiscal years beginning after
December 15, 2018, including interim reporting periods within those
fiscal years. For HCs that are not public business entities, at
present, the new standard is effective for fiscal years beginning after
December 15, 2019, and interim reporting periods within fiscal years
beginning after December 15, 2020. Early application of the new
standard is permitted for all HCs.
The Board proposed to revise the FR Y-9C instructions to implement
changes for operating leases to be reported as other liabilities
instead of other borrowings for regulatory reporting purposes. The
proposed changes would have better aligned the reporting of the single
noninterest expense item for operating leases in the income statement
(which is the presentation required by ASC Topic 842) with their
balance sheet classification.
The FR Y-9C Report Supplemental Instructions for March 2019 \30\
stated that a lessee should report lease liabilities for operating
leases and finance leases, including lease liabilities recorded upon
adoption of the ASU, in Schedule HC-M, item 14, ``Other borrowings,''
which is consistent with the current FR Y-9C instructions for reporting
a lessee's obligations under capital leases under ASC Topic 840. In
response to this instructional guidance, the Board received questions
from HCs concerning the reporting of a bank lessee's lease liabilities
for operating leases. These HCs indicated that reporting operating
lease liabilities as other liabilities instead of other borrowings
would better align the reporting of the single noninterest expense item
for operating leases in the income statement (which is the presentation
required by ASC Topic 842) with their balance sheet classification and
would be consistent with how these HCs report operating lease
liabilities internally.
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\30\ https://www.federalreserve.gov/reportforms/supplemental/SI_FRY9_201903.pdf.
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The Board agrees with the views expressed by these HCs and proposed
to require that operating lease liabilities be reported on the FR Y-9C
balance sheet in Schedule HC, item 20, ``Other liabilities.'' In
Schedule HC-G, Other Liabilities, operating lease liabilities would be
reported in item 4, ``Other'' effective March 31, 2020. The Board
received no comments on these proposed revisions for operating lease
liabilities and will implement them as proposed.
Reporting Home Equity Lines of Credit That Convert From Revolving to
Non-Revolving Status
Holding companies report the amount outstanding under revolving,
open-end lines of credit secured by 1-4 family residential properties
(commonly known as home equity lines of credit or HELOCs) in item
1.c.(1) of Schedule HC-C, Loans and Lease Financing Receivables. The
amounts of closed-end loans secured by 1-4 family residential
properties are reported in Schedule HC-C, item 1.c.(2)(a) or (b),
depending on whether the loan is a first or a junior lien.\31\
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\31\ Holding companies report additional information on open-end
and closed-end loans secured by 1-4 family residential properties in
certain other FR Y-9C schedules in accordance with the loan category
definitions in Schedule HC-C, items 1.c.(1), 1.c.(2)(a), and
1.c.(2)(b).
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A HELOC is a line of credit secured by a lien on a 1-4 family
residential property that generally provides a draw period followed by
a repayment period. During the draw period, a borrower has revolving
access to unused amounts under a specified line of credit. During the
repayment period, the borrower can no longer draw on the line of
credit, and the outstanding principal is either due immediately in a
balloon payment or repaid over the remaining loan term through monthly
payments. The FR Y-9C instructions previously did not address the
reporting treatment for a home equity line of credit when it reaches
its end-of-draw period and converts from revolving to nonrevolving
status. This led to inconsistency in how these credits were reported in
Schedule HC-C, items 1.c.(1), 1.c.(2)(a), and 1.c.(2)(b), and in other
holding company items that use the definitions of these three loan
categories.
To address this absence of instructional guidance and promote
consistency in reporting, the Board proposed to clarify the
instructions for reporting loans secured by 1-4 family residential
properties by specifying that after a revolving open-end line of credit
has converted to non-revolving closed-end status, the loan should be
reported as closed-end in Schedule HC-C, item 1.c.(2)(a) or (b), as
appropriate.
The Board believes that it is important to collect accurate data on
loans secured by 1-4 family residential properties in the FR Y-9C
report. Consistent classification of HELOCs based on the status of the
draw period is particularly important for the Board's safety and
soundness monitoring. Due to the structure of HELOCs discussed above,
borrowers generally are not required to make principal repayments
during the draw period, which may create a financial shock for
borrowers when they must make a balloon payment or begin regular
monthly repayments after the draw period. Some HCs have reported HELOCs
past the draw period as revolving, and this practice increases the
amounts outstanding, charge-offs, recoveries, past dues, and
nonaccruals reported in the open-end category relative to the amounts
reported by HCs that treat HELOCs past the draw period
[[Page 18239]]
as closed-end, which makes the data less useful for analysis and safety
and soundness monitoring. In addition, in Accounting Standards Update
No. 2019-04,\32\ the FASB amended ASC Subtopic 326-20 on credit losses
to require that, when presenting credit quality disclosures in notes to
financial statements prepared in accordance with U.S. GAAP, an entity
must separately disclose line-of-credit arrangements that are converted
to term loans from line-of-credit arrangements that remain in revolving
status. The Board determined that there would be little or no impact to
the regulatory capital calculations or other regulatory reporting
requirements as a result of this clarification. Therefore, the Board
proposed to clarify the FR Y-9C instructions for Schedule HC-C, items
1.c.(1), 1.c.(2)(a), and 1.c.(2)(b), to state that revolving open-end
lines of credit that have converted to non-revolving closed-end status
should be reported as closed-end loans. The effect of this
clarification would have extended to the instructions for numerous data
items elsewhere in the FR Y-9C that reference the Schedule HC-C, Part
I, loan category definitions for open-end and closed-end loans secured
by 1-4 family residential properties and were identified in the
December 2019 notice.
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\32\ Accounting Standards Update No. 2019-04, ``Codification
Improvements to Topic 326, Financial Instruments--Credit Losses,
Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments,'' issued in April 2019.
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In light of prior comments regarding the time needed for any
systems changes, the Board proposed that compliance with the clarified
instructions would not have been required until the March 31, 2021,
report date. The Board's December 2019 notice further proposed that
institutions not currently reporting in accordance with the clarified
instructions would have been permitted, but not required, to report in
accordance with the clarified instructions before that date.
Comments Received and Final Reporting Revisions
The Board received a comment from a bankers' association requesting
that the Board ensure consistency across regulatory reports by
modifying the proposed reporting of HELOCs in line with comments on
proposed Call Report changes. In connection with the Call Report
proposal, three commenters opposed the proposal to require that HELOCs
that have converted to non-revolving closed-end status should be
reported as closed-end loans. Commenters cited the numerous data items
in multiple Call Report schedules that would be affected by this
proposed instructional clarification and the reconfiguration of systems
that would need to be undertaken as well as a definitional conflict
between the Call Report instructions as proposed for clarification and
the instructions for the Board's FR Y-14M report filed by holding
companies with total consolidated assets of $100 billion or more.\33\
In addition, one commenter stated that the proposed Call Report
instructional clarification may lead to inconsistencies between the
reporting of HELOCs in open-end and closed-end status in the Call
Report and disclosures of HELOCs made in filings with the Securities
and Exchange Commission under the federal securities laws. Another
commenter cited differences in the risk profiles of loans underwritten
as HELOCs and those underwritten as closed-end loans at origination and
indicated that the proposed instructional clarification could distort
performance trends for loans secured by 1-4 family residential
properties as HELOCs migrate between the open-end and closed-end loan
categories in the Call Report. Two of the commenters opposing the
proposed instructional clarification instead recommended the creation
of a memorandum item in the Call Report loan schedule (Schedule RC-C,
Part I) to identify for supervisory purposes the amount of HELOCs that
have converted to non-revolving closed-end status. The other commenter
suggested segregating closed-end HELOCs using a separate loan category
code, which may also imply separate reporting and disclosure of such
HELOCs.
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\33\ Capital Assessments and Stress Testing Report (FR Y-14M),
OMB Number 7100-0341.
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One Call Report commenter also requested that the agencies clarify
the reporting treatment for ``drawdowns of a HELOC Flex product that
contain `lock-out' features,'' which was described as the borrower's
exercise of an option to convert a draw on the line of credit to ``a
fixed rate interest structure with defined payments and term.''
After considering the comments received on the FR Y-9C proposal and
the Call Report comments, the Board will not implement the proposed
clarification to the instructions for Schedule HC-C, Part I, items
1.c.(1), 1.c.(2)(a), and 1.c.(2)(b) that would have resulted in
revolving, open-end lines of credit secured by 1-4 family residential
properties that have converted to non-revolving closed-end status being
reported as closed-end loans. In light of the guidance in the
instructions for the Board's FR Y-14M report that directs reporting
entities to continue to report HELOCs that are no longer revolving
credits in the Home Equity schedule, the Board will adopt this
treatment for FR Y-9C purposes. However, recognizing the existing
diversity in practice in which some institutions report HELOCs that
have converted from revolving to non-revolving status as closed-end
loans in the FR Y-9C while other institutions continue to report such
HELOCs as open-end loans, the Board will instruct institutions to
report all HELOCs that convert to closed-end status on or after January
1, 2021, as open-end loans in Schedule HC-C, Part I, item 1.c.(1). A
holding company that currently reports HELOCs that have converted to
non-revolving closed-end status as open-end loans in Schedule HC-C,
Part I, item 1.c.(1), should not change its reporting practice for
these loans and should continue to report these loans in item 1.c.(1)
regardless of their conversion date. A holding company that currently
reports HELOCs that convert to non-revolving closed-end status as
closed-end loans in Schedule HC-C, Part I, item 1.c.(2)(a) or
1.c.(2)(b), as appropriate, may continue to report HELOCs that convert
on or before December 31, 2020, as closed-end loans in FR Y-9C for
report dates after that date. Alternatively, the institution may choose
to begin reporting some or all of these closed-end HELOCs as open-end
loans in item 1.c.(1) as of the March 31, 2020, or any subsequent
report date, provided this reporting treatment is consistently applied.
With respect to HELOC Flex products, the proposed reporting treatment
described above would mean that amounts drawn on a HELOC during its
draw period that a borrower converts to a closed-end amount before the
end of this period also should be reported as open-end loans in
Schedule HC-C, Part I, item 1.c.(1), subject to the transition guidance
above.
The Board also agrees with commenter's suggestion to create a
memorandum item in Schedule HC-C, Part I, in which institutions would
report the amount of HELOCs that have converted to non-revolving
closed-end status that are included in item 1.c.(1), ``Revolving, open-
end loans secured by 1-4 family residential properties and extended
under lines of credit.'' This new Memorandum item 15 in Schedule HC-C,
Part I, would enable the Board to monitor the proportion of an
institution's home equity credits in revolving and non-revolving status
and changes therein and assess whether changes in this proportion in
relation to
[[Page 18240]]
changes in past due and nonaccrual home equity credits and charge-offs
and recoveries of such credits warrant supervisory follow-up. To
provide time needed for any systems changes, the Board will implement
this new memorandum item as of the March 31, 2021.
Timing
As stated in the December 2019 notice, the Board planned to make
the capital-related reporting changes described above to be effective
the same quarters as the effective dates of the various final capital
rules discussed in this notice. Thus, the reporting revisions to the FR
Y-9C, as applicable, will take effect March 31, 2020, for the capital
simplifications rule and the community bank leverage ratio rule. Non-
advanced approaches institutions may elect to wait to adopt the capital
simplifications rule for reporting purposes until the June 30, 2020,
report date. The reporting revisions to the FR Y-9C, as applicable,
will take effect June 30, 2020, for the standardized approach for
counterparty credit risk on derivative contracts final rule and the
high volatility commercial real estate exposures final rule. However,
the mandatory compliance date for reporting in accordance with the
standardized approach for counterparty credit risk final rule is the
March 31, 2022, report date.
In addition, the reporting of operating lease liabilities as ``All
other liabilities'' in FR Y-9C will take effect March 31, 2020, and the
change in the reporting of construction, land development, and other
land loans with interest reserves in FR Y-9 Schedule HC-C, Part I, will
take effect March 31, 2021. The requirement to continue reporting
HELOCs that convert to closed-end status as open-end loans in Schedule
HC-C, Part I, will apply to those HELOCs that convert on or after
January 1, 2021, with pre-2021 conversions subject to the transition
guidance described in Section II.I. above; new Memorandum item 15 in
Schedule HC-C, for HELOCs in non-revolving closed-end status that are
reported as open-end loans will take effect March 31, 2021.
The specific wording of the captions for the new or revised FR Y-9C
data items discussed in this notice and the numbering of these data
items should be regarded as preliminary, and may be changed prior to
the effective date of these items.
Proposed Revisions to the FR Y-9CS
The Board proposed to revise the FR Y-9CS to clarify that response
to the report is voluntary. No comments were received during the
comment period.
Board of Governors of the Federal Reserve System, March 27,
2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-06753 Filed 3-31-20; 8:45 am]
BILLING CODE 6210-01-P