[Federal Register Volume 84, Number 248 (Friday, December 27, 2019)]
[Notices]
[Pages 71414-71421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27850]
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FEDERAL RESERVE SYSTEM
Proposed Agency Information Collection Activities; Comment
Request
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice, request for comment.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
invites comment on a proposal to extend for three years, with revision,
the Financial Statements for Holding Companies (FR Y-9 Reports; OMB No.
7100-0128).
DATES: Comments must be submitted on or before February 25, 2020.
ADDRESSES: You may submit comments, identified by FR Y-9 Reports by any
of the following methods:
Agency Website: https://www.federalreserve.gov/. Follow
the instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Email: [email protected]. Include the OMB
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
All public comments are available from the Board's website at
https://www.federalreserve.gov/apps/foia/proposedregs.aspx as
submitted, unless modified for technical reasons or to remove
personally identifiable information at the commenter's request.
Accordingly, comments will not be edited to remove any identifying or
contact information. Public comments may also be viewed electronically
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006,
between 9:00 a.m. and 5:00 p.m. on weekdays. For security reasons, the
Board requires that visitors make an appointment to inspect comments.
You may do so by calling (202) 452-3684. Upon arrival, visitors will be
required to present valid government-issued photo identification and to
submit to security screening in order to inspect and photocopy
comments.
Additionally, commenters may send a copy of their comments to the
Office of Management and Budget (OMB) Desk Officer--Shagufta Ahmed--
Office of Information and Regulatory Affairs, Office of Management and
Budget, New Executive Office Building, Room 10235, 725 17th Street NW,
Washington, DC 20503, or by fax to (202) 395-6974.
FOR FURTHER INFORMATION CONTACT: A copy of the 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, if approved. These documents will also be made
available on the 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 below.
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.
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. In
exercising this delegated authority, the Board is directed to take
every reasonable step to solicit comment. In determining whether to
approve a collection of information, the Board will consider all
comments received from the public and other agencies.
Request for Comment on Information Collection Proposal
The Board invites public comment on the following information
collection, which is being reviewed under
[[Page 71415]]
authority delegated by the OMB under the PRA. Comments are invited on
the following:
a. Whether the proposed collection of information is necessary for
the proper performance of the Board's functions, including whether the
information has practical utility;
b. The accuracy of the Board's estimate of the burden of the
proposed information collection, including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
At the end of the comment period, the comments and recommendations
received will be analyzed to determine the extent to which the Board
should modify the proposal.
Proposal Under OMB Delegated Authority To Extend for Three Years, With
Revision, 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.
Frequency: Quarterly, Semi-annually, annually, and on occasion.
Respondents: Bank holding companies, certain savings and loan
holding companies,\1\ any 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): 106; FR Y-9C (non-advanced approaches HCs non-CBLR): 237; FR
Y-9C (advanced approaches HCs): 20; FR Y-9LP: 434; FR Y-9SP: 3,960; FR
Y-9ES: 83; FR Y-9CS: 236.
Estimated average hours per response: FR Y-9C (non-advanced
approaches HCs CBLR): 35.00 hours; FR Y-9C (non-advanced approaches HCs
non-CBLR): 46.84 hours; FR Y-9C (advanced approaches HCs): 47.59 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.
Estimated annual burden hours: FR Y-9C (non-advanced approaches HCs
CBLR): 14,840 hours; FR Y-9C (non-advanced approaches HCs non-CBLR):
44,404 hours; FR Y-9C (advanced approaches HCs): 3,807 hours; FR Y-9LP:
9,149 hours; FR Y-9SP: 42,768 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 (OMB No. 7100-0036) 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 collects basic balance sheet and income data for
the parent company, as well as 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 voluntary free-form supplemental report that the
Board may utilize to collect critical additional data from HCs deemed
to be needed in an expedited manner. The FR Y-9CS data collections 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
requested by the FR Y-9CS would depend on the Board's data needs in a
given situation. For example, changes made by the Financial Accounting
Standards Board (FASB) may introduce into U.S. generally accepted
accounting principles (U.S. GAAP) new data items that are not currently
collected by the other FR Y-9 reports. The Board could use the FR Y-9CS
report to collect these data until the items are implemented into the
other FR Y-9 reports.\5\
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\5\ The FR Y-9CS was most recently used by the Board on June 30,
2008. In that collection, data were requested from banking
organizations implementing an Advanced Measurement Approach to
calculate operational risk capital under the Basel II Risk-Based
Capital Framework. The report was used to conduct a voluntary Loss
Data Collection Exercise (LDCE) relating to operational risk.
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Proposed revisions: The Board proposes to revise the FR Y-9C to
implement various changes to the Board's capital rule that the Board
has recently finalized. Each of the revisions to the FR Y-9C would take
effect the same quarter as the effective date of the relevant
associated revision to the Board's capital rule. The Board is also
proposing an instructional revision for the reporting of operating
leases on the FR Y-9C that would take effect March 31, 2020, as well as
a FR Y-9C instructional change for home equity lines of credit that
convert from revolving to non-revolving status that would take effect
March 31, 2021. Finally, the Board proposes to revise the FR Y-9CS to
clarify that response to the report is voluntary. Additional details
are provided below for each of these proposed changes.
Simplifications Rule
The Board proposes 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.6 7 The
[[Page 71416]]
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 proposes to adjust the
existing regulatory capital calculations reported on Schedule HC-R,
Part I. Although the report would include two sets of calculations (for
non-advanced approaches HCs and advanced approaches HCs), a HC would
complete only the set applicable to that holding company.
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\6\ 84 FR 35234 (July 22, 2019).
\7\ 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 has 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.\8\ 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 proposes 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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\8\ See FR press release, dated October 29, 2019. https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20191029a2.pdf.
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Additionally, the Board is proposing a number of revisions that
would simplify the capital calculations on Schedule HC-R, Part I and
Part II, and thereby reduce burden. As previously mentioned, the FR Y-
9C would include two sets of calculations (one that incorporates the
effects of the simplifications rule and another that does not);
therefore, a holding company would only complete 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 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 rules on April 1, 2020, and all advanced
approaches holding companies would 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 complete the column
for the set of calculations that incorporates the effects of the
simplifications. The advanced approaches holding companies would
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 require 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 through net
operating loss carrybacks (temporary difference DTAs),\9\ and
investments in the capital of unconsolidated financial institutions for
non-advanced approaches HCs. In addition, the Board 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. The Board is proposing 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. The 15 percent aggregate limit would be removed.
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\9\ 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, and 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. The Board proposes to revise the FR Y-9C to
implement this change.
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.\10\ 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.\11\ The application of the 100 percent risk weight (i) requires
a banking organization to follow an enumerated process for calculating
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. The
Board proposes to revise the FR Y-9C to implement this change, as
discussed below.
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\10\ 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.
\11\ 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 52 and 53 of the capital rule. 12 CFR 217.52
and .53.
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In order to implement these regulatory capital changes, a number of
revisions are proposed to Schedule HC-R, Part I, for non-advanced
approaches HCs. Specifically, the Board proposes to create two columns
for existing items 11 through 19 on the FR Y-9C. Column A would be
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
[[Page 71417]]
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 include items 11 or 16, and items 13 through 15
would be designated as items 13.a, column A through item 15.a, column A
to reflect the new calculation methodology. Column B would be 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 be 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 proposes 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 29 (CET1, additional
tier 1, and tier 2 minority interest, respectively).
Community Bank Leverage Ratio
The Board proposes 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 align the FR Y-9C
with the CBLR final rule,\12\ which implemented section 201 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA).\13\ The proposed revisions to the FR Y-9C would 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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\12\ 84 FR 61776 (November 13, 2019).
\13\ 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.
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.\14\ A CBLR HC that ceases to meet the qualifying criteria
as a result of a business combination (e.g., 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.
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\14\ 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.
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The Board proposes 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 is not proposing 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 is not proposing
any substantive changes related to the denominator of the community
bank leverage ratio. However, the Board is proposing 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 is not proposing a separate item for the
community bank leverage ratio in Schedule HC-R, Part I. Instead, the
Board proposes 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 collect
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 would need to satisfy certain qualifying criteria to be
eligible to opt into the CBLR framework. The proposed items below would
collect 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 (AA)
HC and must meet the following criteria:
A leverage ratio of greater than 9%;
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.\15\
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\15\ 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 be codified. See 12 CFR 217.1(d).
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Accordingly, the Board proposes to collect the items described
below from CBLR HCs only:
In proposed item 32 of Schedule HC-R, Part I, a CBLR HC
would report total assets, as reported in Schedule HC, item 12.
In proposed item 33, a CBLR HC would report 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 report 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 be 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 is greater than 5 percent.
In proposed items 34.a through 34.d, a CBLR HC would
report information related to commitments, other off-balance sheet
exposures, and sold credit derivatives.
--In proposed item 34.a, a CBLR HC would report the unused portion of
conditionally cancellable commitments. This amount would be the amount
of all unused commitments less the amount of unconditionally
cancellable commitments, as discussed in the CBLR final rule and
defined in the agencies' capital rule.\16\ This item would be
calculated consistent with the sum of Schedule HC-R, Part II, items
18.a and 18.b, Column A.
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\16\ See definition of ``unconditionally cancellable'' in 12 CFR
217.2.
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--In proposed item 34.b, a CBLR HC would report total securities lent
and borrowed, which would be the sum of Schedule HC-L, items 6.a and
6.b.
--In proposed item 34.c, a CBLR HC would report the sum of certain
other off-balance sheet exposures and sold credit derivatives.
Specifically, a CBLR HC would report 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 include 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 report the sum of proposed
items 34.a through 34.c in Column A. The HC would also report 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 be eligible to opt into the CBLR framework if this percentage is
greater than 25 percent.
In proposed item 35, a CBLR HC would report the total of
unconditionally cancellable commitments, which would be calculated
consistent with the instructions for existing Schedule HC-R, Part II,
item 19. This item is not used specifically to calculate a HC's
eligibility for the CBLR framework. However, the Board is collecting
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 report 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 bank 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. 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 need to complete any of the
items in Schedule HC-R, Part I, after proposed item 36, nor would the
holding company need 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, will be
renumbered as items 37 through 45. Existing items 40 through 43 will be
renumbered as items 46 through 49, while existing items 46 through 48
will be renumbered as items 50 through 52. For advanced approaches HCs,
existing items 45 for total leverage exposure and the supplementary
leverage ratio, will be renumbered as item 53.
A CBLR HC would indicate 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 be required to report all data
items in Schedule HC-R, Part I, except for items 32 through 36.
Standardized Approach for Counterparty Credit Risk on Derivatives
The Board proposes 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'').\17\
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\17\ See Federal Reserve press release, dated November 19, 2019.
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191119c.htm.
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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. Under the SA-CCR final rule, an advanced approaches HC will have
to choose either SA-CCR or the internal models methodology to calculate
the exposure amount of any noncleared and cleared derivative contracts
and use SA-CCR to determine the risk-weighted asset amount of any
default fund contributions. In addition, an advanced approaches HC will
be required to use SA-CCR (instead of CEM) to calculate the exposure
amount of noncleared and cleared derivative contracts and to determine
the risk-weighted asset
[[Page 71419]]
amount of default fund contributions under the standardized approach,
as well as to determine the exposure amount of derivative contracts for
purposes of the supplementary leverage ratio.
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 \18\ will also use 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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\18\ 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 proposes 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, are driven by differences in the methodology for determining
the exposure amount of a derivative contract under SA-CCR relative to
CEM. These proposed revisions would be 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.
High Volatility Commercial Real Estate (HVCRE)
The Board proposes to revise the FR Y-9C instructions to implement
changes to the HVCRE exposure definition in section 2 of the capital
rule \19\ to conform to the statutory definition of an HVCRE
Acquisition, Development, or Construction (ADC) loan (HVCRE final rule
\20\). 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.\21\
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\19\ 12 CFR part 217.2.
\20\ See Federal Reserve press release, dated November 19, 2019,
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20191119b.htm.
\21\ 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- 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 would be required to include financing
for construction of one- to four-family residential structures.
The Board is now proposing 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.
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.
The Board also proposes 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 change 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.
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 FR Y-9C Report Supplemental Instructions for March 2019 \22\
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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\22\ 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 proposes
to require that operating lease liabilities be
[[Page 71420]]
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.
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.\23\
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\23\ 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 do 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
leads to inconsistency in how these credits are 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 proposes 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 report 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 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,\24\ 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 has 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 is
proposing 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 extend to the instructions for the following data
items that reference the Schedule HC-C loan category definitions for
open-end and closed-end loans secured by 1-4 family residential
properties:
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\24\ 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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Schedule HI-B, Part I, items 1.c.(1), 1.c.(2)(a), and
1.c.(2)(b);
Schedule HC-C, Memoranda item 1.b;
Schedule HC-C, Memoranda items 6.a, 6.b, 6.c;
Schedule HC-M, items 6.a.(1)(c)(1), 6.a.(1)(c)(2)(a), and
6.a.(1)(c)(2)(b);
Schedule HC-N, items 1.c.(1), 1.c.(2)(a), and 1.c.(2)(b);
Schedule HC-N, items 12.a.(3)(a), 12.a.(3)(b)(1), and
12.a.(3)(b)(2);
Schedule HC-N, Memoranda item 1.b; and
Schedule HC-S, Memorandum items 2.a, 2.b, and 2.c
This instructional clarification would not apply to the reporting
of asset-backed securities collateralized by HELOCs in Schedule HC-B,
Memorandum item 5.b, and Schedule HC-D, Memorandum item 5.b and
securitizations of closed-end 1-4 family residential loans and home
equity lines in Schedule HC-S, columns A and B.
To provide time needed for any systems changes, the Board proposes
that compliance with the clarified instructions would not be required
until the March 31, 2021, report date. HCs not currently reporting in
accordance with the clarified instructions would be permitted, but not
required, to report in accordance with the clarified instructions
before that date.
Proposed Revisions to the FR Y-9CS
The Board proposes to revise the FR Y-9CS to clarify that response
to the report is voluntary.
Legal authorization and confidentiality: The Board has the
authority to impose the reporting and recordkeeping requirements
associated with the Y-9 series 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); \25\ and on securities holding companies pursuant to section
618 of the Dodd-Frank Act (12 U.S.C.
[[Page 71421]]
1850a(c)(1)(A)). The FR Y-9C, FR Y-9LP, FR Y-9SP, and FR Y-9ES reports,
and the recordkeeping requirements set forth in the respective
instructions to those reports, are mandatory. The FR Y-9CS supplemental
report is voluntary.
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\25\ 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 Memoranda 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 Memoranda 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. The Board has assured respondents that
this information will be treated as confidential since the collection
of this data item was proposed in 2004.
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 \26\ 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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\26\ 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 FOIA (5 U.S.C. 552(b)(4) and (8)).
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To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP,
and FR Y-9ES reports each respectively direct the financial institution
to retain the workpapers and related materials 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 is considered confidential pursuant to
exemption 8 of the FOIA (5 U.S.C. 552(b)(8)). In addition, the
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)).
Consultation outside the agency: The Board consulted with the FDIC
and the OCC in regard to these proposed revisions.
Board of Governors of the Federal Reserve System, December 19,
2019.
Michele Taylor Fennell,
Assistant Secretary of the Board.
[FR Doc. 2019-27850 Filed 12-26-19; 8:45 am]
BILLING CODE 6210-01-P