Agency Information Collection Activities: Proposed Collection; Comment Request

AGENCY:

Board of Governors of the Federal Reserve System (Board).

ACTION:

Notice and request for comment.

SUMMARY:

In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (the “agencies”) may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Federal Financial Institutions Examination Council (FFIEC), of which the agencies are members, has approved for public comment proposed revisions to the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002). The Board is publishing the proposed revisions on behalf of the agencies. At the end of the comment period, the comments and recommendations received will be analyzed to determine the extent to which the FFIEC should modify the proposed revisions prior to giving its final approval. The Board will then submit the revisions to OMB for review and approval.

DATES:

Comments must be submitted on or before February 26, 2001.

ADDRESSES:

Interested parties are invited to submit written comments to the agency listed below. All comments, which should refer to the OMB control number, will be shared among the agencies.

Written comments should be addressed to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551, submitted by electronic mail to regs.comments@federalreserve.gov, or delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m., and to the security control room outside of those hours. Both the mail room and the security control room are accessible from the courtyard entrance on 20th Street between Constitution Avenue and C Street, NW. Comments received may be inspected in room M-P-500 between 9:00 a.m. and 5:00 p.m., except as provided in section 261.12 of the Board's Rules Regarding Availability of Information, 12 CFR 261.12(a).

A copy of the comments may also be submitted to the OMB desk officer for the Board: Alexander T. Hunt, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 3208, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT:

A draft copy of the proposed FFIEC 002 reporting form may be obtained at the FFIEC's web site (www.ffiec.gov). A copy of the proposed revisions to the collection of information may also be requested from Mary M. West, Federal Reserve Board Clearance Officer, (202) 452-3829, Division of Research and Statistics, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. Telecommunications Device for the Deaf (TDD) users may contact Diane Jenkins, (202) 452-3544, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

Proposal to revise the following currently approved collection of information:

Report Title: Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks.

Form Number: FFIEC 002.

OMB Number: 7100-0032.

Frequency of Response: Quarterly.

Affected Public: U.S. branches and agencies of foreign banks.

Estimated Number of Respondents: 354.

Estimated Total Annual Responses: 1,416.

Estimated Time per Response: 22.50 burden hours.

Estimated Total Annual Burden: 31,860 burden hours.

General Description of Report

This information collection is mandatory: 12 U.S.C. 3105(b)(2), 1817(a)(1) and (3), and 3102(b). Except for select sensitive items, this information collection is not given confidential treatment (5 U.S.C. 552(b)(8)). Small businesses (that is, small U.S. branches and agencies of foreign banks) are affected.

Abstract

On a quarterly basis, all U.S. branches and agencies of foreign banks (U.S. branches) are required to file detailed schedules of assets and liabilities in the form of a condition report and a variety of supporting schedules. This information is used to fulfill the supervisory and regulatory requirements of the International Banking Act of 1978. The data are also used to augment the bank credit, loan, and deposit information needed for monetary policy and other public policy purposes. The Federal Reserve System collects and processes this report on behalf of all three agencies.

Current Actions

The agencies propose to implement a number of revisions to streamline the existing reporting requirements of the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002), consistent with eliminations and reductions in detail proposed to the Reports of Condition and Income (Call Report) (proposed FFIEC 031 and 041) filed by insured commercial banks and FDIC-supervised savings banks. The agencies are also endeavoring to improve the relevance of the FFIEC 002 by identifying new types of information necessary to monitor new activities and other recent developments that may expose institutions to new or different types of risk.

The proposed revisions to the FFIEC 002 summarized below have been approved for publication by the FFIEC. The agencies would implement these proposed changes, except for new information proposed on fiduciary and related services, as of the June 30, 2001, reporting date. Proposed new information on fiduciary and related services would be effective with the December 31, 2001, reporting date.

A. Specific Proposed Deletions, Reductions in Detail, and Redefinitions

Schedule RAL—Assets and Liabilities

1. For item 1.d, “Federal funds sold and securities purchased under agreements to resell,” combine items 1.d.(1), “With U.S. branches and agencies of other foreign banks,” and 1.d.(2), “With other commercial banks in the U.S.,” into a single line item.

2. For item 4.b, “Federal funds purchased and securities sold under agreements to repurchase,” combine items 4.b.(1), “With U.S. branches and agencies of other foreign banks,” and 4.b.(2), “With other commercial banks in the U.S.,” into a single line item.

3. Memorandum item 9, “Mutual fund and annuity sales during the quarter,” would be redefined as “Assets under the reporting branch or agency's management in proprietary mutual funds and annuities.” For branches and agencies with proprietary mutual funds and annuities, reporting the amount of assets under management should be significantly less burdensome than reporting the quarterly sales volume of both proprietary products and nonproprietary products. Branches and agencies without proprietary mutual funds and annuities will no longer need to report any information on their involvement with these products.

4. Memorandum item 12, “Amount of assets netted against liabilities to nonrelated parties (excluding deposits in insured branches) on the balance sheet in accordance with generally accepted accounting principles,” would be eliminated.

5. Statutory or Regulatory Requirement item S.3.a, “FDIC asset maintenance requirement (for FDIC insured branches only): Average liabilities,” currently collects average liabilities for the quarter ending on the report date. The agencies propose to redefine this item to collect average liabilities for the calendar quarter preceding the quarter ending on the report date. This redefinition would ensure that, as of a given report date, the asset maintenance requirement calculation for FDIC-insured branches in Section 347.211 of the FDIC's regulations can be accomplished by using only data filed on the current FFIEC 002 report. For example, using the FFIEC 002 report for the third quarter, eligible assets on the last day of the third quarter (reported in item S.3.b) would be divided by average liabilities for the second quarter (reported in item S.3.a).

Schedule A—Cash and Balances Due from Depository Institutions

Memorandum item 1, “Noninterest-bearing balances due from commercial banks in the U.S. (including their IBFs),” would be deleted.

Schedule C—Loans

The separate loan categories for “Loans to depository institutions” and “Acceptances of other banks” (items 2 and 5, respectively) would be combined.

Schedule E—Deposit Liabilities and Credit Balances

1. The reporting of demand deposits by category of depositor in column B of the body of the deposits schedule would be eliminated, with branches and agencies reporting instead only the total amount of their demand deposits in this column. Branches and agencies would continue to provide a category-by-category breakdown of their total transaction accounts in column A, which includes their demand deposits, but the current duplicate reporting of demand deposits by category in both columns A and B would end.

2. Item 6, “Certified and official checks,” would be combined with deposits of “Individuals, partnerships, and corporations” (item 1).

Schedule L—Derivatives and Off-Balance-Sheet Items

1. Item 6, “Participations in acceptances acquired by the reporting (non-accepting) branch or agency,” would be deleted.

2. Item 11.b for the gross notional amount of derivative contracts held for purposes other than trading that are not marked to market would be deleted. All derivative contracts, including those held for purposes other than trading, will be marked to market once a branch or agency adopts FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is effective for fiscal years beginning after June 15, 2000. Thus, item 11.b will no longer have any relevance in 2001.

3. For branches and agencies with $100 million or more in total assets: Items 12.c.(1) and (2) for the gross positive and gross negative fair values of derivatives held for purposes other than trading that are not marked to market would be deleted because of the effect of FASB Statement No. 133.

Schedule M—Due from/Due to Related Institutions in the U.S. and in Foreign Countries: Part V, Derivatives and off-balance sheet items with related depository institutions

1. Item 6, “Participations in acceptances acquired from related depository institutions by the reporting (non-accepting) branch or agency,” would be deleted.

2. Item 11.b for the gross notional amount of derivative contracts held for purposes other than trading that are not marked to market would be deleted. All derivative contracts, including those held for purposes other than trading, will be marked to market once a branch or agency adopts FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is effective for fiscal years beginning after June 15, 2000. Thus, item 11.b will no longer have any relevance in 2001.

3. For branches and agencies with $100 million or more in total assets: Items 12.c.(1) and (2) for the gross positive and gross negative fair values of derivatives held for purposes other than trading that are not marked to market would be deleted because of the effect of FASB Statement No. 133.

Schedule N—Past Due, Nonaccrual, and Restructured Loans

Memorandum item 2.b, “Replacement cost of [past due derivative] contracts with a positive replacement cost,” would be deleted. Once branches and agencies adopt FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, all of their derivative contracts will be carried on the balance sheet at fair value. Since the replacement cost of a derivative contract is its fair value and its book value will also be its fair value, Memorandum items 2.a, “Book value of amounts carried as assets,” and 2.b would duplicate each other. The caption for Memorandum item 2.a would be revised to read “Fair value of amounts carried as assets.”

B. Proposed New Information

Securitization and Asset Sale Activities

The agencies propose to revise and expand the information collected in the FFIEC 002 report to facilitate more effective analysis of the impact of securitization and asset sale activities on credit exposures. In this regard, the agencies are proposing to introduce a separate new schedule (Schedule S) that would comprehensively capture information related to securitization and asset sale activities.

Under this proposal, branches and agencies involved in securitization and asset sale activities would report quarter-end data for seven loan and lease categories. These data would cover 1-4 family residential loans, home equity lines, credit card receivables, auto loans, other consumer loans, commercial and industrial loans, and all other loans and all leases. For each loan category, branches and agencies would report: (1) The outstanding principal balance of assets sold and securitized with servicing retained or with recourse or seller-provided credit enhancements, (2) the maximum amount of credit exposure arising from recourse or credit enhancements to securitization structures (separately for those sponsored by the reporting branch or agency and those sponsored by other institutions), (3) the past due amounts on the underlying securitized assets, (4) the amount of any commitments to provide liquidity to the securitization structures, (5) the outstanding principal balance of assets sold with servicing retained or with recourse or seller-provided credit enhancements that have not been securitized, and (6) the maximum amount of credit exposure arising from assets sold with recourse or seller-provided credit enhancements that have not been securitized.

A limited amount of information would also be collected on credit exposures to asset-backed commercial paper conduits. For the home equity line, credit card receivable, and the commercial and industrial loan categories, branches and agencies would also report the amount of any ownership (or seller's) interests in securitizations that are carried as securities and as loans and the past due amounts on the assets underlying the seller's interests carried as securities.

Although the proposed new schedule would collect a considerable amount of information on these securitization activities, most branches and agencies will not be affected by Schedule S and the increase in reporting burden associated with the schedule's new information will be confined to a relatively small segment of the industry.

On a related matter, the agencies also propose to collect information to facilitate more effective assessments of credit and other exposures related to branch and agency portfolios of asset-backed securities. Currently all asset-backed securities are reported in Schedule RAL, item 1.b, “U.S. Government securities,” or item 1.c, “Other bonds, notes, debentures, and corporate stock (including state and local securities),” depending on the issuer or guarantor. The agencies propose to add two new items on Schedule RAL to segregate branch and agency holdings of mortgage-backed securities and other asset-backed securities. Collection of this information would promote risk-focused supervision by enhancing the agencies' ability to assess credit exposures and asset concentrations.

Reporting of Trust Data

The agencies propose to change the manner in which branches and agencies report information on their trust activities. Branches and agencies that file the existing Annual Report of Trust Assets (FFIEC 001) would instead file a new Fiduciary and Related Services Schedule (Fiduciary Schedule) (Schedule T) as part of the FFIEC 002. Under this proposal, branches and agencies that have fiduciary or related activity would be required to report certain trust information in Schedule T annually as of December 31. This information includes the number of accounts and the market value of trust assets for eight categories of fiduciary activities. These institutions would also report data on corporate trust activities, collective investment funds and common trust funds, and types of managed assets held in personal trust and agency accounts.

In creating proposed Schedule T, modifications have been made to some of the existing items currently reported on the FFIEC 001 to improve their value and usefulness. However, the total number of separately reportable data items in the proposed Fiduciary Schedule represents a decrease of more than 60 percent in the number of reportable items in the FFIEC 001. Thus, the agencies believe this proposal would not produce an increase in reporting burden for trust institutions.

The agencies are proposing to add the new Fiduciary Schedule to the FFIEC 002 instead of retaining separate trust reports in order to facilitate the timely collection and processing of the information. Institutions filing the current annual trust reports generally must submit their reports within 45 days after year-end. Electronically submitted annual trust reports, first allowed for year-end 1998 reporting, have a 75-day filing deadline. By moving the reporting of fiduciary information into the FFIEC 002, the submission deadline for the FFIEC 002 would apply to this reporting requirement. The length of time that trust institutions would have for completing the Fiduciary Schedule would be reduced from 45 days to 30 days for most institutions and from 75 days to 30 days for institutions that file electronically. The proposed implementation of this Fiduciary Schedule and the modification of the submission deadline for this reporting requirement is consistent with the reporting treatment currently proposed for insured commercial banks and FDIC-supervised savings banks.

C. Other Issue for Which Public Comment Is Requested

Eliminating Confidential Treatment for Certain Past Due and Nonaccrual Data

An important public policy issue for the agencies has been how to use market discipline to complement supervisory resources. Market discipline relies on market participants having information about the risks and financial condition of banking organizations. Disclosure that increases transparency should lead to more accurate market assessments of risk and value. This, in turn, should result in more effective market discipline on banking organizations.

Despite this emphasis on market discipline, the FFIEC and the agencies currently accord confidential treatment to the information branches and agencies report in Schedule N of the FFIEC 002 report on the amounts of their loans, leases, and other assets that are past due, in nonaccrual status, or restructured and in compliance with modified terms. In order to give the public, including branches and agencies, more complete information on the level of and trends in asset quality at individual institutions, the agencies are proposing to eliminate the confidential treatment currently provided for this information beginning with the amounts reported as of June 30, 2001.

Some financial institutions have held that information on loans, leases, and other assets that are past due 30 through 89 days is not a reliable indicator of future loan losses or of general asset quality. They further note that market discipline would be reduced, rather than enhanced, by the release of information that is highly susceptible to misinterpretation to the extent that it could cause an unjustifiable loss of funding to the industry. However, banking supervisors have consistently found information on loans and leases past due 30 through 89 days to be helpful in identifying financial institutions with emerging asset quality problems. Therefore, the agencies believe that such information is a useful indicator of general asset quality and would not represent misleading information to the public.

Currently the agencies publicly disclose information reported by insured commercial banks, FDIC-supervised savings banks, and bank holding companies on loans and leases that are past due 90 days or more and still accruing, in nonaccrual status, or restructured and in compliance with modified terms. The agencies have proposed to publicly disclose reported information on loans and leases that are past due 30 through 89 days and still accruing for these institutions effective as of March 31, 2001. Disclosing the information reported on Schedule N of the FFIEC 002 would also provide for a consistent reporting treatment with other U.S. banking institutions.

Request for Comment

Comments submitted in response to this Notice will be shared among the agencies and will be summarized or included in the Board's request for OMB approval. All comments will become a matter of public record. Written comments should address the accuracy of the burden estimates and ways to minimize burden as well as other relevant aspects of the information collection requests. Comments are invited on:

(a) Whether the proposed collection of information is necessary for the proper performance of the agencies' functions, including whether the information has practical utility;

(b) The accuracy of the agencies' estimate of the burden of the 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 the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.