Daily Rules, Proposed Rules, and Notices of the Federal Government
On July 6, 2012 the Federal Reserve published a notice in the
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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.
As these data are collected as part of the supervisory process, they are subject to confidential treatment under exemption 8 of the Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(8)). In addition, commercial and financial information contained in these information collections may be exempt from disclosure under FOIA exemption 4 (5 U.S.C. 552(b)(4)). Such exemptions will be made on a case-by-case basis.
The annual FR Y-14A collects large BHCs' quantitative projections of balance sheet, income, losses, and capital across a range of macroeconomic scenarios and qualitative information on methodologies used to develop internal projections of capital across scenarios.
Under section 165 of the Dodd-Frank Act, the Federal Reserve is required to issue regulations relating to stress testing (DFAST) for certain BHCs and nonbank financial companies supervised by the Board. On January 5, 2012, the Board published a proposal (77 FR 594) which includes new reporting requirements found in proposed regulations at 12 CFR 252.134(a), 252.146(a), and 252.146(b) all related to stress testing. The Federal Reserve anticipates that further detail regarding these proposed reporting requirements and the PRA burden associated with these requirements would be addressed in a future FR Y-14 proposal.
The FR Y-14A/Q/M revisions proposed in the Federal Reserve's July 2012
The Federal Reserve received comments from the industry by letter, email, and orally through industry outreach calls. Most of the comments received requested clarification of the instructions for the information to be reported, or were technical in nature. Response to these comments will be addressed in the final FR Y-14 reporting instructions. The Federal Reserve also received a number of comments on matters that were not directly related to the FR Y-14 information collection, such as a request to use a consistent file format and requests for clarification of general CCAR procedures and timeline. The Federal Reserve plans to take these comments under consideration and address them at a later date, as appropriate. The following is a detailed discussion of aspects of the proposed FR
In general, commenters expressed support for the objectives of the proposal to revise the FR Y-14; however, they expressed concerns about the overall expansion of the information collection and the increased granularity of the data being collected. Specifically, several commenters noted that the proposal substantially increased the number of data items on various schedules, leaving BHCs insufficient time to make appropriate changes to their models, modify reporting systems, and integrate these systems with internal controls structure. These commenters also requested delayed implementation of the revisions to several schedules or guidance for BHCs that have missing or incomplete data. The commenters also provided suggestions around operational aspects of the collection and requested additional clarification on the proposed revisions.
The Federal Reserve weighed the potential increase in respondent burden against the need to collect additional information to enhance the Federal Reserve's ability to conduct supervisory stress testing and made certain modifications to the proposal in response to the comments received. Specifically, the Federal Reserve will eliminate certain proposed data items from selected data schedules and also delay the effective date of the new Mortgage Servicing Right (MSR) Valuation schedule as noted below.
Commenters generally expressed concerns about the proposed attestation requirement for the FR Y-14 submission. Several commenters noted that the Federal Reserve has continued to revise the information collection since first implementing it in 2011; therefore, the scope and form of the information collection have not been sufficiently solidified to allow BHCs to establish the infrastructure, general controls, and system validation requirements to comply with the proposed attestation requirement. Several commenters opposed a near-term attestation requirement, requested that any future attestation requirement be tailored to the FR Y-14, suggested various modifications to the attestation requirement, and opposed an attestation requirement for projected financial data. One commenter suggested a safe harbor provision for any attestation of projected data.
The Federal Reserve acknowledges that BHCs require time to continue developing and improving the infrastructure and controls needed to accommodate the FR Y-14 collection and to support attestation. As such, the final schedules and instructions do not include an attestation requirement at this time to allow BHCs time to make these improvements. However, the Federal Reserve believes appropriate controls are crucial to ensure data quality and that attestation is an important affirmation of data quality, and may revisit the attestation requirement in a future proposal. The Federal Reserve also notes that under federal law, BHCs are prohibited from making a false entry in a report to the Federal Reserve.
One commenter indicated that foreign privacy and blocking laws may restrict BHCs from reporting on the FR Y-14 any identifiable client information about their foreign clients. In response to this comment, the Federal Reserve will revise the final FR Y-14 reporting schedules and instructions to provide that a BHC will not be required to report a particular data item if a foreign law prohibits the BHC from providing the information to the Federal Reserve. However, the Federal Reserve is authorized by law to collect information from a BHC regarding its credit exposures, including foreign exposures, and a BHC will be required to include with its data submission a legal analysis of the foreign law that prohibits reporting the data to the Federal Reserve.
One commenter noted the difficulty in completing FR Y-14Q/M schedules during acquisitions as the acquiring institution would not yet have the acquired institution's data on their general ledger or loans systems on the date when the acquisition is finalized. Referencing the final
Several commenters provided suggestions for reducing the burden associated with the information collection, including suggestions related to the use of consistent file formats. The Federal Reserve appreciates these suggestions and will work to improve the data collection process, considering all suggestions aimed at reducing reporting burden. During the public comment period, the Federal Reserve sought additional feedback from first-time respondents on ways to reduce reporting burden. One commenter responded that a tailored materiality threshold would increase, rather than decrease burden by adding complexity. This commenter noted that a transition period that takes into consideration related and overlapping deadlines would be useful in reducing reporting burden. The Federal Reserve will provide first-time respondents with a transition phase including extended filing deadlines, as follows: For the Y-14Q schedules, the filing deadline will be extended to (1) 90 days after the quarter-end for the first two quarterly submissions and (2) 65 days after the quarter-end for the third and fourth quarterly submissions. Beginning with the fifth quarterly submission, these respondents will be required to adhere to the standard Consolidated Financial Statements of BHCs (FR Y-9C; OMB No. 7100-0128) reporting deadlines.
The Federal Reserve proposed revising 14 of the 19 worksheets
Originally, the Federal Reserve proposed adding to the
Several commenters noted that the proposed increase in the granularity of balance and loss projections does not align with BHCs' internal reporting and projections. The Federal Reserve acknowledges that the increase in data items will increase respondent burden, but believes that these data items will enhance the Federal Reserve's ability to conduct supervisory stress tests. Each proposed product type has a unique risk profile, therefore, projecting balances at the granular product level should provide a better understanding of BHCs' overall risk exposure. However, to reduce burden, the Federal Reserve will reduce the granularity associated with certain product types to which the industry generally has less exposure.
In an effort to streamline the Summary schedule, the Federal Reserve proposed combining the
The Federal Reserve originally proposed significantly revising the
In response to the industry comments, the Federal Reserve will revise the worksheet to reduce the number of required data items from 32 to 13. The Federal Reserve will remove the distinction between principal and interest, as well as delete certain data items related to cash flows, changes to the non-accretable difference, and changes to the accretable yield. These will be replaced with data items requesting unpaid principal balance, the total original contractual amount of PCI loans that would be deemed charged off or identified as loss under a non-PCI charge-off policy (i.e. losses in the quarter that would be offset at some point against the non-accretable difference and/or the PCI Allowance) and overall movement of the non-accretable difference. The Federal Reserve believes that the revised schedule will substantially alleviate the burden associated with procuring the data from the BHCs information systems.
In an effort to better understand the core drivers of BHCs revenues and expenses, the Federal Reserve originally proposed revising certain annual and quarterly PPNR data items, increasing granularity of several data items, and adding a new business line into the components of revenues (on the annual
One commenter noted that, in some instances, certain historical data may not be available due to organizational restructuring. The Federal Reserve agrees with this comment and is considering ways to develop a process and criteria to address this issue, as appropriate.
Another commenter requested eliminating the disclosure of legal reserves data to be consistent with other FR Y-14 schedules regarding the level and frequency of reporting legal reserves data. In response to the comment, the Federal Reserve will delete the data items for "Provisions to Litigation Reserves/Liability Specific to Sold Residential Mortgage Claims" on the annual
Currently, BHCs with deposits equal to at least one-third of liabilities may choose either the
The trade associations and one other commenter suggested retaining the Primary/Supplementary distinction. One commenter also suggested allowing BHCs to report average balances and yields on the
The trade associations commented that reporting the proposed data items on the
Originally, the Federal Reserve proposed adding credit card rewards and partner-sharing in the non-interest income and non-interest expense sections of the
One commenter asked whether the "Sales and Trading Segment/Prime Brokerage/Total Revenue (incl. Net Interest Income)" data item in the
One commenter requested clarification on the types of accounts that should be included in the "Total Deposit Accounts" data item in the "Retail and Small Business Segment" on the
One commenter requested clarification on the definition of the term "curve" in relation to the "New Business Pricing for Time Deposits" data item in the "Average Retail Deposit Repricing Beta" section of the
Originally, the Federal Reserve proposed implementing the quarterly MSR Valuation schedule that would collect information on the data that BHCs use to value their MSRs and the sensitivities of those valuations to changes in economic factors. Several
One trade association expressed various concerns with the proposed new MSR schedule, stating that: (1) It appeared to collect duplicative data already available through other external reporting mechanisms, including a survey conducted by the Office of the Comptroller of the Currency (OCC); (2) the questions should be included in pre-examination requests instead of requiring servicers to report the data on a quarterly basis (if the purpose of the MSR schedule was to gather information in advance of a safety and soundness examination); and (3) many servicers are not part of a BHC and therefore, the schedule would not necessarily include data from all major market makers that affect fair value. Further, the commenter noted that the proposed restrictions on MSR assets contained in the Basel III notices of proposed rulemaking (NPR)
Prior to proposing the new MSR schedule, the Federal Reserve evaluated the feasibility of obtaining MSR data from external sources; however, several potential supervisory concerns were noted with this approach. First, not all BHCs supervised by the Federal Reserve complete the external surveys mentioned above. Second, certain metrics collected via external sources differ by type or by construct, or are not collected at all, which may generate a lack of comparability across BHCs. The Federal Reserve concluded that the proposed FR Y-14Q schedule would facilitate the timely supervision of BHCs on both a continuous monitoring and examination basis; therefore, the Federal Reserve will implement the data requirements for the MSR schedule as proposed.
One commenter noted that the MSR schedule would not increase the comparability of MSR valuations across all BHCs due to the range of valuation techniques, various prepayment and default models, different assumptions, and servicing portfolio characteristics unique to each BHC. The Federal Reserve recognizes that modeling methodologies, assumptions, and product structures are unique to each BHC, and these differences are considered when evaluating BHC MSR valuation. In addition, the Federal Reserve may augment this data collection with other information, such as information collected from BHC examinations, which will allow the Federal Reserve to better assess the risk of each BHC's MSR portfolio.
One commenter stated that the proposed MSR valuation sensitivity metrics in the MSR schedule, including metrics related to implied swaption volatility, servicing cost, sensitivity to macroeconomic conditions, and ancillary income, should be revised because they may not be direct inputs into some of the models used by the industry. The Federal Reserve believes that the delayed implementation, as well as clarifying the instructions, will address these issues.
One commenter noted an error on the
Originally, the Federal Reserve proposed revising the annual and quarterly Basel III/Dodd-Frank schedules. To both schedules, the Federal Reserve proposed making definitional and calculation revisions consistent with the final Market Risk Capital rulemaking (Market Risk rule). To the FR Y-14A schedule, the Federal Reserve proposed adding two worksheets and refining the
Several commenters noted errors or inconsistencies in the draft annual and quarterly schedules published for public comment. In response to those comments, the Federal Reserve will shorten the projection period for the annual schedule from 2019 to 2017, add a Comprehensive Risk Measure (CRM) surcharge data item to the annual schedule, and revise the quarterly schedule to include the correct start date of third quarter 2012.
Due to the timing of the publication of the FR Y-14 initial
Specifically, the Federal Reserve will revise the Basel III/Dodd-Frank schedules to be consistent with the NPRs, including (1) revising the Accumulated Other Comprehensive Income calculator, (2) revising the 10% and 15% regulatory threshold deductions, (3) breaking out additional Tier 1 capital deductions, (4) collecting data and corresponding calculations consistent with the final Market Risk rule and the proposed requirements of the Advanced Approaches NPR (for applicable BHCs), (5) revising the Market RWA calculation to reflect the Market Risk rule's CRM, (6) revising the Credit RWA associated with Credit Valuation Adjustment capital charges, (7) collecting data relevant to the Tier 1 Leverage Ratio and Supplementary Leverage Ratio, and (8) revising data descriptions relevant to the Supplementary Leverage Ratio.
Originally, the Federal Reserve proposed revising the Retail Risk schedule to remove data items no longer needed and add risk characteristics to existing portfolios. One commenter noted that the
Originally, the Federal Reserve proposed implementing the quarterly Supplemental schedule to ensure that they would have a consistent view of BHCs' exposures that are collected at different levels of granularity. The proposed schedule would allow the Federal Reserve to identify factors contributing to the gaps between the FR Y-9C aggregate data and the data collected in the FR Y-14. One commenter noted material inconsistencies between definitions in the Supplemental schedule and the Retail
Originally, the Federal Reserve proposed revising various worksheets and adding a worksheet to the Trading Risk schedule. Several commenters made suggestions related to the
One commenter noted that the attachment/detachment points in the
The Federal Reserve agrees that, for bespoke products, the breakouts in the proposal would be challenging to report. However, for index tranches, which are standardized, the Federal Reserve believes that the breakouts in the proposal will be feasible. Further, having such breakouts will enhance the ability to understand correlation sensitivity. Therefore, the Federal Reserve will implement the approach suggested by the commenter for bespoke products but will implement the more granular breakouts for index tranches as originally proposed.
One commenter noted that the schedule currently requires the reporting of corporate owned and business owned life insurance (COLI/BOLI) on the Other Sector/Industry row of the
One commenter suggested disaggregating the
The February 2012 proposal requested event level data for each legal reserve and required that BHCs (1) associate each reserve with an accounting date, Basel level 1 event type and business line; (2) note whether the reserve had been included in the BHCs' capital models; (3) give the amount of the reserve and (4) provide a description for events over $250k. Several commenters expressed concern with the proposed method as they feared if the data were to be disclosed, or if it became discoverable as part of ongoing litigation, it would risk prejudicing the outcome of a pending case. Additionally, commenters stated that because the reserve amount was often highly dependent on the judgment of BHCs' legal counsel, it could be a violation of attorney-client privilege. In a letter dated May 24, 2012, the joint trade associations submitted several possible alternatives.
In response to the comments, the Federal Reserve held a meeting on July 16, 2012, to discuss alternative methods proposed by both the Federal Reserve and the joint trade associations. The Federal Reserve circulated a document that articulated three alternative methods. The commenters expressed concern that these methods did not adequately address the possibility of deriving event-specific reserve information by combining the proposed data with other available data.
During the extended comment period, the Federal Reserve held three discussions with industry representatives and put forth two additional methods (for a total of five alternative methods) for collecting the legal reserves data in an effort to address concerns over the sensitive nature of the data. One of these methods suggested comingling legal reserve data with the
Based on the comments received and discussions with the industry, the Federal Reserve will revise the FR Y-14Q Operational Risk schedule to implement the latter method as described above. BHCs will report, on a quarterly basis, the number of legal reserves, categorized by quarter of establishment (starting in 2008), Basel level I event type, and business line.
As part of the proposal to revise the FR Y-14 as of September 30, 2012, the Federal Reserve proposed collecting various data items related to legal reserves on the FR Y-14A Summary schedule. One commenter requested that the Federal Reserve ensure that any other references to legal reserves be consistent with the decision reached on the FR Y-14Q Operational Risk schedule. Based on the concerns over data sensitivity expressed by the industry, the Federal Reserve will not implement the legal reserves data items specifically for litigation involving retail mortgage repurchases/claims on three worksheets in the Summary schedule:
Based on the comments received related to legal reserves data and in an effort to streamline the collection of annual operational risk data, the Federal Reserve will implement a new FR Y-14A Operational Risk schedule. The schedule will contain two worksheets related to operational risk data submitted annually. The