Sunday, October 22, 2017

Call Report “Simplification”

Posted by Jim November 20, 2015 12:00pm

Photo Credit: kchung

Introduction

More Call Report changes are coming in December. The FDIC, OCC, and FRB have proposed additional changes for Call Reports beginning with the December 31, 2015 reports. The details of the changes (as published in the Federal Register) are intended to be the first step toward simplifications which, among other things, are supposed to reduce the Call Report burden on banks. The Agencies’ proposal was published on September 18, 2015, and the comment period ended on November 17, 2015. Overall, the changes do not appear to be very significant for most community banks. There are, however, two changes which may provide some relief.  The first are increases in the reporting thresholds for some items, and the second are changes to report deposit-related information on the basis of under or over $250,000. These are generally welcome. However, the Call Report has added three small new items, including contact information for the CEO, the Legal Entity Identifier (“LEI”) information for institutions that already have one (but does not require banks to get one if they do not have one), and additional types of annual audit descriptions on Schedule RC, Memorandum item 1 (which is provided annually with the March Call Report).

The Changes Are…

The FDIC has issued two FILs, FIL-39-2015 and FIL-40-2015, to describe the changes in summary form. The details, by schedule and line item, are contained in the Federal Register of September 18, 2015. Links are provided below. In addition, the first version of revised instructions has been posted on the FDIC website during the comment period. Unless the Regulators’ plans are adjusted during the comment period (which ended on November 17, 2015), the following is a summary of what banks can expect to see in the forms and instructions for the December 31, 2015 Call Reports. The changes summarized below are taken from FIL-39-2015:

  1. Deletions of certain existing data items pertaining to other-than-temporary impairments from Schedule RI, Income Statement; troubled debt restructurings from Schedule RC-C, Loans and Lease Financing Receivables, and Schedule RC-N, Past Due and Nonaccrual Loans, Leases, and Other Assets; loans covered by FDIC loss-sharing agreements from Schedule RC-M, Memoranda, and Schedule RC-N; and certain unused commitments to asset-backed commercial paper conduits in Schedule RC-R, Regulatory Capital (generally not applicable to community banks)

  2. Increases in existing reporting thresholds for certain data items in Schedule RI-E, Explanations; Schedule RC-D, Trading Assets and Liabilities; Schedule RC-F, Other Assets; Schedule RC-G, Other Liabilities; and Schedule RC-Q, Assets and Liabilities Measured at Fair Value on a Recurring Basis; and the establishment of a reporting threshold for certain data items in Schedule RC-S, Servicing, Securitization, and Asset Sale Activities (generally will impact community banks)

  3. Instructional revisions addressing the reporting of:

    1. Home equity lines of credit that convert from revolving to non-revolving status in Schedule RC-C
    2. Securities for which a fair value option is elected in Schedule RC, Balance Sheet
    3. Net gains (losses) and other-than-temporary impairments on equity securities that do not have readily determinable fair values in Schedule RI (depends on whether a bank has such assets)

  4. New and revised data items and information of general applicability, including:

    1. Increasing the time deposit size threshold used to report certain deposit information from $100,000 to $250,000 in Schedule RC-E, Deposit Liabilities, and (effective in March 2016) in Schedule RI, and Schedule RC-K, Quarterly Averages (generally applicable to community banks)
    2. Revising the statements used to describe the level of external auditing work performed for the reporting institution during the preceding year in Schedule RC (effective in March 2016) (applicable to community banks;  done once annually in March)
    3. Adding contact information for the reporting institution's Chief Executive Officer (applicable to community banks)
    4. Reporting the institution's Legal Entity Identifier,  if it already has one (on the Call Report cover page) (generally not applicable to community banks)
    5. Creating additional preprinted captions for itemizing and describing components of certain items that exceed reporting thresholds in Schedules RC-F and RI-E  (depends on the specific bank)
    6. Revising Schedule RI to eliminate the concept of extraordinary items (effective in March 2016)

  5. New and revised data items of limited applicability (generally not applicable to community banks), including:

    1. Revising the reporting of certain securities measured under a fair value option in Schedule RC-Q and moving the existing Memorandum items for the fair value and unpaid principal balance of loans (not held for trading) measured under a fair value option from Schedule RC-C to Schedule RC-Q
    2. Revising the information reported in Schedule RI Memorandum items by institutions with total assets of $100 billion or more on the impact on trading revenues of changes in credit and debit valuation adjustments (effective in March 2016)
    3. Adding a new item on "dually payable" deposits in foreign branches of U.S. banks to Schedule RC-E, Part II, Deposits in Foreign Offices, on the FFIEC 031 report
    4. Revising the information reported about the supplementary leverage ratio by advanced approaches institutions in Schedule RC-R (effective in March 2016).

I have added highlighting and item numbering and lettering. The comments concerning the applicability of the change to community banks are also my additions.

While most of these changes are of limited applicability to community banks, the forms and instructions will be changed for the December 31, 2015 Call Report (due by January 30, 2016). Items 2 and 4a, b, and c in the above list will impact most banks. The first of these changes is that due to higher “thresholds”, many banks may not need to report as many items on the “explanations” schedules related to “other” revenues, expenses, assets and liabilities.  Second, the change in reporting deposit liabilities to just two categories (under versus over $250,000) means banks may no longer need to capture and report information on deposits between $100,000 and $250,000. This change will also impact the reporting of associated interest costs reported on RI and averages reported on RC-K, beginning with the March 31, 2016 Call Report. On the other hand, banks will now be required to provide CEO contact information and LEI (if applicable).

Other changes could impact a few community banks, depending on whether or not they have certain things on their balance sheet, such as OTTI on equity securities (which do not have a readily determinable fair value), HELOCs (which convert to non-revolving status), and certain items being reported on the basis of a “fair value” option on RC-Q. All banks should review the FIL’s (FIL-39-2015 and FIL-40-2015) which can be obtained at the followings websites:

Banks should also review the instructions on the FDIC website, and the more detailed description of changes in the Federal Register notice at the following:

As noted in FIL-40-2015, these simplifications are part of a broader effort to reduce the burden of Call Reports on banks. The overall effort involves five general goals which include:

  1. Implementing an initial group of burden-reducing revisions to the Call Report
  2. Accelerating the start of the next statutorily-required review of existing Call Report data items
  3. Assessing the feasibility of a potential community bank Call Report
  4. Conducting industry dialogue to better understand significant sources of Call Report burden
  5. Providing Call Report training for bankers

The changes outlined for the December 31, 2015, and March 31, 2016, reports appear to be a beginning, in line with the first of the goals. However, these changes are not major. The second goal of accelerating a review of the Call Report combined with the third goal of creating a community bank Call Report could bring meaningful relief. This should include simplification of schedules for community banks, reductions in the number and complexity of the schedules for community banks, and even consideration of reducing the frequency of community bank reports (e.g., semi-annual or annual reporting). Another approach could be a combination of these steps, such as requiring only one detailed report per year with three much shorter quarterly updates (e.g., only simplified versions of RI, RC, RC-O and RC-R).

Whether the regulators will follow through with meaningful Call Report changes is beyond the scope of this article. However, the community banking industry should try to lend its support to significant efforts to reduce the reporting burden. This might include periodic letters to bank regulators, active participation in industry groups (e.g., bankers’ associations, independent bankers’ leagues, etc.) and getting such groups to lobby meaningfully for simplification. Finally, bankers should consider increasing communications with representatives and senators to request their interest and efforts in support of Call Report simplification for community banks, among other banking reforms.

Conclusion

There will be modest changes with the December 31, 2015, and March 31, 2016, Call Report forms and instructions. The comment period is coming to an end and the final versions will be available shortly. Proposed instructions are available at the FDIC website during the comment period.

The most significant changes for community banks will be the implementation of higher reporting thresholds for explanation items, and the reporting of deposit information for only two size categories. At the same time, banks will now have to provide CEO contact information, LEI information (if applicable), and consider an expanded list of annual audit descriptions when preparing the March report.

The December changes appear to be a small first step toward simplification. Community bankers should consider actively encouraging additional simplification. This could include their own conversations with regulators and supporting efforts by industry groups to lobby for more simplification. Finally, bankers should let their U.S. representatives know that Call Report simplification, as well as other reforms, will strengthen the industry in its role of providing credit and other financial services to consumers and small businesses.   

Comments

Visitor
Community Bank Call Report Simplification Reply #1 on : Mon January 09, 2017, 11:45:29
The FFIEC 051 form has been released for implementation, beginning with reports filed as of March 31, 2017, with an option to delay implementation. See my January, 2017 blog on this topic.
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James Cole

Financial Senior Audit Manager

Jim Cole, Financial Risk Senior Audit Manager, has a diverse and comprehensive background covering many different aspects of the financial area, such as budgeting and strategic planning, asset liability management, profitability and liquidity analysis, financial systems and processes, public offerings, risk management, accounting and financial reporting, investment performance monitoring and financial hedging.



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