Upcoming changes to regulatory reporting for banks in 2019

March 12, 2019 | Financial services

Upcoming regulatory reporting changes—a variety of new requirements

In this second installment on upcoming regulatory reporting changes, we discuss proposed and finalized changes that are to be implemented in 2019 and in some cases beyond. The modifications and new reporting requirements cover a variety of reports and types of banking organizations. The underlying reasons for these upcoming requirements are a result of:

• Implementing provisions of the Economic Growth, Regulatory Relief, and Protection Act (EGRRCPA)¹
• New reporting requirement for large banking organizations to measure systemic risk
• Changes to conform with the proposed rulemaking to tailor prudential standards for large banks
• Revisions to the Volcker Rule, including the reporting metrics
• Reporting burden reductions for community banking organizations
• Increased focus on compliance with regulations

Revisions to implement EGRRCPA

The implementation of EGRRCPA required several changes to regulatory reports. The reports most affected by EGRRCPA are the Call Reports (FFIEC 031/41/51), FR Y-9C (Consolidated Financial Statements of Holding Companies), FFIEC 101 (Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework), and the FR 2052a (Complex Institution Liquidity Monitoring Report). Changes include both instructional changes and new report items.

Call Reports/FR Y-9C/FFEIC 101

The Call Report was impacted by two provisions of EGRRCPA:

• The capital treatment of high volatility commercial real estate (HVCRE)
• The definition of brokered deposits

HVCRE

The Call Report and FR Y 9C instructions were updated to incorporate the reporting of HVCRE ADC loans (loans that finance the acquisition, development, or construction of real estate) as required by EGRRCPA. That is, the instructions were updated to allow banks to report the portion of HVCRE ADC loans that are secured by qualified collateral or a qualified guarantee to a lower risk weight (based on the collateral or guarantor) in the regulatory capital schedule (RC-R), Part II, Items 4.b, 5.b, or 7, as appropriate. Until further guidance is issued, the agencies will allow banks to use reasonable estimates for determining the loans that are HVCRE ADC. In addition. The FFIEC 101 instructions were revised to align will the Call and FR Y 9C changes.

Brokered deposits

The ECRRCPA amended the Federal Deposit Insurance Act to exclude certain reciprocal balances from the definition of brokered deposits. The result of definitional changes affects the deposit schedule (RC-E) and the insurance assessment schedule (RC-O) on the Call Report. First, the instructions of brokered deposits were revised to exclude a “capped” amount of reciprocal deposits from brokered deposits. In addition, a new memorandum item was added to Schedule RC-E (Memo item 1.g) to capture total reciprocal balances. This new item will be used to allow the agencies to analyze the impact of the cap if the condition of a firm changes significantly and to determine supervisory concerns related to the reciprocal deposit amount. Where applicable, to maintain consistency, the same changes were proposed for the FR Y-9C.

Liquidity reporting

Also, the ECRRCPA included a change to the calculation of a firm’s liquidity coverage ratio (LCR). That is, under the Act, municipal securities are now “Level 2B” High-Quality Liquid Assets. Therefore, the instructions for the FR 2052a was revised to reflect this change.

Since all of these changes described above have already been implemented through supplemental guidance or through an interim clearance process, the revisions should not have a significant impact on firms.

New reporting requirement for large banking organizations to measure systemic risk

Several new reporting requirements and changes to existing requirements for the largest banking organizations. These include:

• The implementation of the institution-to-aggregate data on assets on an immediate counterparty basis
• Single-counterparty credit limits (FR 2590)²
• Revisions to implement the impact of the proposal to tailor prudential standards for large bank holding companies (BHC) and savings and loan holding companies (SLHC)

FR 2510³

The FR 2510 is the last of a series reporting requirements from the Financial Stability Board’s (FSB) three-phase data cap initiative. Each FSB member country will collect a similar template for Global Systemically Important Banks (G-SIB) in their respective countries. The FR 2510 will only be required from the US G-SIBS. The FR 2510 collects balance sheet and derivative data split by broad counterparty type (sectors), maturity, product (e.g., loans, deposits), currency, and country (limited to the top 35 exposures). The definitions of the data attribute for this report is consistent with existing regulatory reports (e.g., FR Y-9C, FFIEC 009 (Country Exposure Report)). The proposed date for implementation of the FR 2510 is March 31, 2019. However, since the final notice has not been issued, the implementation date will likely be extended.

The significant number of “crossings” on the FR 2510 makes it a complex report that will require a careful implementation approach. Much of the data on the FR 2510 is reported at a more aggregated level on other reports. The process of disaggregating these data can incur a high implementation cost and require additional controls to ensure data quality. The disaggregated data will result in small amounts or no data reported in many cells on the report. Therefore, to effectively conduct the proper level of data quality analysis, developing thresholds at a cell level for quality assurance is a must.

Effects of the Federal Reserve’s tailoring proposal

The Federal Reserve proposed new prudential standards for large BHCs and SHLC. The proposal would result in changes to reporting panels and some new data requirements. The proposal sets out a framework where reporting requirements are determined by thresholds across four categories.⁴ The tailoring proposal only applies to domestic firms and the Federal Reserve plans to issues a separate proposal for foreign banking organizations this quarter.

To respond to the proposed changes, the FR Y-14⁵ (Capital and Stress Testing Report), FR Y-15⁶  (Systemic Risk Report), FR 2052a⁷, FR Y-9C⁸, and FR Y-9LP⁹ (Parent Company Only Financial Statements for Large Holding Companies) will require modifications. Although not yet proposed, the FFIEC 016¹⁰, which collected data on stress tests for firms between $10 and $50 billion—will likely be discontinued.

FR Y-14

The following revisions would be made:

• Removing from the reporting panel all firms with less than $100 billion in total assets.
• Adding SLHCs with $100 billion in total assets as follows:
  • All FR Y 14M Schedules
  • All FR Y 14Q Schedules (except for Schedule C (Regulatory Capital Instruments) and Schedule D (Regulatory Capital Transitions))
  • FR Y 14A Schedule E (Operational Risk)
  • For Category II and III SLHCs, Schedule F (Business Plan Changes)

FR Y-15

The FR Y-15 collect data on systemic risk indicators that will be used to determine which category a firm belongs. The following changes would be made:

• Removing from the reporting panel firms with less than $100 billion
• Adding two new items to calculate total off-balance sheet exposures
  • Total assets (as defined on the FR Y-9C)
  • Total off-balance sheet exposures (derived by subtracting total assets from total exposures as reported on the FR Y-15)

FR 2052a

The revision to the FR 2052a would include changes to the reporting panel and the frequency of reporting. The following changes would be made:

• Adding SLHCs with $100 billion or more in total assets to the reporting panel.
• Removing from the reporting panel firms with less than $100 billion.
• Requiring daily reporting from only:
  • GSIBS
  • Category II firms
  • Category III firms with $75 billion or more in short-term wholesale funding
• All other firms meeting the reporting thresholds would report monthly.
• Eliminating the $10 trillion in assets under custody as a threshold for daily reporting.

FR Y-9C

The tailoring proposal impacted the reporting of the FR Y 9C for Category III firms. That is, the instructions Regulatory Capital Schedule (HC-R) will be updated to reflect that Category III firms are not defined as advanced approached banking organizations in the revised regulatory capital requirements. However, Category III firms would be required to include the supplementary leverage ratio on HC-R, Item 45.

FR Y-9LP

To monitor if an SHLC meets the criteria for a Category III firm, the FR Y-9LP the instructions would be revised to require SLHCs to complete Item 17 (Total non-bank assets) on the Memorandum Schedule (Schedule B).

While not specifically covered in the proposal the proposed FR 2590 panel would not be impacted. Category I, II, and III will be required to submit single counterparty exposure.

Volcker metrics

In July 2018, several agencies¹¹ issued for comment proposed revisions to the Volcker Rule. As part of the proposal, the agencies included significant revisions to the metrics currently provided. In their review, the agencies considered the effectiveness of the current metrics in monitoring compliance with the Volcker Rule and whether the quantitative measures are useful for all asset classes, products, and trading activities. The proposed changes include:

• Limiting certain metrics to only market making and underwriting desks
• Replacing the customer-facing trade ratio with a new metric to capture transactions volumes
• Replacing the inventory turnover metric with a new position metric, which captures the value of securities and derivative positions
• Removing redundant requirements that can be calculated from data otherwise provided
• Making product valuation consistent by using market and notional values
• Removing aging derivative data
• Providing qualitative information for each trading desk on:
  • Types of financial products traded
  • Types of covered trading activity
  • Legal entities where trades are booked
• Requiring a narrative for changes in calculation methodology, trading desks, or trading strategies
• Removing the requirement that banking entities report limits of stressed value at risk at the trading desk level
  
• Requiring banking entities to provide descriptive information on risk measurement and the identification of relationships of the risk measurements within and across trading desks

While there is some relief or improvement offered in the proposal with respect to metrics (such as extending the time for reporting to be within 20 days of the end of each calendar month (as opposed to 10 days per the 2013 Final Rule) for banks with trading assets and liabilities greater than $50 billion; addressing formatting and data quality issues related to data submissions by requesting electronic submission in accordance with an XML schema as opposed to the pipe-delimited flat file format required under the 2013 final rule), the proposal significantly expands the metrics reporting requirements, resulting in a significant increase in the reporting burden for many banking entities. For example:

• The additional quantitative measurements identifying information requirements proposed (e.g., trading desk information schedule, reporting schedules, the narrative statement requirement, or the other granular data reporting requirements included) would likely result in increased compliance burden and significant additional cost to update technology/systems
• The proposal creates entirely new metrics (e.g., transaction volume and position metric)

The public comment on the proposal includes significant comments on the proposed changes to the metrics and chief executive officer (CEO) attestation. As with other attestations on regulatory reports, the concerns expressed surround the extensiveness and practicality of what the CEO can effectively.

The proposal also requested comments on the coordination between agencies. To the extent one agency becomes responsible for collecting the metrics, it should result in a less complex, streamlined process for submitting these data. In addition, the structure of the metric is formatted more along the line of traditional regulatory reports (including standard reporting instructions and templates). This should lead to firms applying the same processes and analytical procedures to the Volcker metrics as used for traditional regulatory reports.

Call report burden reduction for community banks

The FFIEC published for comment a proposal that would implement a provision of EGRRCPA by increasing the number of banks that submit the less detailed FFIEC 051¹² and significantly reducing the number of data items reported by FFIEC 051 banks for the first and third quarter.

The proposal raises the threshold for reporting the FFIEC 051 from banks with less than $1 billion in total assets to banks with less than $5 billion (however the FFIEC 051 does not apply to firms with foreign offices or that use internal rating based or advanced measurement approaches for regulatory capital). The agencies estimate the increase in the threshold will reduce the burden for 727 banks.

A larger burden reduction will likely be realized from the reduction of items in the first and third quarter. The proposal would reduce the reporting of:

• Trouble debt restructuring (TDRS) on Schedule RC-C (loans and leases) and Schedule RC-N (pass due and non-performing assets)
• Risk-weighted assets on Schedule RC-R, Part II (regulatory capital)
• Trust related data on RC-T (fiduciary and related services)

During the public comment, several industry groups have called for a greater reduction by expanding the proposal to require only a basic balance sheet and income statement in the first and thirds quarter.

Merchant banking reporting

Merchant banking investment data are reported on the FR Y-12¹³ (Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies) and FR Y-12A¹⁴ (Annual Report of Merchant Banking Investments Held for an Extended Period).¹⁵ Most of the proposed changes are to the FR Y-12A. The FR Y-12A has submitted annually and the data are used to monitor the status of investments that are reaching the end of the permissible holding period. The proposed revisions would make the data more useful and reduce the number of information request from the Federal Reserve on reported data. The proposed revisions are:

• Adding a disposition data for the expiration date for the disposition of the investment
• Adding a field for the “RSSD-ID” of the legal entity that holds the investment
• Expanding the scope of the narrative on the plans for the disposition of the investment, including the efforts in trying to dispose of the investment. To do so the current field will be renamed “Past efforts and future plans including timing to achieve disposition of covered investments with the holding period”
• Clarifying the instructions to indicates that the reporting entity is the top-tier financial holding company (FHC)

These data are currently needed to ensure compliance with Regulation Y, merchant banking requirements and therefore should be available. However, firms should begin to discuss the qualitative information needed to meet the Federal Reserve’s expectations.

Finally, the denomination that investments are reported on the FR Y-12 and FR Y-12A have been proposed to be reduced to thousands of dollars rather than millions. This change was proposed to ensure any investment of less than $500 thousand is reported. This indicates that the Federal Reserve applies a very low materiality threshold for the data reported on the FR Y-12/12A reports.

Report of condition for Edge Act and Agreement Corporations (FR 2886b)¹⁶

With the proposed changes for the Federal Reserve Reports for Current Expected Credit Losses (CECL) and implementation of EGRRCPA, the Federal Reserve has proposed several changes to the FR 2886b. The proposed changes are conforming changes for the reporting of regulatory capital and accounting that have already implemented on other regulatory reports.

The Regulatory Capital Schedule (RC-R) completed by the banking Edge Act and Agree Corporation would be revised to reflect changes already made to the Call Report and will align Schedule RC-R with Federal Reserve Regulation Q. Specifically, the items currently reported on this schedule will be replaced with four items:

• Tier 1 Capital Allowable Under Regulation Q
• Tier 2 Capital Allowable Under Regulation Q
• Total Capital Allowable Under Regulation Q
• Total Risk-weighted Assets
  

The proposal also includes revising the instructions to report non-trading equities under US GAAP. This revision already has been implemented for the other regulatory reports. Lastly, the Federal Reserve is proposing raising the threshold for reporting the trading schedule (RC-D) from $2 million in trading assets to $10 million. Since these changes have already implemented on other regulatory reports, the implementation cost for these changes should be minimal.

What to do next

Clearly, there is a large volume of upcoming report changes that require careful change management, including providing training across the firm for each new requirement. In addition, other report changes have not been published, including the FR Y-14, which should be carefully monitored.

As further developments occur, Deloitte will issue additional updates as appropriate.

Endnotes

¹ S.2155 Economic Growth, Regulatory Relief, and Consumer Protection Act.

² Board of Governors of the Federal Reserve System, Instructions for Preparation of Single-Counterparty Credit Limits Reporting Form (FR 2590), available at: https://www.federalreserve.gov/reportforms/formsreview/FR2590_20180620_i_draft.pdf.
A discussion of the reporting for the FR 2590 can be found in our previous Reg Pulse blog on reporting requirements for single counterparty credit limits, available at: https://www2.deloitte.com/us/en/pages/regulatory/articles/fr2590-compliance-single-counterparty-credit-limits-rule.html.

³ Board of Governors of the Federal Reserve System, Instructions for Preparation of the Institution-to-Aggregate Data on Assets and Liabilities on an Immediate Counterparty Basis (FR 2510), available at: https://www.federalreserve.gov/reportforms/formsreview/FR%202510_i_draft.pdf.

⁴ Category I firms are G-SIFIs, Category II firms are those with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity. Category III firms are those with $250 billion in total assets or either $75 billion or more in non-bank assets; short-term wholesale funding; or off-balance sheet exposure. Category IV firms are firms with total assets of $100 billion or more to $250 billion.

⁵ Board of Governors of the Federal Reserve Board, Capital Assessments and Stress Testing Report Forms, available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDZGWnsSjRJKDwRxOb5Kb1hL.

⁶ Board of Governors of the Federal Reserve Board, Banking Organization Systemic Risk Report Forms, available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDaRHakir9P9vg==.

⁷ Board of Governors of the Federal Reserve Board, Complex Institution Liquidity Monitoring Report Forms, available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDbpqbklRe3/1zdGfyNn/SeV.

⁸ Board of Governors of the Federal Reserve Board, Consolidated Financial Statements for Holding Companies Report Forms, available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDal8cbqnRxZRg==.

⁹ Board of Governors of the Federal Reserve Board, Parent Company Only Financial Statements for Large Holding Companies Report Forms, available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDYeK/+NsOyV7PkVi3bV1QrX.

¹⁰ Federal Financial Institution Examination Council, Annual Dodd-Frank Act Company-Run Stress Test Report for Depository Institutions and Holding Companies with $10-$50 Billion in Total Consolidated Assets, available at: https://www.ffiec.gov/forms016.htm.

¹¹ Federal Reserve, Office of the Comptroller of the Currency (OCC), Securities Exchange Commission (SEC), and Commodity Futures CFTC).

¹² Federal Financial Institution Examination Council, FFIEC 051 Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only and Total Assets Less than $1 Billion, available at: https://www.ffiec.gov/forms051.htm.

¹³ Board of Governors of the Federal Reserve System, Consolidated Holding Company Report of Equity Investments in Nonfinancial Companies (FR Y-12), available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDaXXx01/WWTwA==.

¹⁴ Board of Governors of the Federal Reserve System, Annual Report of Merchant Banking Investments Held for an Extended Period (FR Y-12a), available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDa1DF7RNKY0K7VfrRkbu4wc.

¹⁵ Equity investment made by the holding company or any of its subsidiaries pursuant to the merchant banking authority of section 4(k)(4)(H) of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1843 (k)(4)(H)) and subpart J of the Board’s Regulation Y.

¹⁶ Board of Governors of the Federal Reserve System, Consolidated Report of Condition and Income for Edge and Agreement Corporations (FR 2886b), available at: https://www.federalreserve.gov/apps/reportforms/reportdetail.aspx?sOoYJ+5BzDZ3K5Fsu80KKvD8ZBX/gBqL.

Contact us