Regulatory reporting changes coming for 4th quarter reporting

Regulatory reporting changes coming for 4th quarter reporting

2020-01-07

As we close on the end of what has been a monumental year, there has been no shortage of change in the bank regulatory space.  There have been several recent regulation and accounting changes impacting key regulatory reports.  Implementation of the Tailoring Rule and Stress Capital Buffer Rule, changes to Regulation D and Accounting Standard Updates issued by the Financial Accounting Standards Board (FASB) will set precedent for changes we will see in the fourth quarter of 2020.

The Tailoring Rule and Stress Testing

In 2019, the Federal Reserve Board (the Board) issued a final rule that established a revised framework for applying prudential standards so that such standards align more closely to an institution’s risk profile (the tailoring rule).  The tailoring rule established four categories of prudential standards and applies them based on indicators designed to measure the risk profile of a reporting institution.   The tailoring rule made two changes to the stress testing rules for institutions subject to Category IV standards.  Firstly, the tailoring rule removed the requirement for institutions subject to Category IV standards to conduct and publicly disclose the results of company-run stress tests as in prior years.  Secondly, the tailoring rule changes the frequency of the supervisory stress test for Category IV institutions from annual to biennial.

Under the current proposal, Category IV institutions would be required to submit a capital plan to the Board annually but would no longer be required to calculate estimates of projected revenues, losses, reserves and pro forma capital levels using Board provided scenarios.  Such institutions would continue to be required to provide a forward-looking analysis of income and capital levels under expected and stressful conditions.  The projections are required to be tailored to and sufficiently capture the institution’s exposures, activities and risks in their capital plans.  As a result, Category IV institutions would be no longer required to report FR Y-14A Schedule A, Schedule B, Schedule F and Appendix A.  Category IV institutions would still be required to complete all other FR Y-14A schedules as necessary.   This suggests the Board intends to provide greater flexibility to Category IV institutions, to develop their annual plans.

Stress Capital Buffer Rule – Reporting Impact

The stress capital buffer rule (SCB) purports to simplify the Board’s current capital and stress testing requirements by tailoring the capital conservation buffer to incorporate the post-stress losses of a subject institution under the Federal Reserve’s Comprehensive Capital Analysis and Review.

In connection with the SCB rule, the Board modified the FR Y-9C for institutions subject to the capital plan rule to collect information regarding stress capital buffer requirement, GSIB surcharge, countercyclical capital buffer amount, as applicable, and any applicable distribution limitations under the regulatory capital rule. Specifically, the Board added new line items to the FR Y-9C Schedule HC-R Part I to collect the following information:

(1) the firm’s capital conservation buffer requirements (both standardized and advanced approaches) and leverage buffer requirement,

(2) information needed to calculate the firm’s maximum payout amount, including the firm’s planned total capital distributions, eligible retained income, and maximum payout ratio.

The new line items apply to top tier Holding Companies subject to the Board’s capital plan rule (BHCs and IHCs with total consolidated assets of $100 billion or more).

Deposits: Regulation D and Burden Reduction:

In response to recent economic disruptions and volatility in the U.S. financial markets caused by the pandemic the Board has adopted the Regulation D interim rule.  This rule amends the saving deposit definition by removing the six-transfer limit provision.  The rule also made it necessary to conform with changes to other definitions in Regulation D that refer to saving deposits.  The interim rule permits depository institutions to suspend enforcement of six-transfer limit and allow customers to make an unlimited number of convenient transfers and withdrawals from their savings accounts.  This change has direct impact to the FR 2900, FR 2886b as well as the FR Y-9C and Call report Deposits schedules.  The Board has recognized that the interim rules changes described above create a reporting option that could result in the collection of ambiguous data by allowing a depository institution to report a saving deposit as either a saving deposit or a transactional account.  To resolve this, the Board has proposed to amend the guidance to provide additional characteristics for an institution to assess in making the appropriate classification for such accounts.

In addition to the Regulation D changes described above, the Board has proposed to reduce the reporting burden associated with reserve requirements by discontinuing the collection of the FR 2910a and the FR 2930, ceasing the quarterly collection of the FR 2900 and refocusing items on the weekly collection of the FR 2900/FR 2915 to support the Board’s analysis of monetary aggregates.

FASB’s Accounting Standards Updates – Reporting Impact

January 2016, the FASB issued Accounting Standard Update ASU 2016-1, “Recognition and Measurement of Financial Assets and Financial Liabilities”.  As of the December 31, 2020 report date, all institutions will be required to prepare their regulatory reports in accordance with ASU 2016-01.  As a result, the Board and FDIC   have proposed revisions effective December 31, 2020 report date for the implementation of ASU 2016-01.  Proposed revisions impact following schedules: RI, RI-D, RC, RC-B, RC-H and RC-R for the Call reports, and HI, HI-A, HC, HC-B, HC-K and HC-R for the FR Y-9C.  Changes include revisions to line descriptions, removal of certain line items as well as footnote updates and certain instruction entries that reference ASU 2016-01 will removed or updated as appropriate.

As we bring an unprecedented year to a close, we experience the reoccurring themes of rule implementation, COVID economic relief and burden reduction as part of reporting changes proposed by the Board and other regulators.  Rule implementation has been evident in the Board’s proposed changes to its stress testing reports, impacting category IV banks most profoundly, and the implementation of the SCB rule, adopted to tailor the capital conservation buffer to incorporate the post-stress losses of a subject institution under the Federal Reserve’s Comprehensive Capital Analysis and Review.  The Board has proposed changes to Regulation D removing the transfer and withdrawal restrictions on savings accounts and reduced its overall reporting burden for deposits.  Finally, the regulators have provided the final implementation guidance and report changes for the FASB’s ASU 2016-01.

Katherine Tornarites

Regulatory Product Analyst