[Federal Register Volume 82, Number 43 (Tuesday, March 7, 2017)]
[Proposed Rules]
[Pages 12757-12781]
[FR Doc No: 2017-04329]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 211, 229, 231 and 241

[Release No. 33-10321; 34-80131; File No. S7-02-17]
RIN 3235-AL79

Request for Comment on Possible Changes to Industry Guide 3
(Statistical Disclosure by Bank Holding Companies)

AGENCY: Securities and Exchange Commission.

ACTION: Request for comment.

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SUMMARY: The Commission is publishing this request for comment to seek
public input as to the disclosures called for by Industry Guide 3,
Statistical Disclosure by Bank Holding Companies. The financial
services industry has changed dramatically since Guide 3 was first
published. Consequently, our disclosure guidance may not in all cases
reflect recent industry developments or changes in accounting standards
related to financial and other reporting requirements.

DATES: Comments should be received on or before May 8, 2017.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-02-17 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-02-17. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method of submission. The Commission will post all comments on the
Commission's Web site (http://www.sec.gov/rules/other.shtml). Comments
also are available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly.

FOR FURTHER INFORMATION CONTACT: Lindsay McCord, Associate Chief
Accountant in the Office of Chief Accountant, Division of Corporation
Finance, at<PHONE_NUMBER>, U.S. Securities and Exchange Commission,
100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Applicable Disclosures
    A. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rate and Interest Differential (Average Balance, Interest
and Yield/Rate Analysis and Rate/Volume Analysis)
    B. Investment Portfolio
    C. Loan Portfolio
    D. Summary of Loan Loss Experience
    E. Deposits
    F. Return on Equity and Assets
    G. Short-Term Borrowings
    H. Potential New Disclosures
III. Applicability of Disclosure Requirements
    A. Applicability to Registrants Other Than Bank Holding
Companies
    B. Applicability to Foreign Registrants
    C. Size Thresholds and Reporting Periods
IV. Closing

I. Introduction

    The Commission is considering possible revisions to its disclosure
regime for bank holding companies. When we discuss current disclosure
guidance in this request for comment, we focus on the disclosures
currently called for by Industry Guide 3, Statistical Disclosure by
Bank Holding Companies (Guide 3).\1\ By its terms, Guide 3 applies
exclusively to bank holding companies, although the staff has
previously indicated that the disclosures called for by Guide 3
``should also be provided by other registrants with material lending
and deposit activities.'' \2\ In this request for comment, when we use
the term ``BHC registrants,'' we are referring to public companies that
apply Guide 3 disclosures. In light of developments in

the financial services industry since publication of Guide 3, we are
considering modernization of the nature, timing, scope and
applicability of Guide 3. We also encourage commenters to consider
registrants other than BHC registrants with material amounts of
activities in the areas addressed in Guide 3 \3\ when responding to
this request for comment.
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    \1\ 57 FR 36442.
    \2\ Staff Accounting Bulletin Topic 11:K--Application of Article
9 and Guide 3 (SAB 11:K). The Industry Guides and SAB 11:K are not
rules, regulations or statements of the Commission. Further, as with
any staff guidance, the views of the staff referenced in this
request for comment are not rules or interpretations of the
Commission. The Commission has neither approved nor disapproved the
views of the staff expressed herein.
    \3\ Guide 3 is divided into seven sections, each covering a
distinct area of statistical disclosure: (I) Distribution of Assets,
Liabilities and Stockholders' Equity; Interest Rates and Interest
Differential, (II) Investment Portfolio, (III) Loan Portfolio, (IV)
Summary of Loan Loss Experience, (V) Deposits, (VI) Return on Equity
and Assets, and (VII) Short-Term Borrowings.
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    The goal of the Commission's disclosure system is to ensure that
investors receive the information they need to make informed investment
and voting decisions.\4\ Many of the Commission's disclosure
requirements are found in Regulation S-K,\5\ which is the central
repository of non-financial statement disclosure requirements, and
Regulation S-X,\6\ which prescribes the form and content of and
requirements for financial statements. These requirements generally
apply to all registrants, regardless of industry. In some instances,
the Commission has determined that registrants in specific industries,
such as bank holding companies, should provide additional disclosures.
For example, Subpart 1200 of Regulation S-K \7\ contains additional
disclosure requirements for oil and gas producing companies. The
Commission also recently proposed to consolidate the property
disclosure requirements for mining registrants in a new Subpart 1300 of
Regulation S-K.\8\ Similarly, the Commission has adopted disclosure
requirements and published guidance specific to bank holding companies,
such as Article 9 of Regulation S-X (Article 9),\9\ which sets forth
the Commission's rules for the form and content of consolidated bank
holding company financial statements and bank financial statements
included in filings with the Commission.
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    \4\ Adoption of Integrated Disclosure System, Release No. 33-
6383 (Mar. 3, 1982) [47 FR 11380].
    \5\ 17 CFR 229.10 et seq.
    \6\ 17 CFR 210.1-01 et seq.
    \7\ 17 CFR 229.1201 through 1208.
    \8\ Modernization of Property Disclosures for Mining
Registrants, Release No. 33-10098 (June 16, 2016) [81 FR 41651]
(Mining Disclosures Release).
    \9\ 17 CFR 210.9-01 through 9-07.
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    Industry Guide 3 was first published in 1976 \10\ as ``a convenient
reference to the statistical disclosures sought by the staff of the
Division of Corporation Finance in registration statements and other
disclosure documents filed by bank holding companies.'' \11\ The Guide
3 release noted that ``as the operations of bank holding companies have
diversified, it has become increasingly difficult for investors to
identify the sources of income of such companies.'' \12\ The Division
believed that disclosure of the same statistical information on a
regular, periodic basis would assist in assessing their future earning
potential and enable investors to compare bank holding companies.\13\
In drafting Guide 3, the staff was ``mindful of the investor's need to
assess uncertainties, the need for disclosure with respect to changes
in risk characteristics, and specifically the need for substantial and
specific disclosure of changes in risk characteristics of loan
portfolios.'' \14\ Consequently, Guide 3 called for ``more meaningful
disclosure about loan portfolios and related items in filings by bank
holding companies'' \15\ than had been generally available prior to
implementation of Guide 3. Guide 3 also requests information with
respect to a BHC registrant's foreign operations on the basis that it
believes is representative of its foreign activities and the risks
associated with such business. The staff's view was that such
``information [would] assist investors to evaluate the potential impact
of future economic events upon a registrant's business and earnings and
to assess the ability of a bank holding company to move into or out of
situations with favorable or unfavorable risk/return characteristics.''
\16\ In adopting Guide 3, the staff consulted extensively with
representatives of the Board of Governors of the Federal Reserve System
(FRB), the Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC) (collectively, U.S.
banking agencies), which regulate banking organizations.\17\ Unless the
context dictates otherwise, in this request for comment, when we use
the term ``banking organizations,'' we are referring to national banks,
state member banks, Federal savings associations, and top-tier bank
holding companies domiciled in the United States not subject to the
FRB's Small Bank Holding Company Policy Statement (12 CFR part 225,
appendix C), as well as top-tier savings and loan holding companies
domiciled in the United States, except certain savings and loan holding
companies that are substantially engaged in insurance underwriting or
commercial activities.\18\ Guide 3 has been amended over time to
provide more uniformity and consistency between the Guide and Article 9
and to elicit additional information about various risk elements
involved in deposit and lending activities,\19\ although the last
substantive revision of Guide 3 took place in 1986.\20\
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    \10\ Guides for Statistical Disclosure by Bank Holding
Companies, Release No. 33-5735 (Aug. 31, 1976) [41 FR 39007] (Guide
3 Release). Guide 3 was originally published as Securities Act Guide
61 and Exchange Act Guide 3. In 1982, Securities Act Guide 61 and
Exchange Act Guide 3 were redesignated as Securities Act Industry
Guide 3 and Exchange Act Industry Guide 3. See Rescission of Guides
and Redesignation of Industry Guides, Release No. 33-6384 (Mar. 16,
1982) [47 FR 11476]. When it published the Guide 3 Release, the
Commission stated that ``[t]he Guides are not Commission rules nor
do they bear the Commission's official approval; they represent
policies and practices followed by the Commission's Division of
Corporation Finance in administering the disclosure requirements of
the federal securities laws.''
    \11\ Guide 3 Release at 39008.
    \12\ Id.
    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ See Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Capital Adequacy, Transition
Provisions, Prompt Corrective Action, Standardized Approach for
Risk-weighted Assets, Market Discipline and Disclosure Requirements,
Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital
Rule. (Oct. 11, 2013) [78 FR 62017] (Regulatory Capital Rules).
    \19\ Amendments to Guides for Statistical Disclosure by Bank
Holding Companies, Release No. 33-6221 (July 8, 1980) [45 FR 47138]
(1980 Guide 3 Amendments Release); Revision of Financial Statement
Requirements and Industry Guide Disclosure for Bank Holding
Companies, Release No. 33-6458 (Mar. 7, 1983) [48 FR 11104];
Revision of Industry Guide Disclosures for Bank Holding Companies,
Release No. 33-6478 (Aug. 11, 1983) 48 FR 37609 (1983 Guide 3
Revisions Release); Notification of Technical Amendments to
Securities Act Industry Guides, Release No. 33-9337 (Jul. 13, 2012)
[77 FR 42175].
    \20\ Guide 3's last substantive revision, which added
disclosures regarding loans and extensions of credit to borrowers in
countries experiencing liquidity problems, occurred in 1986. See
Amendments to Industry Guide Disclosures by Bank Holding Companies,
Release No. 33-6677 (Nov. 25, 1986) [51 FR 43594].
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Purpose of This Request for Comment

    Since the last substantive revisions to Guide 3, the Commission has
issued disclosure requirements and guidelines \21\ and the Financial
Accounting Standards Board (FASB) \22\

has issued accounting standards that have changed the reporting
obligations for all registrants generally. In addition, various
international, federal and state regulatory, supervisory and standard-
setting bodies \23\ require entities within their respective remits to
publish a wide range of quantitative and qualitative disclosures.
Consequently, some of the disclosures called for by Guide 3, which are
focused on the needs of an investor, may be duplicative of or overlap
with subsequently adopted Commission rules, accounting principles
generally accepted in the United States (U.S. GAAP) or disclosures
mandated by other regulatory, supervisory or standard-setting regimes.
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    \21\ For example, the Commission adopted Item 305 of Regulation
S-K in 1997. Disclosure of Accounting Policies for Derivative
Financial Instruments and Derivative Commodity Instruments and
Disclosure of Quantitative and Qualitative Information about Market
Risk Inherent in Derivative Financial Instruments, Other Financial
Instruments and Derivative Commodity Instruments, Release No. 33-
7386 (Jan. 31, 1997) [62 FR 6044] (Disclosure of Market Risk
Sensitive Instruments Release).
    \22\ The Commission has broad authority and responsibility under
the federal securities laws to prescribe the methods to be followed
in the preparation of accounts and the form and content of financial
statements to be filed under those laws. See, e.g., Sections 7 and
19(a) and Schedule A, Items (25) and (26) of the Securities Act of
1933 [15 U.S.C. 77a et seq.] (Securities Act) and Sections 3(b),
12(b) and 13(b) of the Securities Exchange Act of 1934 [15 U.S.C.
78a et seq.] (Exchange Act). To assist it in meeting this
responsibility, the Commission historically has looked to private
sector standard-setting bodies designated by the accounting
profession to develop accounting principles and standards. In 2002,
in accordance with criteria established by the Sarbanes-Oxley Act,
the Commission designated the FASB as the private sector accounting
standard setter for U.S. financial reporting. See Commission
Statement of Policy Reaffirming the Status of the FASB as a
Designated Private-Sector Standard Setter, Release No. 33-8221 (Apr.
25, 2003) [68 FR 23333]. The IASB, which is subject to oversight by
the IFRS Foundation, is responsible for IFRS and establishes its own
standard-setting agenda. For further information, see http://www.ifrs.org/About-us/Pages/IFRS-Foundation-and-IASB.aspx.
    \23\ In the United States, for example, the U.S. banking
agencies regulate and supervise banking organizations. The Basel
Committee on Banking Supervision (BCBS) is an example of an
international standard-setter for the prudential regulation of
banks. The BCBS develops international regulatory capital standards
through a number of capital accords and related publications. The
United States is a participating member of the BCBS, and the U.S.
banking agencies generally implement BCBS standards through a notice
and comment process. For more information, see http://www.bis.org/bcbs/history.pdf.
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    Furthermore, the financial services industry has evolved
significantly since Guide 3 was first published. Bank holding companies
and financial holding companies today conduct a wider array of
activities than was the case at the time of Guide 3's publication.\24\
Moreover, the use of financial instruments has also evolved. For
example, 1,438 insured U.S. commercial banks and savings associations
reported derivatives activities at the end of the third quarter of
2016.\25\ A small group of large financial institutions continues to
dominate derivatives activity in the U.S. commercial banking system.
During the third quarter of 2016, four large commercial banks
represented 89.7 percent of the total banking industry notional amounts
and 84.4 percent of industry net credit exposure.\26\
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    \24\ For example, some banking organizations engage in
activities involving physical commodities, insurance, investment
management, asset management and broker-dealer activities. See also
Henry T. C. Hu, Disclosure Universes and Modes of Information:
Banks, Innovation, and Divergent Regulatory Quests, 31 Yale Journal
on Regulation 565 (2014) at pages 590-592.
    \25\ See Quarterly Report on Bank Derivatives Activities, Third
Quarter 2016, Office of the Comptroller of the Currency, available
at https://www.occ.gov/topics/capital-markets/financial-markets/derivatives/derivatives-quarterly-report.html.
    \26\ Id.
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    In this request for comment, we describe each disclosure section in
Guide 3 in turn, as well as related disclosures required by Commission
rules, U.S. GAAP and the U.S. banking agencies,\27\ and we ask for
public input about how and to what extent the Guide 3 disclosure regime
could be improved. We seek input on new or revised disclosure or the
elimination of what may be duplicative or overlapping disclosures in
Guide 3. We also seek input on whether any of the Guide 3 disclosures,
which are not Commission rules or requirements, should be codified as
Commission rules.\28\ Because we are considering modernization of the
scope and applicability of Guide 3, we also encourage commenters to
consider registrants other than bank holding companies when
recommending improvements to the disclosure regime.
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    \27\ The descriptions in this request for comment are provided
for the convenience of commenters and to facilitate the comment
process. These descriptions, particularly the descriptions of
applicable bank regulatory requirements and U.S. GAAP, should not be
taken as Commission or staff guidance about the relevant rules or
standards.
    \28\ In 1996, the Commission's Task Force on Disclosure
Simplification recommended relocating the industry guides, including
Guide 3, into Regulation S-K. Report of the Task Force on Disclosure
Simplification (Mar. 5, 1996), available at http://www.sec.gov/news/studies/smpl.htm. Currently, Instruction 13 to Regulation S-K Item
303(a) directs the attention of bank holding companies to the
information called for by Guide 3. In 2008, the Commission
modernized the reporting requirements applicable to oil and gas
reserves and codified the disclosures formerly in Industry Guide 2
into Regulation S-K. Modernization of Oil and Gas Reporting, Release
No. 33-8995 (Dec. 31, 2008) [74 FR 2158].
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Sources of Disclosures

    In addition to Article 9 and Guide 3, various Commission rules and
accounting standards applicable to registrants in all industries govern
the disclosures that bank holding companies provide in Commission
filings. For example: \29\
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    \29\ The rules and accounting standards in these examples apply
to domestic registrants. Foreign private issuers are subject to
similar Commission disclosure requirements. For example, Form 20-F
requires a discussion of the foreign private issuer's financial
condition, changes in financial condition and results of operations
and quantitative and qualitative disclosures about market risk.
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     Article 4 of Regulation S-X \30\ requires financial
statements for domestic registrants to comply with U.S. GAAP, which in
turn contains disclosure requirements that apply specifically to the
financial services industry.\31\
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    \30\ 17 CFR 210.4-01 through 4-10.
    \31\ U.S. GAAP includes industry-specific accounting and
reporting guidance for the financial services industry in Accounting
Standards Codification (ASC) 940 to 950. U.S. GAAP categorizes the
financial services industry disclosures by the following: Broker
Dealers, Depository and Lending, Insurance, Investment Companies,
Mortgage Banking, and Title Plant.
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     Item 303 of Regulation S-K,\32\ Management's discussion
and analysis of financial condition and results of operations (MD&A),
requires a discussion and analysis of the underlying causes of material
changes in financial statement line items, as well as the material
trends and uncertainties that may have a material impact on a
registrant's results of operations, liquidity or capital resources.\33\
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    \32\ 17 CFR 229.303.
    \33\ See Commission Guidance Regarding Management's Discussion
and Analysis of Financial Condition and Results of Operations,
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056] (Interpretive
Guidance on MD&A).
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     Item 305 of Regulation S-K,\34\ Quantitative and
qualitative disclosures about market risk, requires disclosures about
market risks, including interest rate risk. Interest rate risk is a
significant risk for registrants whose balance sheets are concentrated
in interest-earning assets and interest-bearing liabilities.
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    \34\ 17 CFR 229.305.
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     Item 2.02 of Form 8-K requires registrants that make any
public announcement or release material non-public information about
their results of operations or financial condition for a completed
quarter or annual period to furnish the information as an exhibit to
Form 8-K. Among other things, this requirement applies to earnings
releases and investor presentations.\35\
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    \35\ Registrants sometimes provide investor presentations that
contain extensive information that is not required to be disclosed
by Commission rules or accounting standards. For example, some
registrants disclose calculations for capital ratios to which they
are not yet subject. In addition, some registrants disclose their
deposit spreads for each category of deposits, while disclosing in
MD&A their deposit spread on an aggregated basis only.
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    A wide range of information is publicly available beyond what is
called for by the Commission's disclosure requirements and guidance.
For example:
     The U.S. banking agencies require their regulated banking
organizations to file publicly available Consolidated Reports of
Condition and Income (Call

Reports), on a quarterly basis.\36\ The FRB also requires bank holding
companies to file publicly available data separately on a consolidated
basis.\37\ Because these reports are prepared based on bank regulatory
reporting requirements, the information they contain is not necessarily
identical to the information in Commission filings.
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    \36\ Every national bank, state member bank, insured state
nonmember bank, and savings association is required to file periodic
consolidated Call Reports. These banking organizations may not be
the entities that file reports with the Commission, which typically
are the bank holding companies. For Call Report instructions and
forms, see http://www.ffiec.gov/ffiec_report_forms.htm. Call Reports
must be filed 30 to 35 calendar days after the report date,
depending on whether the filer has a foreign office. The discussion
of Call Reports in this request for comment is based on the
reporting requirements applicable to banking organizations as of
December 31, 2016.
    \37\ The FRB collects basic financial data on a consolidated
basis from domestic bank holding companies, savings and loan holding
companies and securities holding companies on Form FR Y-9C.
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     Banking organizations are subject to the regulatory
capital framework and the associated disclosures adopted by the U.S.
banking agencies. The current regulatory capital framework, known as
``Basel III,'' was first phased in beginning on January 1, 2014 and
became effective for all U.S. banking organizations on January 1,
2015.\38\ U.S. GAAP requires disclosure describing the capital
requirements and compliance with those requirements on an annual
basis.\39\
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    \38\ The BCBS developed international regulatory capital
standards through a number of capital accords and related
publications, which have collectively been in effect since 1998.
Basel III is a comprehensive set of reform measures, developed by
the BCBS, to strengthen the regulation, supervision, and risk
management of the banking sector. The measures include both
liquidity and capital reforms. See http://www.federalreserve.gov/bankinforeg/basel/.
    The Basel III framework is based on the following three pillars:
(1) Minimum capital requirements, (2) supervisory review process,
and (3) market discipline disclosures. See Regulatory Capital Rules.
    \39\ ASC 942-505-50. The ratios and amounts required to be
disclosed, if applicable, include: (1) Tier 1 leverage, (2) Tier 1
risk-based and total risk-based capital, (3) tangible capital, and
(4) Tier 3 capital for market risk. Registrants should disclose any
other regulatory limitations that could materially affect their
economic resources and claims to those resources.
     Entities within the scope of ASC 942 include the following: (a)
Finance companies; (b) depository institutions; (c) bank holding
companies; (d) savings and loan association holding companies; (e)
branches and agencies of foreign banks regulated by U.S. federal
banking regulatory agencies; (f) state-chartered banks, credit
unions and savings institutions that are not federally insured; (g)
foreign financial institutions that present U.S. GAAP financial
statements; (h) mortgage companies; and (i) corporate credit unions.
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     Large, internationally active banking organizations,
certain designated nonbank financial companies and certain consolidated
subsidiary depositary institutions thereof are subject to a liquidity
coverage ratio (LCR) requirement. The LCR requirement is designed to
promote the short-term resilience of the liquidity risk profile of
covered organizations, thereby improving the financial services
industry's ability to absorb shocks arising from financial and economic
stress, and to further improve the measurement and management of
liquidity risk. It requires covered organizations to maintain adequate
levels of ``high-quality liquid assets.'' \40\ Basel III also
introduced, and the U.S. banking agencies have proposed, a net stable
funding ratio (NSFR) requirement, a liquidity measure that would
require large, internationally active banking organizations to maintain
sufficient levels of ``stable funding'' to reduce liquidity risk in the
banking system.\41\
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    \40\ The U.S. banking agencies adopted the LCR rule effective
January 1, 2015 for large and internationally active banking
organizations, generally, bank holding companies, certain savings
and loan holding companies, and depository institutions with $250
billion or more in total assets or $10 billion or more in on balance
sheet foreign exposure and their consolidated subsidiaries that are
depository institutions with $10 billion or more in total
consolidated assets. In addition, a modified minimum LCR requirement
applies to bank holding companies and savings and loan holding
companies without significant insurance or commercial operations
that are not internationally active and, in each case, have $50
billion or more in total consolidated assets. See Liquidity Coverage
Ratio: Liquidity Risk Measurement Standards (Oct. 10, 2014) [79 FR
61440] (LCR Adopting Release).
     In December 2016, the FRB adopted quarterly public disclosure
requirements related to the LCR requirement, including disclosure of
the inputs to the LCR calculation. The effective date is scaled
based on organization size, and only those covered organizations
with $700 billion or more in total consolidated assets or $10
trillion or more in assets under custody must comply in 2017. See
Liquidity Coverage Ratio: Public Disclosure Requirements; Extension
of Compliance Period for Certain Companies to Meet the Liquidity
Coverage Ratio Requirements (Dec. 27, 2016) [81 FR 94922].
    \41\ In May 2016, the U.S. banking agencies proposed a rule that
would establish a minimum NSFR threshold applicable to covered
organizations and would require public disclosure of the NSFR, its
components and a discussion of certain qualitative features of it.
If adopted, the rule would become effective on January 1, 2018 and
is tailored to the size of the organization. See Net Stable Funding
Ratio: Liquidity Risk Measurement Standards and Disclosure
Requirements (May 3, 2016) [81 FR 35123].
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     Under Basel III, certain banking organizations are subject
to public disclosure requirements intended to allow market participants
to assess an organization's capital adequacy (Pillar 3).\42\
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    \42\ Pillar 3 disclosure requirements apply to banking
organizations with $50 billion or more in total assets. See
Regulatory Capital Rules: Regulatory Capital, Implementation of
Basel III, Capital Adequacy, Transition Provisions, Prompt
Corrective Action, Standardized Approach for Risk-weighted Assets,
Market Discipline and Disclosure Requirements, Advanced Approaches
Risk-Based Capital Rule, and Market Risk Capital Rule (Oct. 11,
2013) [78 FR 62018] (Regulatory Capital Rules Release).
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     Large bank holding companies are subject to the FRB's
annual comprehensive capital analysis and review (CCAR) and Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) \43\
stress testing (DFAST).\44\ Some bank holding companies subject to
these stress testing requirements issue press releases announcing their
CCAR and DFAST results and furnish the press releases as Form 8-K
exhibits. The FRB generally publishes the CCAR results, and banking
organizations' primary bank regulatory agencies generally publish the
DFAST results. These results are published both in summary form and on
an organization-by-organization basis.
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    \43\ Public Law 111-203, 124 Stat. 1376 (2010).
    \44\ Banking organizations with $50 billion or more in total
consolidated assets are subject to the full scope of these tests.
DFAST testing and disclosure requirements are significantly reduced
for banking organizations with $10 billion to $50 billion in total
consolidated assets. See https://www.federalreserve.gov/newsevents/press/bcreg/20150602a.htm.
    The FRB uses CCAR to assess whether a banking organization has
sufficient capital to continue operations in times of economic and
financial stress and to ensure that the organization maintains a
robust, forward-looking capital planning process that accounts for
the unique risks it faces. See http://www.federalreserve.gov/bankinforeg/ccar.htm. The U.S. banking agencies use DFAST to assess
whether a banking organization has sufficient capital to absorb
losses and support operations during adverse economic conditions.
See http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20150602a1.pdf.
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Public Comments on Guide 3

    Over the years, the Commission has continuously evaluated its
disclosure system and engaged periodically in rulemakings designed to
enhance its disclosure and registration requirements. This request for
comment is part of the staff's broad-based review of the Commission's
disclosure regime.
    As part of this effort, the staff requested public input generally
on how the Commission's disclosure system could be improved for the
benefit of both companies and investors,\45\ and a concept release on
the business and financial disclosure requirements in Regulation S-K
\46\ requests comment on the Commission industry guides.\47\ Over

30 of the comment letters submitted in response to these requests
addressed Guide 3 specifically or Commission industry guides
generally.\48\ Several commenters indicated that the industry guides
are helpful and relevant,\49\ and several commenters recommended that
the industry guides be updated.\50\ Several commenters recommended that
the industry guides be revised to eliminate overlap with U.S. GAAP
requirements.\51\ One commenter recommended that the Commission conduct
a comprehensive review of the regulatory disclosures applicable to the
financial services industry.\52\ Some commenters suggested that to
reduce complexity and redundancy, the staff should consider how U.S.
GAAP disclosure requirements interplay with Commission disclosure
requirements.\53\ Some commenters recommended that the industry guides
be codified into Regulation S-K or Regulation S-X,\54\ while other
commenters recommended that the guides not be codified.\55\ Three
commenters made specific recommendations on the disclosures called for
by Guide 3.\56\
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    \45\ Comment letters related to this request are available at
http://www.sec.gov/spotlight/disclosure-effectiveness.shtml.
    \46\ Business and Financial Disclosure Required by Regulation S-
K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915] (Regulation S-
K Concept Release).
    \47\ Comment letters related to the Regulation S-K Concept
release are available at https://www.sec.gov/comments/s7-06-16/s70616.htm.
    \48\ See letters from The PNC Financial Services Group (July 14,
2014) (PNC Letter); Tom C.W. Lin (July 30, 2014) (Lin Letter);
Global Financial Institutions Accounting Committee of the Securities
Industry and Financial Markets Association (Oct. 13, 2014) (SIFMA
Letter); Sustainability Accounting Standards Board (Nov. 12, 2014)
(SASB Letter); CFA Institute (Nov. 12, 2014) (CFA Institute Letter);
Shearman & Sterling LLP (Nov. 26, 2014) (Shearman & Sterling
Letter); Disclosure Effectiveness Working Group of the Federal
Regulation of Securities Committee and the Law & Accounting
Committee of the Business Law Section of the American Bar
Association (Mar. 6, 2015) (ABA Letter); Henry T. C. Hu (Oct. 7,
2015) (Hu Letter); Data Transparency Coalition (Oct. 29, 2015) (Data
Transparency Coalition Letter); Ernst & Young LLP (Nov. 20, 2015)
(EY Letter); Terra Alpha Investments LLC (June 6, 2016) (Terra Alpha
Letter); Sustainability Accounting Standards Board (July 1, 2016)
(SASB Letter II); US SIF and US SIF Foundation (July 14, 2016) (US
SIF Letter); American Bankers Association (July 15, 2016) (American
Bankers Association Letter); Deloitte & Touche LLP (July 15, 2016)
(Deloitte Letter); U.S. Chamber of Commerce (July 20, 2016) (Chamber
Letter); Corporate Governance Coalition for Investor Value (July 20,
2016) (CGCIV Letter); Center for Audit Quality (July 21, 2016) (CAQ
Letter); Ernst & Young LLP (July 21, 2016) (EY Letter II); The PNC
Financial Services Group (July 21, 2016) (PNC Letter II); KPMG LLP
(July 21, 2016); Investment Program Association (July 21, 2016)
(Investment Program Association Letter); Committee on Securities
Law, Business Law Section, Maryland State Bar Association (July 21,
2016) (Maryland State Bar Letter); PricewaterhouseCoopers LLP (July
21, 2016) (PwC Letter); Crowe Horwath LLP (July 21, 2016) (Crowe
Horwath Letter); Allstate Insurance Company (July 21, 2016)
(Allstate Letter); Financial Services Roundtable (July 21, 2016)
(Financial Services Roundtable Letter); Davis Polk & Wardwell LLP
(July 22, 2016) (Davis Polk Letter); Lark Research, Inc. (July 25,
2016 (Lark Research Letter); Shearman & Sterling (August 31, 2016)
(Shearman & Sterling Letter II); CFA Institute (Oct. 6, 2016) (CFA
Institute Letter II).
    \49\ See, e.g., CFA Institute Letter; CFA Institute Letter II;
Maryland State Bar Letter; Shearman & Sterling Letter II.
    \50\ See, e.g., Allstate Letter; American Bankers Association
Letter; CAQ Letter; CFA Institute Letter; CFA Institute Letter II;
Crowe Horwath Letter; Davis Polk Letter; EY Letter; Financial
Services Roundtable Letter; Investment Program Association Letter;
PNC Letter II; PwC Letter; Shearman & Sterling Letter; SIFMA Letter.
    \51\ See, e.g., CAQ Letter; Crowe Horwath Letter; EY Letter;
KPMG Letter; SIFMA Letter.
    \52\ SIFMA Letter.
    \53\ See, e.g. CFA Institute Letter; Shearman & Sterling Letter.
    \54\ See, e.g., Crowe Horwath Letter; Davis Polk Letter; EY
Letter;
    \55\ See, e.g., Allstate Letter; Investment Program Association
Letter; PNC Letter II.
    \56\ Deloitte Letter (recommending that the Commission consider
whether certain investment portfolio, return on equity and assets
and short-term borrowings disclosures continue to be informative or
useful for investors, and that the Commission consider increasing
the threshold that triggers deposits disclosure); Maryland State Bar
Letter (recommending that the threshold that triggers deposit
disclosure be increased, and that the scaled disclosure requirements
in Guide 3 be made available to all smaller reporting companies and
emerging growth companies); SIFMA Letter (providing specific
recommendations on whether to retain, eliminate or revise each Guide
3 disclosure).
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    In this request for comment, we are seeking public input as to
whether and in which respects the specific quantitative and qualitative
disclosures called for by Guide 3 should be modified. Such disclosures
include statistical disclosures that enable investors to compare
results of operations among BHC registrants and evaluate exposures to
risk. Portions of Guide 3 may call for the same or similar information
as called for by U.S. GAAP or other regulatory reporting requirements
that are not subject to the Commission's review. We are considering
whether our current disclosure regime for BHC registrants continues to
elicit the most relevant and important information for investors. To
this end, we are seeking to understand better the types of information
investors find important and how our current disclosure regime comports
with investor expectations as well as industry practice and trends. In
addition, we seek to understand to what degree other disclosure
regimes, such as those instituted by U.S. banking agencies, may be used
by investors.
    We also are considering how Guide 3's disclosures can be most
effectively presented from the perspective of both investor protection
and promoting efficiency, competition and capital formation.\57\ We
also are interested in learning about any challenges that BHC
registrants have faced in preparing and providing the categories of
information currently covered by Guide 3.
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    \57\ Section 3(f) of the Exchange Act requires that, whenever
the Commission is engaged in rulemaking under the Exchange Act and
is required to consider or determine whether an action is necessary
or appropriate in the public interest, the Commission shall
consider, in addition to the protection of investors, promotion of
efficiency, competition and capital formation. Section 2(b) of the
Securities Act also sets forth this same requirement. See also
Section 23(a)(2) of the Exchange Act.
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    Further, we are considering whether disclosures called for by Guide
3 should be applicable to certain other registrants in the financial
services industry.
Request for Comment
    1. Does Guide 3 provide important information for investors about
BHC registrants? What is the value to investors of the disclosures
currently called for by Guide 3?
    2. Do the disclosures called for by Guide 3 assist investors with
comparing financial condition and results of operations across BHC
registrants? Do the disclosures help investors evaluate exposures to
risk across BHC registrants?
    3. How should the Commission consider the importance of
comparability for BHC registrants relative to other industries that do
not have defined analytical data or specified disclosures?
    4. Which Guide 3 disclosures, if any, should be codified as
Commission rules, and why?
    5. Excluding Commission filings, on what disclosures (e.g., U.S.
banking agency regulatory disclosures) do investors most frequently
rely in making investment decisions? How do investors use those
disclosures in making investment decisions? How do investors use such
disclosures to compare results of operations and evaluate exposures to
risks?
    6. Should the information from disclosures outside of Commission
filings be incorporated into the Commission's disclosure requirements?
Why or why not? If incorporated, how should the information be
presented to facilitate investors' access to such information?
    7. Should the disclosures called for by Guide 3 be extended to
other registrants, such as those engaged in the financial services
industry? If so, which registrants and which disclosures?

II. Applicable Disclosures

    In this section, we describe the disclosures currently called for
by Guide 3 and other regulatory regimes. Our discussion of U.S.
accounting standards and bank regulatory requirements is neither
comprehensive nor interpretive, and it emphasizes only current \58\
disclosure requirements, some

of which will or may change in the future.\59\ To focus the discussion,
this request for comment describes the disclosures applicable to
domestic registrants that are not smaller reporting companies \60\ or
emerging growth companies \61\ and that do not provide scaled Guide 3
disclosures.\62\ We discuss the applicability of these disclosures to
foreign registrants, smaller reporting companies, emerging growth
companies and smaller bank holding companies in Section III. We also
consider whether disclosures beyond or in lieu of those currently
applicable would be important for investors.
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    \58\ We refer to U.S. GAAP standards that are effective as of
the date of this request for comment as ``current'' and highlight
separately throughout this request for comment standards that have
been issued but are not yet effective.
    \59\ For example, in 2016 the FASB issued two new accounting
standards that modify the accounting for and disclosure of financial
assets and liabilities. See the discussion of these new standards in
Sections 2.B, 2.C and 2.D of this request for comment.
    \60\ Exchange Act Rule 12b-2 [17 CFR 240.12b-2] defines a
smaller reporting company as an issuer that is not an investment
company, an asset-backed issuer or a majority-owned subsidiary of a
parent that is not a smaller reporting company and that has a public
float of less than $75 million. If an issuer has zero public float,
it is considered a smaller reporting company if its annual revenues
are less than $50 million.
    \61\ Section 2(a)(19) of the Securities Act defines an emerging
growth company as an issuer that had total annual gross revenues of
less than $1 billion during its most recently completed fiscal year.
It retains that status for five years after its initial public
offering unless its revenues are $1 billion or more, it issues more
than $1 billion of non-convertible debt during the previous three-
year period, or it qualifies as a large accelerated filer as defined
in Exchange Act Rule 12b-2.
    \62\ For bank holding companies with less than $200 million in
total assets or less than $10 million of equity, Guide 3 calls for
only two years of data, as opposed to three or five years of data,
depending on the item, for all other registrants.
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A. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rate and Interest Differential (Average Balance, Interest and
Yield/Rate Analysis and Rate/Volume Analysis)

1. Background
    Net interest income represented more than 64% of total net
operating revenue for all FDIC-insured institutions for the first three
quarters of 2016.\63\ Given the significance of net interest income to
the results of operations, it is important for investors to understand
the reasons for its fluctuations. A BHC registrant's future earnings
depend significantly on present and future economic conditions. Changes
in interest rates can have a significant impact on a BHC registrant's
performance, and that impact may not be evident from analyzing
historical results alone.
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    \63\ Unless otherwise indicated, industry-wide percentages used
in this request for comment were calculated using information from
FDIC Quarterly, which includes data for all FDIC-insured
institutions and is available at https://www.fdic.gov/bank/analytical/quarterly/2016_vol10_4/fdic_v10n4_3q16_quarterly.pdf.
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    As called for by Guide 3, average balance sheets \64\ provide
investors with an indication of the balance sheet items that have been
most affected by changes in interest rates and an indication of a
registrant's ability to move into or out of situations with favorable
or unfavorable risk/return characteristics. For example, an average
balance sheet may provide an indication of whether a registrant is
asset-sensitive or liability-sensitive.\65\ Liability-sensitive BHC
registrants that rely heavily on short-term and other rate-sensitive
funding sources may experience significant increases in funding costs
in a rising interest rate environment. Such BHC registrants may be
unable to offset higher funding costs with higher yielding assets,
which could result in an adverse impact on net interest margins.
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    \64\ Section I.A of Guide 3 calls for balance sheets that show
the average daily balances of significant categories of assets and
liabilities. If the collection of data on a daily average basis,
however, would involve unwarranted or undue burden or expense,
weekly or month end averages may be used, provided they are
representative of the operations of the BHC registrant. The basis
used for presenting averages should be disclosed when not presented
on a daily average basis.
    \65\ A liability-sensitive banking organization has a long-term
asset maturity and repricing structure, relative to a shorter-term
liability structure. For example, a liability-sensitive BHC
registrants may have significant exposure to longer-term mortgage-
related assets that reprice slowly while relying heavily on rate-
sensitive funding sources that reprice more quickly.
---------------------------------------------------------------------------

2. Current Guide 3 Disclosures
    Section I.A of Guide 3 calls for balance sheets that show the
average daily balances of significant categories of assets and
liabilities, including all major categories of interest-earning assets
and interest-bearing liabilities.\66\ Section I.B of Guide 3 calls for
disclosure of the:
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    \66\ Section I.A of Guide 3 indicates that major categories of
interest-earning assets should include loans, taxable investment
securities, non-taxable investment securities, interest-bearing
deposits in other banks, federal funds sold, securities purchased
with agreements to resell, other short-term investments and other
assets. Major categories of interest-bearing liabilities should
include savings deposits, other time deposits, short-term debt,
long-term debt and other liabilities.
---------------------------------------------------------------------------

     Interest earned or paid \67\ on the average amount of each
major category of interest-earning asset and interest-bearing
liability;
---------------------------------------------------------------------------

    \67\ The interest earned and interest paid reported on the
average balance sheet is based on the amounts reported in the
audited financial statements. Under U.S. GAAP, reported interest
expense may differ from the cash paid for interest during the
period.
---------------------------------------------------------------------------

     average yield for each major category of interest-earning
asset;
     average rate paid for each major category of interest-
bearing liability;
     average yield on all interest-earning assets;
     average effective rate paid on all interest-bearing
liabilities; and
     net yield on interest-earning assets.\68\
---------------------------------------------------------------------------

    \68\ Net yield is net interest earnings divided by total
interest-earning assets, with net interest earnings equaling the
difference between total interest earned and total interest paid.
---------------------------------------------------------------------------

    Section I.C of Guide 3 calls for a rate and volume analysis of
interest income and interest expense for the last two fiscal years.
This analysis should be segregated by each major category of interest-
earning asset and interest-bearing liability into amounts attributable
to:
     changes in volume (changes in volume multiplied by the old
rate);
     changes in rates (changes in rates multiplied by the old
volume); and
     changes in rate/volume (changes in rates multiplied by
changes in volume).
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules
and Accounting Standards
    Article 9 prescribes the form and content of consolidated financial
statements for bank holding companies and requires presentation of
interest income and interest expense separately by type and subtotals
of total interest income, interest expense and net interest income on
the income statement or in the footnotes to the financial
statements.\69\ In addition, all registrants must discuss their
financial condition, changes in financial condition and results of
operations in MD&A, including a narrative discussion of the extent to
which any material increases are attributable to increases in price or
increases in volume. MD&A requires registrants to describe significant
components of revenues or expenses that, in the registrant's judgment,
should be described in order to understand the results of
operations.\70\ In response to this requirement, some bank holding
companies provide an analysis of fluctuations in their interest income
and interest expense in MD&A. Another source of income for bank holding
companies that may be discussed in MD&A is non-interest income. Because
Guide 3 currently does not call for specific disclosures regarding this
type of income, we discuss non-interest

income in Section H. Potential New Disclosures.
---------------------------------------------------------------------------

    \69\ 17 CFR 210.9-04. The types of interest income or interest
expense include loans, investment securities, trading accounts,
deposits, short-term borrowings and long-term debt.
    \70\ 17 CFR 229.303(a)(3).
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    Other rule provisions require registrants to provide quantitative
and qualitative disclosures about market risk sensitive instruments,
both trading and other than trading instruments, that affect their
financial condition.\71\ Interest rate risk generally is a significant
market risk exposure for BHC registrants. These disclosures, made in
response to Item 305 of Regulation S-K, are intended to provide
investors with forward-looking information about a registrant's
potential interest rate risk exposure, while the disclosures called for
by Item I of Guide 3 focus on the historical effect. Item 305 requires
a description of the quantitative impact of market risk and provides
flexibility by allowing one or more of the following three disclosure
alternatives to be used:
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    \71\ Items 305(a) and 305(b) of Regulation S-K [17 CFR
229.305(a) and 305 (b)]. For purposes of Items 305(a) and 305(b),
market risk sensitive instruments include derivative financial
instruments, other financial instruments and derivative commodity
instruments. Each of these terms is defined in General Instruction 3
to Items 305(a) and 305(b).
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     A tabular presentation of fair value information and
contract terms relevant to determining future cash flows, categorized
by expected maturity dates.
     A sensitivity analysis expressing potential loss in future
earnings, fair values or cash flows from selected hypothetical changes
in market rates and prices.
     Value at risk (VaR) disclosures expressing potential loss
in future earnings, fair values or cash flows from market movements
over a selected period of time with a selected likelihood of
occurrence.
    Item 305 of Regulation S-K addresses risks arising from changes in
interest rates, foreign currency exchange rates, commodity prices,
equity prices and other market changes that affect market risk
sensitive instruments and was designed to strike a balance between
comparability and flexibility of market risk disclosures by prescribing
these alternatives without stipulating standardized methods or
procedures specifying how to comply with each alternative.\72\
Registrants may choose which methods, model characteristics,
assumptions and parameters they use in complying with the item, and
registrants may use more than one disclosure alternative across each
market risk exposure category.\73\ Consequently, investors may be
unable to compare one registrant to another. The staff has observed
that large bank holding companies generally elect to use a combination
of disclosure alternatives to present different market risk sensitive
instruments. An example of how a bank holding company may use multiple
disclosure alternatives for its Item 305 disclosures is to use VaR to
quantify market risks for its entire trading portfolio while using a
sensitivity analysis to quantify interest rate risk for the other than
trading portfolio. Registrants must describe the disclosure alternative
or alternatives they select to assist investors with evaluating the
potential effect of variations in a model's characteristics and
assumptions. One consequence of the disclosure alternative approach
used in Item 305 is that registrants may provide disclosure using
alternatives that differ from the methods they actually use to manage,
evaluate and monitor market risk. Commenters have suggested that
management's views about market risk and risk management activities,
rather than one of the three prescribed methods, represent the most
relevant information for investors.\74\ However, when Item 305 was
adopted, the Commission believed that a presentation of market risk
using a management approach outside of the framework articulated in
Item 305 could make it difficult for investors to assess market risk
across registrants.\75\
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    \72\ See Disclosure of Market Risk Sensitive Instruments
Release.
    \73\ Market risk exposure categories include interest rate risk,
foreign currency exchange rate risk, commodity price risk and other
relevant market risks.
    \74\ See, e.g., CAQ Letter and KPMG Letter.
    \75\ The Commission noted that, in adopting Item 305, it sought
to strike a balance between the views of commenters seeking a
``management approach'' and those supporting a more consistent
reporting framework for the sake of comparability. See Disclosure of
Market Risk Sensitive Instruments Release.
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    During the last five years, other regulatory agencies and the
private sector have given increased attention to market risk
disclosures. For example, in 2012 the Financial Stability Board's
Enhanced Disclosure Task Force (EDTF), a private sector group composed
of members representing users and preparers of financial reports,
recommended that banking organizations provide information that
facilitates users' understanding of the linkages between line items in
the balance sheet and income statement with positions included in the
market risk disclosures. The EDTF report included 32 recommendations
for improving bank risk disclosures in the areas of report usability,
risk governance and risk management, capital adequacy, liquidity and
funding, market risk, credit risk and other risks.
    In addition, the BCBS has focused on whether banking organizations
have sufficient capital to cover possible losses due to interest rate
changes.\76\ According to the BCBS, adverse movements in interest rates
can pose a significant threat to a bank's current capital base and/or
future earnings. However, U.S. GAAP does not require a presentation or
disclosure of net interest earnings or average balance sheets. Nearly
five years ago, the FASB proposed the following standardized
quantitative interest rate risk disclosures:
---------------------------------------------------------------------------

    \76\ See Interest rate risk in the banking book (April 2016),
available at https://www.bis.org/bcbs/publ/d368.pdf.
---------------------------------------------------------------------------

     The carrying amount of classes of financial assets and
liabilities segregated according to time intervals based on the
contractual repricing of the financial instruments;
     the weighted-average contractual yield by class of
financial instrument and time interval as well as the duration for each
class of financial instrument;
     an interest rate sensitivity table showing the effects on
net income and shareholders' equity of specified hypothetical,
instantaneous shifts of interest rate curves as of the measurement
date;
     a discussion of the significant changes and reasons for
those changes related to the timing and amounts of financial assets and
liabilities in the tabular disclosures from the last reporting period
to the current reporting period along with any action taken to manage
the exposure related to the changes; and
     additional qualitative or narrative disclosure, as
necessary, for understanding of exposure to interest rate risk.\77\
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    \77\ The proposed disclosures would have applied only to
entities or reportable segments for which the primary business
activity is to (i) earn, as a primary source of income, the
difference between interest income generated by earning assets and
interest paid on borrowed funds or (ii) provide insurance. See
Proposed Accounting Standards Update--Financial Instruments (Topic
825): Disclosure About Liquidity Risk and Interest Rate Risk (Jun.
27, 2012) (FASB Interest Rate Risk Exposure Draft), available at
www.fasb.org.
---------------------------------------------------------------------------

    During the FASB Exposure Draft's development, the FASB received
feedback from users \78\ that it was imperative that liquidity and
interest rate disclosures be comparable and that standardized
quantitative disclosures provide more decision-useful information than
non-standardized disclosures. Although initiated, in part, as a
response to these comments, the

majority of respondents to the FASB Exposure Draft, 84% of whom were
preparers, did not support the proposed disclosures. Most respondents
stated that standardizing information about interest rate risk would
not be achieved by the proposals. Some commenters questioned whether
standardization was an appropriate objective and whether it could ever
be achieved.\79\ The liquidity risk and interest rate risk project was
last updated in November 2012 and is not on the FASB's active standard-
setting agenda.
---------------------------------------------------------------------------

    \78\ See Accounting for Financial Instruments Disclosures About
Liquidity Risk and Interest Rate Risk Comment Letter Summary,
available at http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160500931.
    \79\ For example, respondents noted that expected maturity
requires estimates from each entity's asset and loan portfolios,
such as prepayment rates relating to the expected behavior of the
counterparty, and that the underlying assumptions made for each of
those estimates will not be consistent among entities.
---------------------------------------------------------------------------

ii. Information Available Outside of SEC Filings
    Banking organizations must report segregated information about
interest income and interest expense and quarterly averages of certain
balance sheet items in their Call Reports.\80\ While banking
organizations are not required to report all balance sheet line items
or subtotals of interest-earning assets and interest-bearing
liabilities, the Call Report categories for reporting interest income,
interest expense and quarterly averages are more disaggregated than
what is called for by Guide 3.
---------------------------------------------------------------------------

    \80\ Interest income, interest expense and quarterly averages
are segregated by the following: Type of loan, type of security,
trading assets/liabilities, federal funds sold/purchased and
securities purchased/sold under agreements to resell/repurchase,
deposits by location and category, subordinated notes and debentures
and other. See Call Report Schedules RC-1, Income Statement and RC-
K, Quarterly Averages.
---------------------------------------------------------------------------

Request for Comment
    8. Do the distribution of (i) assets, liabilities and stockholders'
equity; (ii) interest rates and (iii) interest differential disclosures
called for by Guide 3 provide investors with information upon which
they base investment and voting decisions? Would such information
otherwise be provided under Commission rules (e.g., Regulation S-K) or
U.S. GAAP? Are there any particular issues that BHC registrants face in
providing these disclosures or that investors or analysts face in
utilizing these disclosures?
    9. Do Commission rules or U.S. GAAP require the same or similar
information on the distribution of (i) assets, liabilities and
stockholders' equity; (ii) interest rates and (iii) interest
differential disclosures as called for by Guide 3? If so, how is the
information similar or dissimilar? Please provide a detailed
comparison.
    10. What improvements could we make to the disclosures called for
by Section I of Guide 3? For example, should we require disclosure
about how BHC registrants present the effects of hedging of interest
rate risk? Should we consider enhancing quantitative interest-rate risk
disclosures? If so, what guidance, if any, should we provide to BHC
registrants about the presentation?
    11. Are there additional interest income and interest expense
disclosures that would be important for investors that we should
consider? In suggesting additional disclosures, please indicate whether
BHC registrants would face any challenges in preparing and providing
them. Please describe specifically the evidentiary basis for your
knowledge of the challenges faced by BHC registrants in providing such
disclosures. In your response, please assess the benefits of such
disclosures to investors against the regulatory burdens to BHC
registrants.
    12. Recognizing the differences between more prescriptive and
standardized disclosure requirements, which allow for more
comparability, and more principles-based disclosure requirements, which
allow registrants to provide disclosures more closely aligned with how
their business is managed, would more prescriptive and standardized
disclosures about market risks for BHC registrants beyond those called
for by Item 305 of Regulation S-K be important for investors? If so,
how should we revise our current disclosures? For example, should we
limit the disclosure alternatives or assumptions these BHC registrants
can use by market risk and/or trading versus other than trading
portfolios in Item 305?
    13. Alternatively, should we eliminate the prescribed market risk
disclosure alternatives in Item 305 for BHC registrants and instead
require them to provide market risk disclosures based on the methods
they actually use to manage risk? Does the benefit of providing
disclosure about the way management assesses market risk outweigh any
lack of comparability of these disclosures across BHC registrants for
an investor?
    14. Should we require any of the interest rate risk disclosures
proposed in the FASB's 2012 Exposure Draft in our filings? If so, which
ones, and why?
    15. Should we revise our market risk disclosures for BHC
registrants to better align the disclosures to the financial
statements, capital adequacy or other metrics? If so, what revisions
should we consider and why?
    16. Should we consider requiring that the distribution of (i)
assets, liabilities and stockholders' equity; (ii) interest rates and
(iii) interest differential disclosures called for by Guide 3 be
presented in a structured data format, such as XBRL, to facilitate
investor comparison of data across BHC registrants and usability of the
disclosures? Why or why not? If so, what elements of these disclosures
should be tagged so that they can be extracted in a structured data
format?
    17. If we require the Guide 3 tabular disclosures to be submitted
in XBRL, are the current requirements for the format and elements of
the tables suitable for tagging? If not, how should they be revised?
    18. Should the categories used for disaggregation of these Guide 3
disclosures be closely aligned with those called for in Call Reports
and other U.S. banking agency regulatory filings? If so, which ones and
why?
    19. Should we require disclosure of the interest income and expense
information provided in Call Reports or other regulatory filings? If
so, what information and why?
    20. Should the distribution of (i) assets, liabilities and
stockholders' equity; (ii) interest rates and (iii) interest
differential disclosures called for by Guide 3 be extended to other
registrants, such as those engaged in the financial services industry?
If so, which registrants and which disclosures?

B. Investment Portfolio

1. Background
    The investment portfolio typically is an important component of BHC
registrants' total assets. Due to a recent trend of deposits outpacing
lending,\81\ investment portfolios have expanded in recent years and
now represent a much greater percentage of the total assets of FDIC-
insured institutions.\82\ In addition, compliance with the LCR
requirements may require some large, internationally active banking
organizations to alter the mix of assets in their investment portfolios
or revise their investment strategies so as to maintain sufficient
amounts of investments that meet the definition of ``high-quality
liquid assets.'' \83\ At September 30, 2016,

investment securities constituted nearly 21% of the total assets of all
FDIC-insured institutions.\84\
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    \81\ See, e.g., Shrinking Loan-to-Deposit Ratios Remain Cause
for Concern Among Banks, Forbes (Mar. 10, 2015).
    \82\ According to the Aggregate Condition and Income Data for
all FDIC-Insured Institutions, Table II-A., in the FDIC Quarterly,
investment securities accounted for 15% of total assets as of
December 31, 2007. This report is available at https://www5.fdic.gov/qbp/2007dec/qbp.pdf.
    \83\ See LCR Adopting Release and the discussion of concerns
raised with respect to assets that would qualify as high-quality
liquid assets.
    \84\ See FDIC Quarterly.
---------------------------------------------------------------------------

    Banking organizations typically use their investment portfolios to
provide balance sheet liquidity, to generate income and to engage in
risk management and market-making. U.S. GAAP currently classifies
investment securities into three categories: Trading securities, held-
to-maturity (HTM) securities and available-for-sale (AFS)
securities.\85\ Trading securities include securities acquired for the
purpose of selling them within hours or days and securities for which
this category has been elected. HTM securities are limited to
securities that a registrant has the positive intent and ability to
hold to maturity. Securities not classified as trading or HTM are
classified as AFS securities. Both trading and AFS securities are
measured at fair value on the balance sheet, whereas HTM securities are
measured at amortized cost.
---------------------------------------------------------------------------

    \85\ ASC 320-10-25-1.
---------------------------------------------------------------------------

    In 2016, the FASB issued two new accounting standards for financial
instruments.\86\ ASU 2016-01 will change the accounting guidance for
equity investments, but does not affect the recognition and initial
measurement of investments in debt securities.\87\ This guidance is
effective for registrants in fiscal years beginning after December 15,
2017. ASU 2016-13 will change the impairment model for most financial
assets accounted for at amortized cost, including HTM debt securities,
and also makes certain changes to the recognition of impairment for AFS
securities.\88\ This guidance is effective for registrants in fiscal
years beginning after December 15, 2019 or fiscal years beginning after
December 15, 2018 if early adoption is elected. Both ASU 2016-01 and
ASU 2016-13 also will change U.S. GAAP disclosure requirements for
investment securities.\89\
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    \86\ Accounting Standards Update 2016-01, Financial
Instruments--Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Liabilities (ASU 2016-01).
     Accounting Standards Update 2016-13, Financial Instruments--
Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (ASU 2016-13).
    \87\ Equity investments that have readily determinable fair
values (except those accounted for under the equity method of
accounting or those that result in consolidation of the investee)
will be measured at fair value with changes in fair value recognized
in net income. This eliminates the ability to classify equity
securities as AFS and the reporting of unrealized holding gains and
losses in other comprehensive income. Equity investments that do not
have readily determinable fair values will no longer be accounted
for using the cost method. Instead, an entity can elect to either
measure these equity investments at fair value with unrealized
holding gains and losses in earnings or choose a measurement
alternative. There will also no longer be an assessment of whether
an impairment loss is ``other than temporary'' for these
investments.
    \88\ U.S. GAAP currently requires a two-step process to measure
other-than-temporary impairment (OTTI) for HTM and AFS investment
securities. When OTTI is recognized, it is reflected as a direct
reduction of the amortized cost basis of the investment. The new
standard will require an allowance for credit losses for these debt
securities instead of a direct reduction. The allowance for credit
losses for HTM securities will be based on the same expected credit
loss model applied to loans. There will also be an allowance for
credit losses for AFS debt securities, but it will be measured in a
manner similar to OTTI under current U.S. GAAP.
    \89\ The U.S. GAAP standards differ significantly from the
International Financial Reporting Standard (IFRS) as issued by the
International Accounting Standard Board (IASB) model, IFRS 9,
Financial Instruments, as described in Section III.B.
---------------------------------------------------------------------------

    Guide 3 investment portfolio disclosures provide investors with
insight into the types of investments a BHC registrant holds, the
earnings potential of those investments and their risk characteristics.
For example, the weighted average yield for a category of securities
allows investors to calculate estimated future earnings potential for
that category of securities. Disclosures about significant amounts of
investments in one or a small number of issuers also alert investors to
concentration risks.
2. Current Guide 3 Disclosures
    Section II.A of Guide 3 calls for disclosure of the book value of
investments by specified category as of the end of each reported
period. Section II.B calls for a maturity analysis for each category of
investments as of the end of the latest reported period, as well as the
weighted average yield for each range of maturities.\90\ When the
aggregate book value of securities from a single issuer exceeds 10% of
stockholders' equity as of the end of the latest reported period,
Section II.C calls for disclosure of the name of the issuer and the
aggregate book value and aggregate market value of those securities.
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    \90\ The ranges of maturities are securities due (1) in one year
or less, (2) between one and five years, (3) between five and ten
years, and (4) after ten years.
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3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules
and Accounting Standards
    Article 9 requires disclosure of investment securities either on
the balance sheet or in the footnotes to the financial statements.
Article 9 also currently requires footnote disclosure of the carrying
value and market value of securities by specified category, while Guide
3 calls for disclosure of book value.\91\
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    \91\ 17 CFR 210.9-03. The investment categories specified by
Article 9 are the same as those specified by Guide 3. In July 2016,
the Commission proposed to amend certain of its disclosure
requirements, including Article 9, that may have become redundant,
duplicative, overlapping, outdated, or superseded, in light of other
Commission disclosure requirements, U.S. GAAP, IFRS, or changes in
the information environment. Specifically, the investment securities
disclosure in Article 9 was proposed for elimination. See Disclosure
Update and Simplification, Release No. 33-10110 (July 13, 2016) [81
FR 51607] (Disclosure Update and Simplification Release).
---------------------------------------------------------------------------

    Accounting standards have similar disclosure requirements, although
the disclosures required by U.S. GAAP are more extensive than those
required by Guide 3.\92\ For example, U.S. GAAP currently requires the
following disclosures for AFS securities by major security type: \93\
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    \92\ See ASC 320-10-50.
    \93\ ASC 320-10-50-1B notes that major security types should be
based on the nature and risks of the security and that an entity
should consider all of the following when considering whether
disclosure for a particular security type is necessary: (a) Shared
activity or business sector, (b) vintage, (c) geographic
concentration, (d) credit quality, and (e) economic characteristics.
ASC 942-320-50-2 defines nine security types that entities within
its scope must present in their investment disclosures and the list
is more granular than the Guide 3 categories.
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     Amortized cost basis;
     aggregate fair value;
     total other-than-temporary impairment (OTTI) recognized in
accumulated other comprehensive income (AOCI);
     total gains for securities with net gains in AOCI;
     total losses for securities with net losses in AOCI; and
     information about the contractual maturities as of the
date of the most recent balance sheet presented.\94\
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    \94\ ASC 320-10-50-2. These disclosures will no longer be
required for equity securities upon the effectiveness of ASU 2016-01
as equity securities that have readily determinable fair values
(except those accounted for under the equity method of accounting or
those that result in consolidation of the investee) will be measured
at fair value with changes in fair value recognized in net income.
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    U.S. GAAP requires similar disclosures for HTM securities, except
that gross unrecognized holding gains and losses also must be
disclosed.\95\ U.S. GAAP also requires a maturity analysis of both AFS
and HTM securities, but it does not require disclosure of weighted
average yields.\96\ ASU 2016-13, when effective for registrants in
fiscal years after December 15, 2019, will not significantly change the
disclosure requirements described above, except that it will require
disclosure of the

allowance for credit losses rather than OTTI.
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    \95\ ASC 320-10-50.
    \96\ Id.
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    U.S. GAAP also requires disclosures related to asset quality and
impairment of investment securities.\97\ For example, registrants must
disclose the aggregate fair value of investments with unrealized losses
and the amount of those losses, segregated by those that have been in a
continuous unrealized loss position for 12 months or longer and those
that have not, as well as qualitative and quantitative information
about impairments. When registrants conclude that it is not necessary
to record OTTI for these investment securities, U.S. GAAP requires that
they describe the factors considered in reaching that conclusion.\98\
When OTTI is recorded in earnings, registrants must disclose the
methodology and significant inputs they used to measure the credit loss
and include a roll-forward \99\ of the amount of credit losses
recognized in earnings. When ASU 2016-13 becomes effective, the credit
quality and impairment disclosures described above will continue to
apply to AFS securities, but not HTM securities. Instead, the credit
quality and allowance for credit losses disclosures discussed below in
Sections C.3 and D.3 will apply to HTM securities.\100\
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    \97\ Id.
    \98\ OTTI is considered to have occurred if (a) an entity
intends to sell an impaired security, (b) it is more likely than not
that an entity will be required to sell an impaired security before
the recovery of its amortized cost basis, or (c) a credit loss is
determined to have occurred based on an analysis of the present
value of expected cash flows. ASC 320-10-35.
    \99\ A ``roll-forward'' is a reconciliation of beginning of
period and end of period line item balances.
    \100\ See ASU 2016-13. The new standard still requires a roll-
forward of credit losses for HTM securities and a discussion of how
the allowance for credit losses was determined. The new standard
also includes prescriptive disclosure requirements for loans that do
not apply to HTM securities. For example, a registrant is not
required to present credit quality indicators for HTM securities by
year of origination.
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    U.S. GAAP also requires disclosures about fair value measurements
for securities measured at or written-down to fair value.\101\ These
disclosures include the valuation techniques and inputs used to develop
the fair value measurements, the observability of the inputs used,
quantitative information about significant unobservable inputs and the
effect of those fair value measurements using significant unobservable
inputs on earnings or other comprehensive income for the period.
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    \101\ ASC 820-10-50.
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    The Division staff has observed that some BHC registrants discuss
the composition of and fluctuations in their investment portfolio in
MD&A.\102\ These BHC registrants also discuss critical accounting
estimates \103\ related to their investment portfolios in MD&A, which
may include fair value measurements and the determination of OTTI.\104\
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    \102\ Item 303 of Reg. S-K requires registrants to discuss their
financial condition and material changes in financial condition. It
also requires a description of internal and external sources of
liquidity, and any material unused sources of liquid assets.
    \103\ In the Interpretive Guidance on MD&A, the Commission
reminded registrants that they should address the material
implications of uncertainties associated with the methods,
assumptions and estimates underlying their critical accounting
measurements.
    \104\ See Staff Accounting Bulletin Topic 5:M--Other Than
Temporary Impairment of Certain Investments in Equity Securities.
The OTTI guidance for equity securities will no longer apply when
ASU 2016-01 is adopted.
---------------------------------------------------------------------------

    Some BHC registrants, especially the largest ones, often publish
and furnish in a current report on Form 8-K supplements to their
earnings releases that provide detailed information about the
investment portfolio not required by U.S. GAAP, including information
about the duration of the portfolio, management's investment strategy
or how new regulations may affect the portfolio. Some BHC registrants
also provide detailed information about credit ratings or the valuation
of specific investments that may be at risk of impairment or were
impaired during the period.
ii. Information Available Outside of SEC Filings
    Banking organizations are required to report the amortized cost and
fair value of both HTM and AFS securities by security type in Call
Reports.\105\ Banking organizations also report maturity and repricing
data for debt securities and the amounts of income and loss recognized
during the period.\106\ Banking organizations must also report
regulatory capital components and ratios, including the categorization
of investment securities by risk weights in Call Reports.\107\
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    \105\ Call Report Schedule RC-B, Securities, identifies more
security types than Guide 3.
    \106\ Banking organizations may omit the maturity and repricing
data for certain branches or subsidiaries located in foreign
countries in Call Report Schedule RC-B. A banking organization may
exclude its foreign branches or subsidiaries if the assets of the
excluded locations combined do not exceed 50% of its total assets in
foreign countries and 10% of its total consolidated assets.
    \107\ Banking organization's assets and off-balance sheet
exposures are risk-weighted based on the assigned categories of
risk. Call Report Schedule RC-R, Regulatory Capital.
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    In addition, Pillar 3 disclosures require information about how
banking organizations measure credit and market risks in their
investment portfolios, along with the associated risk weights of
investment portfolio assets.\108\ For example, they must quantify the
credit risk exposure of their investment portfolio.
---------------------------------------------------------------------------

    \108\ See Regulatory Capital Rules Release, Section XI, Market
Discipline and Disclosure Requirements.
---------------------------------------------------------------------------

Request for Comment
    21. Do the investment portfolio disclosures called for by Guide 3
provide investors with information upon which they base investment and
voting decisions? Would such information otherwise be provided under
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any
particular issues that BHC registrants face in providing these
disclosures or that investors or analysts face in utilizing these
disclosures?
    22. Do Commission rules or U.S. GAAP require the same or similar
investment portfolio information as called for by Guide 3? If so, how
is the information similar or dissimilar? Please provide a detailed
comparison.
    23. What improvements to the existing investment portfolio
disclosures should we consider that would assist investors in making
investment and voting decisions? For example, should investment
securities that are measured at fair value with changes in fair value
recorded in earnings, such as trading securities, fall within the scope
of our investment portfolio disclosures? In suggesting improvements,
please indicate whether BHC registrants would face any challenges in
preparing and providing the disclosures.
    24. To promote comparability and consistency of investment
portfolio disclosures, should we specify the investment categories that
BHC registrants must present when providing their investment portfolio
disclosures? \109\ Why or why not? If so, which investment categories
should we specify?
---------------------------------------------------------------------------

    \109\ While most accounting standards include guidance about
disaggregation, the requirements are principles-based instead of
prescriptive.
---------------------------------------------------------------------------

    25. While investors do not have experience with the disclosures
that will be required by ASU 2016-13, is there information about HTM
securities and impairment that would be important for investors under
an expected credit loss model? If so, please indicate which information
and indicate whether BHC registrants would face any challenges in
preparing and providing the information.
    26. In addition, is there information about AFS securities that
would be important for investors when

impairment is reflected through an allowance for credit losses instead
of OTTI? If so, please indicate which information and whether BHC
registrants would face any challenges in preparing and providing the
information. For example, upon adoption of ASU 2016-13, should we
require disaggregation of the AFS securities allowance for credit
losses roll-forward by security type?
    27. Should we consider requiring that the investment portfolio
disclosures called for by Guide 3 be presented in a structured data
format, such as XBRL, to facilitate investor comparison of data across
BHC registrants and usability of the disclosures? Why or why not? If
so, what elements of these disclosures should be tagged so that they
can be extracted in a structured data format?
    28. If we require the Guide 3 tabular disclosures to be submitted
in XBRL, are the current requirements for the format and elements of
the tables suitable for tagging? If not, how should they be revised?
    29. Should the categories used for disaggregation of these Guide 3
disclosures be closely aligned with those called for in Call Reports
and other U.S. banking agency regulatory filings? If so, which ones and
why?
    30. Should we require disclosure of the investment information
provided in Call Reports or other regulatory filings? If so, what
information and why?
    31. Should the investment portfolio disclosures called for by Guide
3 be extended to other registrants, such as those engaged in the
financial services industry? If so, which registrants and which
disclosures?

C. Loan Portfolio

1. Background
    Loans \110\ often constitute a banking organization's most
significant assets and generate a significant portion of revenues. At
September 30, 2016, total loans and leases constituted 55% of total
assets of all FDIC-insured institutions.\111\ Loan portfolio
compositions differ considerably because lending activities are
influenced by many factors, including the type of banking organization,
management's objectives and philosophies about diversification and
credit risk management, the availability of funds, credit demand,
interest-rate margins and regulations. A banking organization's loan
portfolio may consist of consumer loans, such as residential real
estate, credit card and auto loans, as well as commercial loans, such
as commercial real estate loans, lease financings and wholesale
loans.\112\ Different types of loans have different risk
characteristics. For example, commercial loans tend to have shorter
maturities than residential real estate loans and are more likely to
have balloon payments at maturity. Further, the composition of a
particular banking organization's loan portfolio may vary substantially
over time due to factors such as changes in regulations or management
philosophies. For example, if management expects interest rates to
rise, it may seek to increase the banking organization's offerings of
variable-rate mortgages.
---------------------------------------------------------------------------

    \110\ In this request for comment we use the terms ``loans'' or
``loan portfolio'' when we refer to Commission rules or U.S. banking
reporting requirements. The loan portfolio for a registrant may also
include receivables and leases. Receivables and leases, however,
generally do not represent a significant portion of the total loan
portfolio.
    \111\ See FDIC Quarterly.
    \112\ Wholesale banking is often used as a term to refer to the
wide range of services that banking organizations provide to various
corporations and businesses, as well as to government entities.
---------------------------------------------------------------------------

    To address risks related to the loan portfolio and the allowance
for loan losses,\113\ the Commission issued Accounting Series Release
No. 166 \114\ in 1975, which was the precursor to Guide 3's loan
portfolio and loan loss experience disclosures. Among other things, ASR
No. 166 provided for the disclosure of information necessary to enable
investors to understand the nature and the status of loan portfolios,
including a breakdown sufficient to provide investors with insight into
investment policies, lending practices and portfolio concentrations.
The release also called for consideration of expanded disclosures when
loans considered doubtful as to collectability have materially
increased, or there have been large increases in delinquent loans, or
in loans extended or renegotiated under adverse conditions.
---------------------------------------------------------------------------

    \113\ We discuss allowance for loan losses disclosures in
Section II.D of this request for comment.
    \114\ Accounting Series Release No. 166--Disclosure of Unusual
Risks and Uncertainties, Release No. 33-5551 (Jan. 15, 1975) [40 FR
2678].
---------------------------------------------------------------------------

    In 2010, the FASB issued updated disclosure guidance that greatly
expanded the loan credit quality disclosures required by U.S.
GAAP.\115\ Loan portfolio disclosures provide investors with
information about the types of lending in which a registrant engages,
and one objective of the FASB's amendments was to increase the
transparency of the nature of credit risk inherent in the loan
portfolio.\116\ Further, disclosures of trends in early stage
delinquencies can be an early-warning indicator of deteriorating credit
quality.
---------------------------------------------------------------------------

    \115\ Accounting Standards Update 2010-20, Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit
Losses. (ASU 2010-20).
    \116\ Id.
---------------------------------------------------------------------------

2. Current Guide 3 Disclosures
    Section III.A of Guide 3 calls for disclosure of the amount of
loans in each specified category \117\ as of the end of each period.
---------------------------------------------------------------------------

    \117\ The specified categories are, for domestic loans: (1)
Commercial, financial and agricultural, (2) real estate--
construction, (3) real estate--mortgage, (4) installment loans to
individuals, and (5) lease financing, and for foreign loans: (6)
Governments and official institutions, (7) banks and other financial
institutions, (8) commercial and industrial, and (9) other. The loan
categories specified in Guide 3 originally conformed to those
required in Call Reports but were changed when Guide 3 was amended
in 1980 to conform to the loan categories set forth in Article 9.
1980 Guide 3 Amendments Release.
---------------------------------------------------------------------------

    Section III.B calls for a maturity analysis \118\ for each category
of loans as of the end of the latest reported period and a separate
presentation of all loans due after one year with fixed interest rates
versus those with floating or adjustable interest rates.
---------------------------------------------------------------------------

    \118\ The range of maturities are loans due (1) in one year or
less, (2) between one and five years, (3) between five and ten
years, and (4) after ten years. This information need not be
presented for mortgage real estate loans, installment loans to
individuals and lease financing. Foreign loan categories may be
aggregated.
---------------------------------------------------------------------------

    Section III.C.1 calls for disclosure of the aggregate amount of
domestic and foreign \119\ loans in each of the following categories:
---------------------------------------------------------------------------

    \119\ Instruction 7 of Guide 3 clarifies that foreign data need
not be presented if the registrant is not required to make separate
disclosures concerning its foreign activities pursuant to the test
set forth in Rule 9-05 of Regulation S-X.
---------------------------------------------------------------------------

     Loans accounted for on a nonaccrual basis; \120\
---------------------------------------------------------------------------

    \120\ The term ``nonaccrual'' is not defined in U.S. GAAP or
Commission rules. Call Report instructions, however, generally
require an asset to be reported as nonaccrual if: (1) It is
maintained on a cash basis because of deterioration in the financial
condition of the borrower, (2) payment in full of principal or
interest is not expected, or (3) principal or interest has been in
default for a period of 90 days or more unless the asset is both
well secured and in the process of collection. Certain loans, such
as consumer loans and purchased credit-impaired loans, are not
placed on nonaccrual status as discussed in the nonaccrual
definitions section of Call Report Schedule RC-N-2. Guide 3 also
calls for and U.S. GAAP also requires disclosure of the nonaccrual
policy.
---------------------------------------------------------------------------

     loans accruing but contractually past due 90 days or more
as to principal or interest payments; and
     loans classified as troubled debt restructurings (TDRs)
\121\ that are not

otherwise disclosed as being on nonaccrual status or past due 90 days
or more.\122\
---------------------------------------------------------------------------

    \121\ Under U.S. GAAP, a restructuring of a debt is a TDR if the
creditor, for economic or legal reasons related to the debtor's
financial difficulties, grants a concession to the debtor that it
would not otherwise consider.
    \122\ Guide 3 originally called for disclosure of nonperforming
loans and a discussion of the risk elements associated with those
loans for which there were serious doubts as to the ability of the
borrowers to comply with the present loan payment terms. The current
Section III.C.1 disclosures reflect amendments made in 1980 and 1983
to promote consistency with bank regulatory disclosure requirements
and comparability among registrants. 1980 Guide 3 Amendments
Release; 1983 Guide 3 Revisions Release.
---------------------------------------------------------------------------

    Section III.C.2 calls for descriptions of the nature and extent of
any potential problem loans \123\ at the end of the most recent
reported period and the policy for placing loans on nonaccrual status.
The instructions to Section III.C.2 call for disclosure of the foregone
interest income and recognized interest income for nonaccrual loans and
TDRs during the period.
---------------------------------------------------------------------------

    \123\ Potential problem loans are loans not disclosed pursuant
to Item III.C.1, but where known information about possible credit
problems of borrowers (which are not related to transfer risk
inherent in cross-border lending activities) causes management to
have serious doubts as to the ability of the borrowers to comply
with the present loan repayment terms and which may result in
disclosure of the loans pursuant to Item III.C.1.
---------------------------------------------------------------------------

    If material amounts of the loans described in these sections are
outstanding to borrowers in any foreign country, Guide 3 states that
each country should be identified and that the amounts outstanding
should be quantified.\124\
---------------------------------------------------------------------------

    \124\ For purposes of determining the amount of outstandings to
be reported, loans made to or deposits placed with a branch of a
foreign bank located outside the foreign bank's home country should
be considered as loans to or deposits with the foreign bank.
---------------------------------------------------------------------------

    Section III.C.3 calls for disclosure of the aggregate amount of
cross-border outstandings \125\ to borrowers in each foreign country
where they exceed 1% of total assets.\126\ These disclosures should be
provided by category of foreign borrower specified in Section III.A.
Where current conditions in a foreign country give rise to liquidity
problems that are expected to have a material impact on the timely
repayment of principal or interest on the country's private or public
sector debt, Guide 3 calls for:
---------------------------------------------------------------------------

    \125\ Cross-border outstandings are defined as loans (including
accrued interest), acceptances, interest-bearing deposits with other
banks, other interest-bearing investments and any other monetary
assets which are denominated in dollars or other nonlocal currency.
The foreign outstandings disclosure was added in 1983 to consolidate
all risk-related disclosure guidelines in one section of Guide 3 and
to emphasize the risks present in cross-border lending activities.
See 1983 Guide 3 Revisions Release.
    \126\ For countries whose outstandings are between 0.75% and 1%
of total assets, the names of the countries and the aggregate amount
of outstandings attributable to them should be disclosed.
---------------------------------------------------------------------------

     A description of the nature and impact of the
developments;
     an analysis of the changes in aggregate outstandings to
borrowers in each country for the most recent reported period;
     quantitative information about interest income and
interest collected during the most recent period; and
     quantitative information about any outstandings that may
be subject to a restructuring.
    Section III.C.4 calls for disclosure as of the end of the most
recent reported period of any concentration of loans exceeding 10% of
total loans not otherwise disclosed as a category of loans pursuant to
Section III.A.\127\
---------------------------------------------------------------------------

    \127\ Loan concentrations are considered to exist when there are
amounts loaned to multiple borrowers engaged in similar activities
which would cause them to be similarly affected by economic or other
conditions. For example, loans may be concentrated in a specific
industry, such as the energy sector, that exceed the 10% threshold.
---------------------------------------------------------------------------

    Section III.D calls for disclosure as of the end of the most recent
reported period of the nature and amounts of any other interest-bearing
assets that would be disclosed under Section III.C.1 or III.C.2 if
those assets were loans.
3. Other Sources of Information
i. Information Available in SEC Filings as Required by Commission Rules
and Accounting Standards
    Article 9 requires separate disclosure of total loans and unearned
income on the balance sheet or in the footnotes for the same loan
categories specified in Guide 3.\128\ Similar to Guide 3, Article 9
allows bank holding companies latitude in determining loan
categories.\129\ Article 9 also requires disclosures about loans made
to certain related parties and the aggregate amount of those loans that
are disclosed as nonaccrual, past due, restructured or potential
problem loans.\130\
---------------------------------------------------------------------------

    \128\ 17 CFR 210.9-03.
    \129\ The instructions to Section III.A of Guide 3 and Item 7(b)
of Rule 9-03 state that ``[a] series of categories other than those
specified above may be used to present details of loans if
considered a more appropriate presentation.'' The staff has observed
that bank holding companies commonly provide the Guide 3 and Article
9 loan disclosures by ``class of financing receivables'' as defined
by U.S. GAAP instead of the specified Guide 3 and Article 9 loan
categories.
    \130\ Item 7(e) of Rule 9-03. Related parties include directors,
executive officers, principal equity holders and associates of those
persons.
---------------------------------------------------------------------------

    U.S. GAAP and Guide 3 have some similar loan presentation and
disclosure standards. U.S. GAAP requires major categories of loans to
be presented separately either on the balance sheet or in the financial
statement footnotes.\131\ Although U.S. GAAP does not specify loan
categories, it does require that qualitative and quantitative credit
quality information be provided for each class of financing
receivable,\132\ except loans measured at fair value, under the fair
value option, and loans held for sale measured at lower of cost or fair
value. These disclosures include:
---------------------------------------------------------------------------

    \131\ ASC 310-10-45-2.
    \132\ U.S. GAAP uses the term ``financing receivable,'' and a
loan is considered a type of financing receivable. A class of
financing receivable is defined as a group of financing receivables
determined on the basis of all of the following: (a) Initial
measurement attribute (for example, amortized cost), (b) risk
characteristics of the financing receivable, and (c) an entity's
method for monitoring and assessing credit risk.
---------------------------------------------------------------------------

     A description of each credit quality indicator; \133\
---------------------------------------------------------------------------

    \133\ A credit quality indicator is defined as a statistic about
the credit quality of financing receivables.
---------------------------------------------------------------------------

     the recorded investment in financing receivables by credit
quality indicator; and
     the date or range of dates in which information was
updated for each credit quality indicator.\134\
---------------------------------------------------------------------------

    \134\ ASC 310-10-50.
---------------------------------------------------------------------------

    Currently and after implementation of ASU 2016-13, U.S. GAAP
requires disclosure, by class of financing receivable, of the same
information as specified in Sections III.C.1(a) and (b) of Guide 3 and
an aging analysis of past due financing receivables. ASU 2016-13 will
increase the credit quality-related disclosures for loans. For example,
it will require registrants to present credit quality indicator
disclosures by year of origination and require additional disclosures
about loans on nonaccrual status. The disclosures about loans on
nonaccrual status will include the amortized cost basis at both the
beginning and end of the reporting period and the amortized cost basis
for those nonaccrual loans without a related allowance for credit
losses. In addition, disclosures will be required by class of financing
receivable about collateral-dependent loans and the collateral that
secures them.\135\
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    \135\ The disclosures required for collateral-dependent
financial assets include descriptions of (1) the type of collateral,
(2) the extent to which collateral secures the asset, and (3)
significant changes in the extent to which collateral secures the
asset, whether because of general deterioration or some other
reason.
---------------------------------------------------------------------------

    In addition, both Guide 3 and U.S. GAAP, now and after the adoption
of ASU 2016-13, call for disclosure of the following accounting
policies:
     Placing financing receivables on nonaccrual status;
     recording payments received on nonaccrual financing
receivables;
     resuming accrual of interest; and

     determining past due or delinquency status for each class
of financing receivable.\136\
---------------------------------------------------------------------------

    \136\ ASC 310-10-50.
---------------------------------------------------------------------------

    Currently, U.S. GAAP also requires the following disclosures, by
class of financing receivable, for impaired loans: \137\
---------------------------------------------------------------------------

    \137\ See ASC 310-10-35-13 for the scope of loans evaluated
individually for impairment. A loan is impaired when, based on
current information and events, it is probable that a creditor will
be unable to collect all amounts due according to the contractual
terms of the loan agreement. TDRs are also considered impaired loans
in accordance with ASC 310-40-35-10 but are not required to be
included in the impaired loan disclosures in years after the
restructuring as long as the criteria in ASC 310-40-50-2 are met.
---------------------------------------------------------------------------

     The accounting policy for recognizing interest income,
including how cash receipts are recorded;
     the accounting policy for determining which loans are
individually assessed for impairment and the factors considered in
determining that a loan is impaired;
     as of each balance sheet date, the recorded investment
segregated by the amount for which there is a related allowance versus
the amount for which there is no related allowance, and the total
unpaid principal balance of impaired loans; and
     for each period, the average recorded investment in
impaired loans, the amount of interest income recognized while the
loans were impaired and, if practicable, the amount of interest income
recognized using a cash-basis method of accounting.\138\
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    \138\ ASC 310-10-50. For the cash-basis method of accounting,
income is recognized only when the interest payment is received.

ASU 2016-13 will eliminate the impaired loan concept and the above
related disclosures.\139\
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    \139\ We discuss the ASU 2016-13 changes to the allowance and
related disclosures in Section II.D below.

    U.S. GAAP also requires qualitative and quantitative information,
by class of financing receivable, about TDRs for each period for which
an income statement is presented. For example, for TDRs occurring
during the period, registrants must disclose how the financing
receivables were modified and the financial effects of the
modifications. In addition, for TDRs that were completed within the
previous 12 months and subsequently have payment defaults during the
reporting periods, registrants must disclose the types and amounts of
financing receivables that defaulted.\140\ Registrants also must
disclose the amount of commitments, if any, to lend additional funds
related to a TDR.\141\ In contrast, Guide 3 does not call for
disclosures specific to TDR activity during the period, but calls for
disclosure of the total balance of TDRs as of the end of the period.
U.S. GAAP also requires specific disclosures about loans acquired with
deteriorated credit quality \142\ for each balance sheet
presented.\143\
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    \140\ ASC 310-10-50.
    \141\ ASC 310-40-50.
    \142\ ASC 310-30-20. These are loans that were acquired with
evidence of deteriorated credit quality since their origination and
for which it was probable, at acquisition, that the acquirer would
be unable to collect all contractually required payments. Because
these loans are identified as having credit risk at the time of
acquisition, the accounting treatment is different than for newly
originated loans. Any cash flows in excess of those expected at
acquisition are recognized as interest income on a level-yield basis
over the life of the loan.
    \143\ ASC 310-30-50 requires the following disclosures:
Outstanding balance and related carrying amount of the loans at the
beginning and end of the period; the amount of accretable yield at
the beginning and end of the period, reconciled for additions,
accretion, disposals of loans and reclassifications to/from
nonaccretable difference during the period; for loans acquired
during the period, the contractually required payments receivable,
cash flows expected to be collected and fair value at the
acquisition date; and the carrying amount as of acquisition date and
at end of period of loans acquired with deteriorated credit quality
for which income is not being recognized because the timing and
amount of cash flows expected to be collected cannot be reasonably
estimated.
    ASU 2016-13 revises these disclosures to require a
reconciliation of the difference between the purchase price of these
loans and the par value of the assets and removes the requirements
described above.
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    The Division staff has observed that bank holding companies often
discuss their loan portfolios and focus on changes in portfolio
composition, delinquencies and nonperforming or restructured loans in
the results of operations section of MD&A. The Division staff also has
observed that BHC registrants with material amounts of nonaccrual loans
sometimes provide a reconciliation of the beginning and ending balances
of those loans, although they are not required by Commission rules to
do so. As described previously, ASU 2016-13 will require disclosure of
the beginning and ending nonaccrual loan balances, but will not require
disclosure of activity during the period. Information about activity
during the period may help investors understand remediation efforts
related to the portfolio and changes in credit quality. Therefore, we
are considering whether we should require disclosure of activity during
the period in addition to beginning and ending balances.
    BHC registrants also may discuss higher-risk loans and declines in
collateral value when they are reasonably expected to have a material
impact on results of operations, liquidity or capital resources.\144\
For example, disclosures about interest-only and adjustable-rate
mortgage loans, by year of reset, provide investors with information
about a BHC registrant's exposure to higher-risk loans, including the
potential effect that changes in repayment terms may have on future
cash flows and liquidity. In addition, BHC registrants may disclose in
their Commission filings quantitative and qualitative information about
their loan portfolios and other significant balance sheet items with
material country-specific risk.\145\
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    \144\ The Division has provided guidance in the form of a sample
comment letter regarding provisions and allowance for loans losses.
See Sample Letter Sent to Public Companies on MD&A Disclosure
Regarding Provisions and Allowances for Loan Losses (Aug. 2009)
(Sample MD&A Letter), available at https://www.sec.gov/divisions/corpfin/guidance/loanlossesltr0809.htm. Types of loans identified as
``higher-risk'' included option adjustable-rate mortgage products,
junior lien mortgages, high loan-to-value ratio mortgages, interest-
only loans, subprime loans and loans with initial teaser rates.
    \145\ In January 2012, the Division issued disclosure guidance
providing the Division's views regarding disclosure related to
registrants' exposures to certain European countries experiencing
financial stress. See CF Disclosure Guidance: Topic No. 4, European
Sovereign Debt Exposures.
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    BHC registrants often publish and furnish, on current reports,
Forms 8-K, supplements to their earnings releases that include credit
quality statistics that are adjusted or more disaggregated than those
provided under Guide 3 or U.S. GAAP. These statistics may exclude
certain types of loans that are not typically classified as
nonaccrual.\146\
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    \146\ For example, the allowance to loan ratios may exclude
credit cards and loans acquired with deteriorated credit quality.
Registrants also may adjust credit quality statistics for
significant sales, litigation settlements or regulatory changes.
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ii. Information Available Outside of SEC Filings
    Banking organizations must report loan amounts categorized by type
of security, borrower or purpose in Call Reports.\147\ Loans past due
and on nonaccrual status must be reported along with TDRs, both
performing and on nonaccrual status.\148\ Certain banking organizations
also must report specific information about mortgage banking
activities, including carrying amount, originations, purchases and
sales for both first lien and junior lien loans.\149\

Banking organizations also must report regulatory capital components
and ratios, including the categorization of loans by risk weights.\150\
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    \147\ Call Report Schedule RC-C, Loans and Lease Financing
Receivables, specifies more loan categories than Guide 3.
    \148\ Call Report Schedule RC-N, Past Due and Nonaccrual Loans,
Leases, and Other Assets and Call Report Schedule RC-C.
    \149\ Call Report Schedule RC-P, Family Residential Mortgage
Banking Activities, must be completed by (1) all banks with $1
billion or more in total assets, and (2) banks with less than $1
billion in total assets with greater than $10 million in mortgage
banking activities (determined based on originations, sales or
period-end balances) for two consecutive quarters.
    \150\ Call Report Schedule RC-R, Regulatory Capital.
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    Pillar 3 disclosures include a description of how banking
organizations subject to the disclosure requirements \151\ measure
credit risk in their loan portfolios, how they mitigate those risks and
the associated regulatory risk weights of the assets. For example,
these organizations must provide quantitative credit risk disclosures
\152\ based on geography, industry and/or counterparty type. If a
banking organization uses its own internal credit risk estimates, such
as the probability of default, exposure at default and loss given
default, those measures must be disclosed.\153\
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    \151\ Pillar 3 disclosure requirements apply to banking
organizations with $50 billion or more in total assets. See
Regulatory Capital Rules Release.
    \152\ The required quantitative credit risk disclosures include
total credit risk exposures and average credit risk disclosures,
after accounting for offsets in accordance with U.S. GAAP over the
period, without taking into account the effect of credit risk
mitigation techniques, categorized by major types of credit
exposure. Information about impaired and past-due loans also is
required.
    \153\ Regulatory Capital Rules Release, Section XI, Market
Discipline and Disclosure Requirements.
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Request for Comment
    32. Do the loan portfolio disclosures called for by Guide 3 provide
investors with information upon which they base investment and voting
decisions? Would such information otherwise be provided under
Commission rules (e.g., Regulation S-K) or U.S. GAAP? Are there any
particular issues that BHC registrants face in providing these
disclosures or that investors or analysts face in utilizing these
disclosures?
    33. Do Commission rules or U.S. GAAP require the same or similar
loan information as called for by Guide 3? If so, how is the
information similar or dissimilar? Please provide a detailed
comparison.
    34. What improvements to the existing loan disclosures should we
consider that would be important for investors? For example, should
loans held-for-sale or loans carried at fair value under the fair value
option fall within the scope of our loan portfolio disclosures? In
suggesting improvements, please indicate whether BHC registrants would
face any challenges in preparing and providing the disclosures.
    35. How do investors use the TDR disclosures called for by Guide 3
for investment decisions? Is the basis for a modification (i.e., credit
risk management purposes versus commercial or other reasons) important
in assessing the risk elements in a BHC registrant's loan portfolio?
    36. Should we require disclosures of all loan modifications by type
of modification and/or credit quality of borrower? Would BHC
registrants face any challenges in preparing and providing these
disclosures?
    37. To promote comparability and consistency, should we prescribe
the level of disaggregation that BHC registrants should employ for
their loan portfolio disclosures? \154\ If so, what threshold should be
used and why?
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    \154\ While U.S. GAAP and IFRS standards include guidance about
disaggregation, the requirements generally allow management to
exercise judgment. For example ASC 310-10-50 includes disclosures by
class of financing receivables and portfolio segment, but management
determines the classes and segments. IFRS 7 requires disclosures by
classes of financing instruments, which are defined as ``. . .
classes that are appropriate to the nature of the information
disclosed and that take into account the characteristics of those
financial instruments.''
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    38. Should the categories used for disaggregation of these Guide 3
disclosures be closely aligned with those called for in Call Reports
and other U.S. banking agency regulatory filings? If so, which ones and
why?
    39. While investors do not have experience with the disclosures
that will be required by ASU 2016-13, is there information about loans
that would be important for investors under an expected credit loss
model? If so, please indicate which information and whether BHC
registrants would face any challenges in preparing and providing the
information? For example, upon effectiveness of ASU 2016-13, should we
require disclosure of the current period activity for nonaccrual loans
since the new standard will require disclosure of the beginning and
ending nonaccrual balances only?
    40. Should we consider requiring that the loan portfolio
disclosures called for by Guide 3 be presented in a structured data
format, such as XBRL, to facilitate investor comparison of data across
BHC registrants and usability of the disclosures? Why or why not? If
so, what elements of these disclosures should be tagged so that they
can be extracted in a structured data format?
    41. If we require the Guide 3 tabular disclosures to be submitted
in XBRL, are the current requirements for the format and elements of
the tables suitable for tagging? If not, how should they be revised?
    42. Should we require disclosure of the loan information provided
in Call Reports or other regulatory filings? If so, what information
and why?
    43. Should the loan portfolio disclosures called for by Guide 3 be
extended to other registrants, such as those engaged in the financial
services industry? If so, which registrants and which disclosures?

D. Summary of Loan Loss Experience

1. Background
    BHC registrants generally accept and manage significant amounts of
credit risk, and most of their credit losses traditionally have come
from loans and declines in the value of collateral underlying loans.
The allowance for loan losses is a critical accounting estimate and is
a primary focus of management, investors and the U.S. banking agencies.
This discussion focuses on the allowance for loan loss methodology
currently required by U.S. GAAP and highlights only the significant
changes that will occur once the new standard, ASU 2016-13, becomes
effective.\155\
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    \155\ The currently effective guidance for recognizing credit
losses includes ASC 310-10-35-4, which states that an impairment is
recognized when it is probable that a loss has been incurred. The
new standard replaces the current incurred loss methodology with a
methodology that reflects expected credit losses. ASU 2016-13 is not
effective for registrants until fiscal years beginning after
December 15, 2019, unless early adoption is elected. Early adoption
is permitted for annual periods beginning after December 15, 2018,
and interim periods therein.
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    A BHC registrant's methodology for estimating loan losses is
influenced by many factors, including the its size, organizational
structure, business environment and strategy, loan portfolio
characteristics, loan administration procedures and management
information systems.\156\ Most methodologies for estimating loan losses
include a risk classification process that involves categorizing loans
into risk categories or ratings.\157\ U.S. GAAP also requires
management to consider all available information reflecting past events
and current conditions when developing its estimate of loan
losses.\158\ Because estimating loan losses involves

a high degree of management judgment, the Commission issued a financial
reporting release and the staff issued an accounting bulletin that
provides its views on the development, documentation and application of
a systematic methodology for determining an allowance for loan
losses.\159\
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    \156\ See Interpretive Response to Question 2.A in Staff
Accounting Bulletin Topic 6:L--Financial Reporting Release 28--
Accounting for Loan Losses By Registrants Engaged in Lending
Activities (SAB Topic 6:L). The guidance was issued in 2001 based on