Letter re: Modifying FFIEC's Call Report

Ladies and Gentlemen:

The American Bankers Association (ABA) appreciates the opportunity to comment on the FederalFinancial Institutions Examination Council’s (FFIEC) Notice of Proposed Rulemaking (the Proposal) tomodify FFIEC Forms 031, 041, and 051, commonly referred to as the Consolidated Reports of Conditionand Income (the Call Report). The Call Report provides data on individual banks, allows for trendanalysis of bank condition and trend information about the overall banking industry, and serves as thebasis for other reporting and policy analysis. Additionally, the data provided in the Call Reports serve as afoundation for other required regulatory reporting. The Proposal would make revisions to address thechange in accounting for credit losses under the Financial Accounting Standards Board’s (FASB)Accounting Standards Update (ASU) No. 2016-13 Financial Instruments – Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and revisions resulting from theEconomic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

With respect to the specific changes articulated in the proposal, as discussed more fully below, we haveidentified five items that may benefit from additional clarification, that appear inconsistent with otheritems, or we believe are minor errors.

Item 1: Page 49166 - As noted previously, ASU 2016–13 broadens the scope of financial assets for whichallowances for credit losses must be estimated. CECL is applicable to all financial instruments measuredat amortized cost (including loans held for investment and HTM debt securities, as well as trade andreinsurance receivables and receivables that relate to repurchase agreements and securities lendingagreements). Regarding the underlined, to reflect an asset, receivables would relate to reverse repurchaseagreements and securities borrowing agreements.

Item 2: From the red-lined call report, RC-F – Other assets item 1, footnote 2, Include accrued interestreceivable on loans, leases, debt securities, and other interest-bearing assets. Exclude accrued interestreceivables that are reported elsewhere on the balance sheet as part of a financial asset’s amortized cost.It is not clear if this means that the reporter has a choice between reporting accrued interest receivable aspart of the financial asset’s amortized cost and reporting it on this Line on Schedule RC-F. Secondly, it isnot clear if this is proposing a distinction in the treatment of interest accrued on assets at amortized costversus those held for sale or under the fair value option.

Item 3 - Page 49171- Schedule RC-R (FFIEC-031, FFIEC 041, and FFIEC 051)The agencies propose to add a new Memorandum item 4 to Schedule RC-R, Part II, which would collectdata by asset category on the “Amount of allowances for credit losses on purchased credit-deterioratedassets.” Regarding this new Memorandum item, we believe that it would fit better under Schedule RI-C –Part II. Disaggregated Data on the Allowance for Credit Losses.

Item 4 – Page 49162, please replace the sentence in the 1st paragraph “As a result, as of the acquisitiondate, the amortized cost basis of a PCD financial asset is equal to the principal balance of the asset lessthe non-credit discount, rather than equal to the purchase price as is currently recorded for PCI loans”with “The amortized cost basis of the PCD asset is the asset’s purchase price plus the expected credit lossat the purchase date. However, the carrying value of the PCD asset is always net of the allowance whichat the acquisition date would reflect the purchase price”.

Item 5 – After the adoption of the CECL, the concept of OTTI will no longer be relevant. The writedown of inventory will be replaced by allowance for credit losses. Currently, part of the OTTI taken wascaused by interest rate movement instead of credit event. Will the losses caused by interest ratemovement (former OTTI) be considered credit losses after the adoption of ASU 2016-13?

Item 6 – From the red-lined call report, RC-R – Regulatory Capital Part II. Risk-Weighted Assets line 5,footnote 2, Institutions that have adopted ASU 2016-13 should report as a negative number the PCDallowances in item 5.a through 5.d, column B. For PCD assets, both the balance sheet amount (ColumnA) and the amounts in risk-weighted assets (columns C-R) are reported net of the PCD allowance.Subtracting PCD allowance amount in column B will cause column A to not equal the sums of columns Bthrough R.

Item 7 – From the red-lined call report, RC-R – Regulatory Capital Part II. Risk-Weighted Assets lines 2a3b, 8, & 9a, footnote 3 [9a: footnote 2], Institutions that have adopted ASU 2016-13 should report as anegative number the allowances includable in tier 2 capital in Column B. These assets are alreadyreported net of allowance for both the balance sheet amount (Column A) and the amounts in riskweighted assets (columns C-R) are reported net of the allowance as per Basel III rule. Subtracting theallowance amount in column B will cause column A to not equal the sums of columns B through R.

Thank you for your attention to these matters and for considering our views. If you have any questionsabout these comments, please contact me at (202) 663-5318 or through email at [email protected].

Sincerely,

Joshua Stein