To Whom it May Concern:
The Bank Policy Institute[1] is writing to provide background information to the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency regarding the reporting of the balances of notional pooling products in Schedule RC-O of the Consolidated Reports of Condition and Income (Call Reports). We understand that there may be differing views regarding the appropriate Call Report reporting of these types of products, and, more specifically, those involving multiple client entities. As these multi-entity notional pooling contracts are similarly structured across the institutions that offer them, this letter details our understanding of how these products should be reported in accordance with U.S. GAAP, and on Schedule RC-O under the Call Report instructions.
Since their inception, deposit accounts governed by a notional pooling arrangement (NPA), regardless of whether it was executed with a single-client entity or multiple affiliated entities, have been recognized as a single contractual arrangement and have been reported by firms as a single unit of account on the balance sheet of the relevant bank legal entity. This reporting is required under U.S. GAAP, and given the alignment between U.S. GAAP and the Call Report instructions, has been treated consistently on Schedule RC-O. It is also consistent with the advice that we understand has been received from banks’ internal and external legal and accounting advisors. In the event that the agencies believe that the U.S. GAAP conclusion is not consistent with Call Report requirements related to NPAs, and more specifically, multi-entity notional pooling arrangements (MNPAs), we welcome the opportunity to discuss their views in more detail. Given the similarities in these multi-entity contracts across institutions, and also because U.S. GAAP requirements related to combining contracts are the same when there is a single legal entity counterparty or multiple affiliated counterparties, it would be beneficial for institutions to receive public, written clarity on the source of different views, including the U.S. GAAP support, to ensure that all institutions receive the same guidance concurrently.
Specifically, if the agencies determine that negative deposit account balances within NPAs are to be reported separately as assets on the Call Reports, the reporting instructions for Schedule RC-O should either be revised to acknowledge the RAP-GAAP difference and that the treatment is limited to Schedule RC-O, or alternatively to accommodate an adjustment, preferably in a separate line item, to average consolidated total assets as determined by U.S. GAAP to reflect the reclassification of such negative deposit account balances as assets. Further, as any such determination would be a significant change from current reporting practices, it should be subject to public notice and comment in accordance with the procedural requirements under the Administrative Procedure Act and Paperwork Reduction Act and applied on a prospective basis.
It is important for all participating agencies to have the same understanding as to how these products should be reported, as well as the potential implications of such decisions beyond Schedule RC-O. If the banking agencies determine that the single unit of account accounting principle within U.S. GAAP does not apply to NPAs or is inconsistent with statutorily specified supervisory objectives, the banking agencies should specify what accounting principle within U.S. GAAP applies to NPAs and prescribe this other accounting principle that would require classification of negative account balances within NPAs as assets for regulatory reporting purposes, and revise all affected regulatory report instructions accordingly. In the absence of further written clarification, firms should be permitted to continue with their current reporting practice, consistent with U.S. GAAP and with any legal and accounting advice received from their internal and external advisors.
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[1] BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s bank originated small business loans and are an engine for financial innovation and economic growth.
