The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK
OF NEW YORK
[
C irc u la r No.
10538 1
M ay 2 9 , 1992
REPORTING OF INFORMATION ON SMALL BUSINESS AND
SMALL FARM LENDING
Comments Invited by June 19, 1992
To All Depository Institutions, and U.S. Branches and Agencies
of Foreign Banks, in the Second Federal Reserve District:
Following is the text of a statement issued by the Federal Financial Institutions
Exam ination Council:
The Federal Financial Institutions Examination Council has announced that it is
proposing certain changes to the Reports of Condition and Income filed by insured
commercial banks and FDIC-supervised savings banks, to the Thrift Financial Report
filed by savings associations, and to the Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign Banks filed by U.S. branches and agencies of for
eign banks. These changes involve the annual collection of information jn the number
and amount outstanding of loans to small businesses and to small farms, and the es
timated amount of income and net charge-offs on these loans. The annual collection
of information on small business and small farm lending in regulatory reports submit
ted by insured depository institutions is required by Section 122 of the Federal Deposit
Insurance Corporation Improvement Act of 1991. The proposed effective date for
these reporting changes is the June 30, 1993 report date. Comments will be accepted
on the proposal for 30 days after its publication in the Federal Register.
Enclosed, for depository institutions and U.S. branches and agencies of for
eign banks in this D istrict, is an excerpt from the Federal Register of May 20, con
taining the text of the proposal (which, if adopted, will take effect with the June
30, 1993 reporting date). Additional, single copies may be obtained at this Bank
(33 Liberty St.) from the Issues Division on the first floor, or by calling the C irculars
Division (Tel. No. 212-720-5215 or 5216).
Com ments may be subm itted through June 19, 1992, and may be sent to the
Council, as indicated in the notice, or to our Supervision Support D epartm ent.
E. G erald C o rr ig a n ,
President.
*
W ednesday
May 20, 1992
Vol. 57, No. 96
Pp. 21409-21414
Federal Financial In s titu tio n s
E xam ination C ouncil
Request for comment
Reporting of Information
on Small Business and
Small Farm Lending
C o m m e n ts
th ro u g h
[Enc. Cir. No. 10538]
in v ite d
Ju n e
19,
1 9 9 2
fa . M -
Reporting of Information on Small
Business and Small Farm Lending by
Banks, Thrifts, and U.S. Branches and
Agencies of Foreign Banks
AGENCY: Federal Financial Institutions
Examination Council.
ACTION: Request for comment.
SUMMARY: The Federal Financial
Institutions Examination Council
(FFIEC) is proposing certain changes to
the Reports of Condition and Income
filed by insured commercial banks and
FDIC-supervised savings banks, to the
Thrift Financial Report filed by savings
associations, and to the Report of Assets
and Liabilities of U.S. Branches and
Agencies of Foreign Banks filed by U.S.
branches and agencies of foreign banks.
These changes involve the annual
collection of information on the number
and amount outstanding of loans to
small businesses and to small farms,
and the estimated amount of income and
net charge-offs on these loans. The
proposed changes are to fulfill the
requirements of section 122 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (Act). The
information that would be collected also
may assist the Federal Reserve Board in
satisfying the requirements of section
477 of the Act. The proposed effective
date for these reporting changes is the
June 30.1993, report date.
DATES: Comments must be received by
June 19,1992.
a d d r e s s e s : Comments should be sent
to Joe M. Cleaver, Executive Secretary,
Federal Financial Institutions
Examination Council. 2100 Pennsylvania
Avenue, NW., suite 200, Washington,
DC 20037 or delivered to the same
address between the hours of 9 a.m. and
5 p.m. on business days.
FOR FURTHER INFORMATION CONTACT:
OCC: Gary Christensen, Rational Bank
Examiner, Chief National Bank
Examiner’s Office. Office of the
Comptroller of the Currency, 250 E
Street. SW., Washington, DC 20219,
(202) 874-5190.
FRB: Thomas R. Boemio, Supervisory
Financial Analyst. Division of Banking
Supervision and Regulation, Board of
Governors of the Federal Reserve
System, 20th and Constitution
Avenue, NW., Washington, DC 20551,
(202)452-2982.
FDIC: Robert F. Storch, Chief,
Accounting Section, Division of
Supervision, (202) 898-8906 or J.
William V ia Jr., Counsel Legal
Division, (202) 898-3733, Federal
Deposit Insurance Corporation, 550
17th Street, NW.. Washington, DC
20429.
OTS: Thomas A. Loeffler, Assistant
Director for Supervisory Operations.
Office of Thrift Supervision. 1700 G
Street. NW., Washington. DC 20552,
(202)906-5762.
SUPPLEMENTARY INFORMATION:
Provisions of Section 122
Section 122 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991 (“Act") requires that the Federal
Reserve Board (“FTIB"), the Federal
Deposit Insurance Corporation ("FDIC"),
the Office of the Comptroller of the
Currency (“OCC”), and the Office of
Thrift Supervision (“OTS") (collectively,
the "federal banking agencies" or the
“agencies") annually collect in the
“reports of condition” such information
from insured commercial banks, savings
banks, savings associations, and insured
U.S. branches of foreign banks
(collectively, “insured depositary
institutions") on small business and
small farm lending as the agencies may
need to assess the availability of credit
to these sectors of the economy. The
term “reports of condition" includes for
insured commercial banks and FDICsupervised savings banks, the Reports of
Condition and Income: for savings
associations, the Thrift Financial Report:
and for U.S. branches and agencies of
foreign banks, the Report of Assets and
Liabilities of U.S. Branches and
Agencies of Foreign Banks (collectively,
these reports are referred to as the
“reports of condition”). The statute
indicates that the types of information
that the agencies may collect in the
reports of condition may include:
(a) The total number and dollar
amount of commercial loans and
commercial mortgage loans to small
businesses.
(b) Charge-offs and interest and fee
income on commercial loans and
commercial mortgage loans to small
businesses, and
(c) Agricultural loans to small farms.
The Act does not explicitly require the
agencies to collect any specific
information with respect to loans to
small businesses or agricultural loans to
small farms.
(b) Be given for categories of small
businesses determined by annual sales
of small businesses and for small
businesses in existence for less than a
year, and
(c) Be given for each geographic
region of the United States.
Section 477 does not require the
Federal Reserve Board to collect all or
any of these items on the reports of
condition. Indeed, the section directs the
Federal Reserve Board to take into
consideration the need to minimize
reporting costs on financial institutions
when deciding what information can be
practically collected. While the
requirements of section 477 are not tied
to reporting requirements of section 122,
the information collected on the reports
of condition under section 122 could be
used as a source for some of the
information that the Federal Reserve
might need for the annual publication
required by section 477. The Federal
Reserve may be able to collect some
information to compile the annual
publication on credit available to small
businesses from other sources, such as
existing or new surveys, that would
impose less reporting costs on financial
institutions.
At this time the FFIEC has not
proposed collecting data on minorityowned businesses or data on small
businesses in existence for less than a
year on the reports of condition. The
FFIEC requests comments on the
feasibility and costs of collecting
infonnation on these two types of loans
on the reports of condition.
Alternatively, less burdensome means of
collecting information on these types of
loans may be available and the FFIEC
requests suggestions on what these
other means might be as well as
comments on their associated costs and
burdens.
In addition, the FFIEC is not proposing
to collect information on the geographic
distribution of small businesses
borrowers on the reports of condition. In
the interest of reducing reporting
burden, the FFIEC suggests that the
geographic location of the lending
institution is a suitable proxy that may
be used in assessing the availability of
credit in specific regions of the United
States. The FFIEC seeks comments on
using the geographic location of the
lending institution as a suitable proxy
for such an assessment
Provisions of Section 477
Another section of the A c t section
477, requires the Federal Reserve Board
to collect and publish, on an annual
basis, information on the availability of
credit to small businesses. According to
the statute, the infonnation sh all to the Proposed Report Schedule
extent practicable:
(a)
Include infonnation on commercial In order for the federal banking
agencies to implement section 122 of the
loans to small businesses, agricultural
Act, the FFIEC is proposing to introduce
loans to small farms, and loans to
a new schedule to the reports of
minority-owned small businesses.
condition to collect selected balance
2
Oa ./Vo. I0S5Z
sh e e t and in com e sta te m e n t inform ation
rela ted to lo a n s to sm a ll b u sin e s se s and
sm a ll farm s. A ll insured d ep ository
in stitu tion s, regard less o f a sse t size,
w o u ld b e required to co m p lete this
sch ed u le. T he language o f sectio n 122
d o es n ot appear to provide the a g e n c ie s
w ith the ab ility to ex em p t certain
c la s s e s or s iz e s o f insured d ep ository
in stitu tio n s from this reporting
req u irem en t
In addition, although section 122
requires insured depository institutions
to report information on small business
and small farm loans, the FFIEC is
proposing to collect this information
from both insured and noninsured U.S.
branches and agencies of foreign bank6.
Under the principle of national
treatment, reporting requirements
imposed on the U.S. operations of U.S.
depository institutions should also be
extended to the U.S. operations of
foreign banks. Furthermore, to the
extent that noninsured U.S. branches
and agencies of foreign banks provide
credit to small businesses and small
farms, the collection of data on these
loans from noninsured entities may
assist the Federal Reserve in preparing
the annual publication on the
availability of credit to small businesses
that is required by section 477.
Essentially, the proposed schedule
would collect data on the number, the
amount outstanding, estimated chargeoffs (net of recoveries), and estimated
interest and fee income on loans to
small businesses and small farms. These
are the types of information that section
122 suggests that the agencies may
collect on loans to small businesses. In
the absence of any statutory guidance
on the collection of data on loans to
small farms, the FFIEC is proposing that
the agencies should collect the same
types of information on loans to small
farms as on loans to small businesses
and requests comments on the
feasibility and costs of collecting such
information. In addition, the number and
amount outstanding of loans to small
businesses would be reported for three
size categories of small businesses. This
would permit the Federal Reserve to use
the reports of condition to collect part of
the information necessary to publish the
report required by section 477 which
suggests that, to the extent practicable,
the information for categories of small
businesses be determined by annual
sales.
D efinition o f Sm all B u sin ess and S m all
Farm
Section 122 does not specify an
operational definition of small business
or small farms to be used for classifying
loans on the reports of condition. For
some lenders, a small business is one
that is independently operated, probably
with fewer than 5 or 10 employees, and
annual sales of $100,000 or less. Others
define small businesses to include firms
with several million dollars in annual
sales and up to 500 employees that rely
heavily on local depository institutions
for credit and have limited or no access
to capital markets.
A meaningful definition of small
business depends on many factors,
including the form of business structure
(corporation, partnership,
proprietorship), the industry, and the
purposes for which the information will
be used. A comprehensive analysis of
small business finance would need to
take into account a far wider range of
market factors and business
characteristics than can feasibly be
reported by depository institutions.
Indeed, to avoid extraordinary reporting
burdens, the agencies believe it is
important to select a simple and concise
definition of small business and small
farm.
After considering several measures,
including number of employees, asset
size, net worth and sales, the agencies
are proposing to use “annual sales
volume” as the measure by which
institutions should classify the size of
business and farm borrowers. Evidence
suggests that lenders are likely to have
information on sales volume while other
measures may not be as readily
available. Moreover, section 477 of the
Act makes reference to categories of
small businesses determined by annual
sales. Sales volume typically has been
used in surveys that focused on small
business programs.
The FFIEC recognizes that depository
institutions of different asset sizes may
have their own internal definitions of
small businesses and small farms that
differ from the definitions proposed
below. However, for the reports of
condition, a standard definition is
needed for each term to ensure that the
data are comparable. The FFIEC is
proposing to define a small business as
a business with annual sales of less than
$10 million, and to define a small farm
as a farm with annual sales of less than
$500,000. Based on 1987 data from Dun’s
Market Indicator File, which covers
approximately 5 million business firms,
almost 98 percent of all nonagricultural,
nonfinancial business firms have annual
sales of less than $10 million. As a
result, the FFIEC believes that $10
million in annual sales would be an
appropriate upper limit in defining the
size of a small business.
For the same reasons mentioned
3
%
above, the FFIEC is proposing that
annual sales also be used as the basis
upon which to define a small farm. With
respect to the dollar size of a small farm,
the FFIEC relied on available data from
the Census of Agriculture that suggested
that few farms have annual sales of
more than $1 million. In addition, agency
staff discussions with representatives of
bank trade associations indicated that,
in their view, small farms were those
with annual sales of less than $500,000.
The FFIEC specifically seeks comment
on the appropriate amount of sales that
should be used as the basis upon which
to define a small business and a small
farm. In addition, because sales for
farms and many small businesses may
vary considerably from year to year, the
FFIEC seeks comment on whether
depository institutions should be given
the option of using a three-year average
of annual sales to determine the size for
small businesses or for small farms.
For purposes of reporting loans to
small businesses and small farms, this
proposal would require that depository
institutions determine whether a
business or farm is small based on the
most recent annual sales of the business
or farm at the time the loan is made,
renewed, rolled over, or otherwise
undergoes a credit decision, whichever
is most recent. Similarly, the size
category of a small business also would
be fixed at the time the loan is made,
renewed, rolled over, or otherwise
undergoes a credit decision, whichever
is most recent. The FFIEC seeks
comments on whether or not this basis
is reasonable. In this way, depository
institutions would not necessarily be
required to review each loan to a
business or farm each year to determine
whether the annual sales of the
borrower still fell within the small
business or small farm definition or
whether, for loans to small businesses,
the small business’s annual sales had
changed to that of a different size
category. However, the FFIEC seeks
comment on whether, for loans
outstanding at the effective date of the
schedule (proposed to be June 30,1993),
depository institutions should be
required to determine the annual sales
of their business and farm borrowers
when these loans were originated,
renewed or rolled over, whichever is
most recent, or whether they should be
permitted to make this determination
based on the borrower’s most recent
annual sales.
Under the FFIEC’s proposal,
information will be collected separately
for two general categories of loans:
“Loans to small businesses" and “Loans
to small farms." Loans to small
Cot.
businesses will consist of (1) commercial
and industrial loans and (2) loans
secured by nonfarm nonresidential
properties. Loans to small farms will
consist of (1) to finance agricultural
production and others loans to farmers
and [2) loans secured by farmland
(including farm residential and other
improvements). Each of these latter four
categories of loans would be defined in
the same manner as in the present loan
schedule (Schedule RC-C) of the bank
Reports of Condition and Income.
With respect to loans to small
businesses, the FFIEC is proposing that
depository institutions separately report
the number and amount outstanding of
loans for three size categories of small
businesses: those with annual sales of
less than $250,000, those with annual
sales of $250,000 up to $1 million, and
those with annual sales of $1 million up
to $10 million. While section 122 of the
Act does not specifically recommend a
breakdown of the total number and
amount outstanding of loans to small
businesses, the three size categories
included in the FFIEC’s proposal are
intended to assist the Federal Reserve
Board in complying with section 477.
Collecting loan information for more
than one category of small businesses
also should provide some flexibility to
users of the data who may have
different opinions of what constitutes a
small business or who may have an
interest in small businesses of particular
sizes.
Nevertheless, the FFIEC recognizes
that a requirement to report the
proposed three-way breakdown of loans
to businesses with annual sales of less
than $10 million is more burdensome
than reporting only totals for all
businesses with annual sales of less
than $10 million. Tjiis is particularly true
for a smaller depository institution that
may make few, if any, loans to business
borrowers with annual sales above $10
million. Consequently, the FFIEC
specifically requests comment on the
additional burden (in terms of cost and/
or hours of time to compile the data)
associated with reporting loans to small
businesses using the proposed threeway annual sales breakdown rather
than reporting such loans without a
breakdown by annual sales. The FFIEC
also would like to know if there are
alternative small size categories, other
than those proposed, that would reduce
the reporting burden.
As an alternative to the proposed
collection of the number and amount
outstanding of loans to three categories
of small businesses based on annual
sales, the FFIEC is interested in
receiving comment on whether
depository institutions would be able to
provide reasonable estimates of the
percentage of their total loans to small
businesses (that is, loans to businesses
with less than $10 million in annual
sales) that have been made to small
businesses with annual sales in each of
the three smaller proposed size
categories. If so, a comparison between
the reporting burden of this alternative
and the burden of reporting the actual
amount of loans to each of the three size
categories of small businesses would be
helpful to the agencies.
Interest and Fee Income
The FFIEC is proposing to collect
estimated amounts for interest and fee
income on loans to small businesses (in
total without any breakdowns by size of
business) and on loans to small farms,
as well as estimated amounts for net
charge-offs on these types of loans. The
estimates of income and net charge-offs
would be for the one year period ending
on the report date (currently proposed to
be June 30th). Estimates of selected
income-related information have been
collected in the commercial bank
Reports of Condition and Income for
several years in an effort to minimize
the reporting burden on reporting
institutions. The collection of reasonable
estimates for interest and fee income
and net charge-offs on small business
and small farm loans may represent an
appropriate method for balancing
reporting burden with the statutory
recommendation that this information
be collected.
Although the proposal would require
all depository institutions to report their
estimated interest and fee income on
small business and small farm loans, the
FFIEC notes that banks with less than
$25 million in total assets have never
been required to provide a breakdown
of their interest and fee income on loans
by loan category in their Reports of
Condition and Income. These small
banks have been exempt from reporting
loan income breakdowns in order to
minimize their reporting burden. The
FFIEC seeks comment on the amount of
burden that a requirement to report
small business and small farm loan
income will impose on banks with less
than $25 million in total assets and
whether the present small bank
exemption should be extended to the
reporting of estimates of loan income
from loans to small businesses and
small farms in the proposed new Call
Report schedule.
In addition, because they are only a
part of a larger depository institution,
U.S. branches and agencies of foreign
4
A
Id■lO S Z t
banks do not report income or charge-off
data in the Report of Assets and
Liabilities of LJ.S. Branches and
Agencies of Foreign Banks. The FFIEC
requests comment on the burden that
will be imposed on U.S. branches and
agencies by a requirement to report
estimates of small business and small
farm loan income and net charge-offs
and the basis upon which some or all
U.S. branches and agencies might be
exempted from reporting such estimates.
Thrift Reporting
While the OTS recognizes the
statutory requirement to collect the data
cited in this notice, the OTS also
recognizes the limited role of savings
associations in commercial and
agricultural lending. In this context, the
OTS solicits comment on the reporting
burden for thrift institutions associated
with the proposed data collection.
Savings associations are restricted by
regulation from investing in excess of 10
percent of assets in unsecured
commercial and industrial loans. This
type of lending for private sector savings
associations amounted to $16.4 billion
as of December 31,1991, accounting for
1.9 percent of total assets, compared to
$27.1 billion as of March 31,1990, or 2.5
percent of total assets. In contrast, as of
December 31,1991, commercial banks
held $447.2 billion of commercial and
industrial loans (to U.S. addressees).
The OTS solicits comment on the level
of detail for this type of lending that
would serve the purposes of the
statutory data collection from thrift
institutions.
Furthermore, for savings associations,
the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
limited the total amount of each
institution’s nonresidential real property
loans to 400 percent of its total capital.
The OTS believes that most of these
loans are made to property owners
whose primary source of income is from
the rental of the property rather than
loans made to businesses offering the
property as security for the loan. The
OTS requests comment on (1) the nature
of lending secured by nonresidential
real estate most common to thrift
institutions, (2) the applicability of the
proposed sales levels to businesses with
revenue measured by rental income, and
(3) whether the businesses represented
by lending on nonresidential real estate
are “small businesses" as the term is
commonly defined.
OTS does not currently collect data
separately on the amount of agricultural
loans held by thrift institutions and
solicits comment on the necessity for a
C th - A lo >
separate data collection on agricultural
loans to small farms given the limited
extent to which the thrift industry is
involved in this type of lending.
Depository institutions that would be
subject to the proposed reporting
requirement should indicate whether
and, if so, the extent to which such
information
is readily available at their
Effective Date
institutions. Furthermore, it would be
The FFIEC is proposing that the new
useful to the Examination Council if
reporting requirements for small
such respondents could provide
business and small farm lending will
estimates of the cost of providing such
take effect w'ith the reports of condition information (both initial start-up cost
to be prepared as of June 30,1993. This
and regular maintenance cost) and the
would provide time for institutions to
amount of time that their institutions
develop systems for collecting and
would reasonably need to make
reporting the new information. The
proposed information would be reported appropriate adjustments to their loan
information systems (whether
as of each June 30th thereafter.
automated or manual) so that the
Comment is requested on whether this
information can be collected.
quarter-end report date or some other
quarter-end date is the most appropriate Paperwork Reduction Act
for collecting the information each year.
In accordance with the Paperwork
The FFIEC are requesting comments
Reduction Act of 1980 (Pub. L. 96-511),
on the proposed schedule to collect
the current Reports of Condition and
information on loans to small businesses Income required of all insured
and small farms that is presented below. commercial banks and FDIC-supervised
savings banks, the Thrift Financial
Report required of savings associations,
and the Report of Assets and Liabilities
of U.S. Branches and Agencies of
Foreign Banks required of U.S. branches
have been submitted to, and approved
by, the Office of Management and
Budget (OMB). (OMB Control Numbers:
Reports of Condition and Income—for
OCC, 1557-0081; for FRB, 7100-0036; for
FDIC, 3064-0052; Thrift Financial
Report—OTS, 1550-0023; and the Report
of Assets and Liabilities of U.S.
Branches and Agencies of Foreign
Banks—FRB, 7100-0032) The final
version of the proposed changes that are
the subject of this request for comment,
which will be developed after
consideration of the comments received,
will be submitted by each agency to
OMB for its review.
The proposed reports of condition
schedule follows:
Schedule—Selected Balance Sheet and Income Statement Items Related to Loans to Small Businesses and Small Farms
(Loans made at domestic offices to U.S. addressees)
Part I. Loans to Small Businesses
Commercial and industrial
loans
Dollar amounts in thousands
(Column
A)
Number
(Column B)
Amount
outstanding
Bit
Mil
Thou
Loans secured by nonfarm
nonresidential properties
(Column D)
Amount
outstanding
(Column
C)
Number
Bll
MS
Thou
1. Loans to small businesses with annual sales of:...........................................................................
a. Less than $250 thousand..._ ... ................................ ..........................................................
b. $250 thousand up to $1 million....................................................................................... ........
c. $1 miHion up to $10 million.......................................................................................................
d. Total (sum of items 1jl through 1.c.).......... .............................................................................
Part II. Estimated Income and Charge-Offs on Loans to Small Businesses
(Column A)
' Commercial and
industrial loans
Dollar amounts in thousands
Bil
MH
Thou
(Column B)
Loans secured
by nonfarm
nonresidential
properties
Bil
MU
Thou
1. Estimated interest and fee income (July 1 of previous year through June 30 of current year)......................................
2. Estimated charge-offs net of recoveries (July 1 of previous year through June 30 of current year)..............................
Part III. Agricultural Loans to Small Farms
Loans to finance agricultural
production and other loans to
farmers
Dollar amounts in thousands
(Column
A)
Number
1. Loans to small farms with annual sales of up to $500,000Estimated charge-offs net of recoveries
(July 1 of previous year through June 30 of current year)...............................................................
5
(Column B)
Amount
outstanding
Bil
MU
Thou
Loans secured by farmland
(including farm residential
and other improvements)
(Column
C)
Number
(Column D)
Amount
outstanding
Bil
Mil
Thou
Ga /\£c- S0S38
Part IV. Estimated Income and C harge-O ffs on Agricultural Loans to Small Farms
(C o lu m n A ) L o a n s to
finance agricultural
production a n d other
loans to farm ers
Dollar amount m thousands
Bil
Mil
Th o u
(C o lu m n B ) L oan s
secu re d by
farm land
(including farm
residential and
other
im p ro vem ents)
Bil
[FR Doc. 92-11766 Filed 5-19-92; 8:45 am]
D a te d :
May 14,1992.
joe M. Cleaver,
Executive Secretary, Federal Financial
Institutions Examination Council.
» u jn g
c o d e 6210- 01-M
Mil
Th o u
@FedFRASER