WASHINGTON - Banks involved in the derivatives market will have to make two new disclosures when first-quarter call reports are filed April 30.
The dollar amount of nonperforming derivatives contracts will have to be reported for the first time in the first-quarter report, Douglas E. Harris, senior adviser to the Comptroller of the Currency, said in an interview Tuesday.
Banks also will have to disclose the replacement cost of derivatives contracts held in trading accounts, he said. That means banks will have to disclose the cost of obtaining a new contract if one of its derivative counterparties defaults.
More to Come
The value of a derivative is based on an underlying asset. They are used to hedge risk, but also may be used to speculate. A bank often brings together two parties that want to place opposite bets on the future value of the asset.
The two additions to the first-quarter call report are just the beginning Mr. Harris said.
Regulators are also looking at the possibility of additional disclosures for as early as second quarter 1994, and certainly I think there will be additional disclosures mandated in call reports in 1995," Mr. Harris said.
In the future, Mr. Harris said, banks also may be disclosing:
* Replacement costs of all derivatives, not just those in banks' trading accounts;
* Gains and losses on derivatives in trading accounts;
* Income from derivatives, broken down into profits from fees and from spreads.
The two immediate changes were adopted at the Dec. 16 meeting of the Federal Financial institutions Examination Council, the umbrella group for all the banking agencies.
Andrew C. Hove, Federal Deposit Insurance Corp. acting chairman, is chairman of the council.
Banks will receive new instructions for complying with the disclosures early next year, Bob Storch, chief of the FDIC's accounting section, said in a separate interview.
Regulators are waiting for the green light from the Office of Management and Budget, which must approve increases in the paperwork burden the government imposes on companies.
Currently, regulators only collect from banks information on the notional value of derivatives contracts; or the face value of outstanding contracts.
The agencies have just begun making this information public. In its first such announcement, the FDIC on Dec. 15 said that derivatives contracts at banks totaled $12 trillion on Sept. 30, up 23.4% from $9.7 trillion a year earlier.
Defining the Risks
But these notional values dwarf the actual exposure banks face. Thus, regulators want to expand reporting so that banks' actual risks are better defined.
The disclosure on nonperforming derivatives will be broken down into contracts that are 30 to 89 days past due and those that are 90 days or more overdue, Mr. Storch said.
However, he noted that regulators will keep confidential the volume of deals fewer than 90 days past due.
Mr. Storch explained that this is standard procedure at the agencies to guard against exaggerating a bank's problem assets.
"But anything 90 days or more [past due] would be publically available," he added.
Although the changes are effective with the call report due April 30, the largest banks - the institutions most involved in the derivatives market - routinely get an extra 15 days to file.