WASHINGTON -- Rules requiring banks to expand disclosures of derivatives activities are likely to be delayed until March 1995, six months after the original target date.
Bank regulators plan to meet today to consider postponing the new reporting requirements. Officials said Wednesday that they need the extra time to decide which disclosures would give the agencies a better grasp of the risks posed by derivatives.
The industry has been pushing for the delay, arguing that banking regulators should put off new reporting requirements until uniform disclosures can be agreed on by the many regulatory entities overseeing derivatives.
Avoiding Confusion
This is critical to ensure that the nature and extent of derivatives activities be clarified, rather than confused," Geoffrey M. Fletcher, managing director at Bankers Trust Co., wrote in a comment letter to regulators.
A delay "is also necessary to avoid the undue reporting burden that would result if different disclosures were required," Mr. Fletcher wrote.
The changes would require banks to spell out their derivatives activity in quarterly call reports. A final rule detailing the changes is not expected until the third quarter, according to a regulator working on the proposal. Pushing the changes back to March would give banks enough lead time to adapt to call report adjustments.
The Financial Standards Accounting Board is expected to release new derivatives disclosures in December. The Securities and Exchange Commission also is tinkering with changes to derivatives reporting.
Pressure from Congress
Bank regulators, under pressure from Congress, proposed a two-phase expansion of the call report on March 9. The first disclosures were scheduled to kick in with the September report and a second set were due next March.
The proposal was released by all the banking agencies acting under their umbrella group, the Federal Financial Institutions Examination Council. Comments were due May 9.
The proposed disclosures are designed to gather the data needed to judge how much credit, liquidity, and systemic risk is being posed by derivatives.
But regulators were under the gun when they wrote the proposal and did not have time to analyze the new disclosures many banks made in their yearend reports. So the form of the new disclosures could change significantly before they are formally required.
While big banks argued for more time, small banks called the proposed $100 million threshold too low.
Regulators plan to exempt banks with less than $100 million in assets from the new disclosures. Donna Fisher, the American Bankers Association's director of tax and accounting, said banks under $1 billion in assets should be freed from the derivatives disclosures to target significant users and limit compliance costs.
Displaying an unusual interest, large banks dominated the 40 comment letters filed. While the banks had many specific recommendations, the general complaint was that regulators are too narrowly focused. Many argued that derivatives cannot be sized up in a vacuum. Derivatives, banks argued, are just a piece of complex asset/liability management strategies.
Several banks, including Chase Manhattan, requested that the information gathered under the new disclosures be kept confidential.
The regulators are proposing to require that banks disclose the notional amount of off-balance-sheet derivatives broken down as commodity or equity contracts. Banks would also have to distinguish derivatives as exchange traded or traded over the counter.
Notional Values
Many banks criticized this plan, arguing that notional values are meaningless. Citibank's controller, Roger W. Trupin, suggested that this disclosure be labeled "gross volume indicators" with a note explaining that notional values do not represent the amount of risk the bank faces.
The regulators also want banks to show the gross positive and negative fair value of derivative contracts broken down by type: interest rate, foreign exchange, equity, or commodity. This information would be reported separately for contracts accounted for at market rates and those that are accounted for on an accrual basis.
David H. Sidwell, controller of Morgan Guaranty Co., opposed this requirement in his letter, arguing that gross values ignore netting agreements, which substantially alter the risk involved in a particular contract.
"We believe the proposed reporting requirement misrepresents true credit exposure," he wrote.
Net Current Exposure
A third new disclosure would require banks to report their net current credit exposure, excluding foreign exchange contracts with an original maturity of 14 calender days or less, interest rate or foreign exchange contracts that are traded on an exchange requiring daily settlement of market value variation, and written options contracts.
First Chicago Controller william J. Roberts said this disclosure would not reflect reality. "Credit risk is not managed by type of financial instrument or activity," he wrote. "Credit risk is managed on an individual customer basis across a number of varied product offerings."
