On December 27, 2023, the US federal banking regulators proposed reporting requirements for bank loans and commitments to the fund finance sector.1 This change reflects not only the rapid growth in this sector but also the regulators’ desire to better understand and supervise concentrations of credit and risk in the US banking system.
While banks will not be required to report individual names of obligors, banks and borrowers should understand how they will be affected by the ways that regulators and investors use this new information.
Background
Banks are required to file several types of reports with their regulators, including with respect to the bank’s financial condition, the results of its operations, and risk exposure.2 One of the most common regulatory reports is the quarterly Consolidated Reports of Condition and Income (“call report”), which banking regulators, including the OCC, use to assess a bank’s financial condition.
The information disclosed in regulatory reports, particularly in call reports, is important because reports often are used by regulators to make supervisory determinations and may be made publicly available to investors, depositors, and creditors. The information also is quite detailed, with the FFIEC 031-version of the call report running 89 pages.3
Banks are required to categorize credit exposures into many categories for reporting purposes, including loans secured by real estate, credit cards, loans to foreign governments, etc., and report the amount outstanding each quarter. Since 2010, banks have been required to report aggregate loans to nondepository financial institutions, which includes fund finance facilities.
Proposed Reporting Requirements
The proposal notes that loans to nondepository financial institutions have increased from $56 billion in 2010 to $786 billion in 2023. This constitutes approximately 6.4% of total bank lending. Additionally, the Financial Stability Oversight Council and others have raised concerns with the interconnection between banks...