Borrower-In-Custody (BIC) Program

The BIC Program allows depository institutions to pledge their loans to Reserve Banks while maintaining possession of the loan documentation either on their own premises or on the premises of an approved third-party custodian by establishing a BIC arrangement.

Generally, depository institutions eligible for Primary Credit qualify for BIC arrangements. A depository institution not eligible for Primary Credit may qualify for a BIC arrangement at the discretion of its Reserve Bank; however, additional criteria and program requirements may apply.

All pledged loans must comply with the loan collateral terms and conditions as amended from time to time, in (a) the Reserve Banks' Operating Circular 10 "Lending" (OC-10), (b) the Acceptance Criteria for Loans, and (c) the Reserve Bank's BIC Program Requirements detailed below (collectively, the “Requirements”). If your depository institution has questions about any of the Requirements, consult with your local Reserve Bank.

Reserve Banks' BIC Program Requirements

Safekeeping

1. Loan documents must be present, properly executed, and complete in accordance with the depository institution’s internal loan policies and procedures.

2. Loan documents must be stored securely to prevent inadvertent or deliberate removal, destruction, sale, double pledging, or modification of the loans across all storage locations, whether held by the institution or a third-party.

3. For Notes originated in tangible form then imaged or converted to electronic format with the original tangible Note destroyed, the depository institution must ensure policies and controls exist to establish (i) the original was destroyed; (ii) the institution retains an imaged copy that is identified as the true and correct copy of the original record; and (iii) other duplicates are identified as such.

4. For Notes originated with a digital signature that have been converted to paper records (i.e., printed and stored in tangible form with the original electronic record deactivated), the depository institution must ensure this process satisfies applicable standards under state law(s).

Identification

1. All pledged loans must be prominently identified as pledged to the Reserve Bank and subject exclusively to the Reserve Bank’s written instructions. The depository institution must have an established process to update this labeling as necessary. This requirement applies to:

   1. Physical Notes. Examples of how this requirement may be met include displaying visible and conspicuous signage where physical Notes are stored or affixing labels to each loan file containing physical Notes;

   2. Electronic Notes created, received, or stored in an electronic loan document vaulting service (i.e., a system or tool, whether internal or provided by a third-party, that enables a secured party to establish control of electronic records). Examples of how this requirement may be met include applying visible and conspicuous notations on the electronic Notes or displaying a splash screen in the electronic loan document vaulting service.

2. All pledged loans must be marked within the depository institution’s loan accounting system to show that they have been pledged to the Reserve Bank and are subject exclusively to the Reserve Bank’s written instructions. For both physical and electronic Notes, an example of how this requirement may be met is by applying a code, flag, or other label clearly indicating the loans as pledged to the Reserve Bank. The depository institution must have an established process to update this labeling as necessary.

Establishing a BIC Arrangement

Depository institutions should take the following steps to establish a BIC arrangement with their Reserve Bank. These steps may be pursued simultaneously to expedite the process. The depository institution’s local Reserve Bank will review the items for compliance with applicable requirements. A decision letter will be provided following the review. The timeframe for review depends on complete documentation and prompt responses.

1. Operating Circular 10 Agreements

   Submit a fully executed set of Operating Circular 10 agreements if not already completed.

2. BIC Program Application

   Complete and sign the Borrower-in-Custody Program Application to Establish a New Arrangement form (“BIC Application”).

   The BIC Application must be signed by individual(s) who have authority to pledge collateral on behalf of the depository institution. This authority is granted to those individuals on the Appendix 3 or Appendix 4 Form of OC-10 Official Authorization List with the “pledge collateral” designation. If Appendix 3 or Appendix 4 Form of OC-10 Authorizing Resolutions for Borrowers require "any two” individuals for authorization, the same dual signature requirement applies to the BIC Application.

3. First Priority Perfected Security Interest

   All discount window advances must be collateralized to the satisfaction of the Reserve Bank. Reserve Banks generally accept collateral only if they can achieve a first priority perfected security interest. Any existing lien conflicts pertaining to the pledged collateral must be resolved.

4. Internal Risk Rating Scale and Definitions

   For commercial loan pledges (e.g., commercial and industrial, commercial real estate, etc.), depository institutions must provide a copy of their current internal risk rating scale and corresponding definitions.

   Loans are not acceptable if classified as Special Mention, Substandard, Doubtful or Loss, or if otherwise deemed unacceptable by the Reserve Bank following a review of the internal risk rating scale. At its discretion, a Reserve Bank categorizes each risk rating on a depository institution’s internal risk rating scale as part of determining whether to accept loans as collateral. Reserve Bank categories are "Minimal" risk (typically equivalent to investment grade), "Normal" risk (typically equivalent to below investment grade but still acceptable), or “Excessive” risk (not acceptable).

5. Third-Party Custodian Arrangements

   A third-party custodian is an institution or corporation other than the depository institution (including affiliates or subsidiaries) that provides document storage and safekeeping services for pledged loans. Prior to pledging loans, depository institutions must submit a fully executed Appendix 5 of Operating Circular 10: Form of Agreement for Third-Party Custodian to Hold Collateral for any third-party that:

   • Stores physical Notes, or
   • Stores electronic Notes whereby the third-party’s primary duties involve safekeeping the Notes; maintaining the Notes in a secure environment; preventing loss, theft or damage; managing access to the Notes by authorized personnel; performing asset servicing (income collection; tax withholding, payments, reporting); maintaining records of ownership, transactions, valuation, insurance, and compliance with relevant laws and regulations.

6. Collateral Schedule

   Depository institutions pledging loans as collateral must submit their initial Collateral Schedule(s) within 12 months after the date of the BIC arrangement approval letter from their local Reserve Bank and, at a minimum, monthly thereafter.

   This Collateral Schedule must include specific data elements for each pledged loan and follow the format and file specifications detailed in the Loan Collateral Schedule Submission Process section of this website. Reserve Banks will work with depository institutions to confirm that Collateral Schedules meet file specifications and are in an acceptable format.

Maintaining a BIC Arrangement

Submission of Collateral Schedules

• Depository institutions must ensure their Collateral Schedules are current as prescribed in OC-10. At a minimum, pledging institutions must submit monthly Collateral Schedule(s) to their Reserve Bank by the agreed upon due date. Depository institutions who fail to adhere to reporting requirements may be subject to penalties, which could include reduced collateral value or termination of their BIC arrangement.

• Collateral Schedules must be submitted by individual(s) who have authority to pledge collateral on behalf of the depository institutions. This authority is granted to those individuals on the Appendix 3 or Appendix 4 Form of OC-10 Official Authorization List with the “pledge collateral” designation. If the Appendix 3 or Appendix 4 Form of OC-10 Authorizing Resolutions for Borrowers require "any two" individuals for authorization, the same dual submission requirement applies to the Collateral Schedule.

Certification of Compliance

Beginning 12 months after the date of the Reserve Bank’s approval letter establishing the BIC arrangement, and then every 12 months from the date of the auditor’s certification on the prior BIC Certification form (described below), depository institutions are required to submit the following:

1. BIC Certification Form: A completed BIC Certification form must be signed by the appropriate number of authorized individual(s) that have authority to pledge collateral on behalf of the depository institution. This authority is granted to those individuals on the Appendix 3 or Appendix 4 Form of OC-10 Official Authorization List with the “pledge collateral” designation. If the Appendix 3 or Appendix 4 Form of OC-10 Authorizing Resolutions for Borrowers require "any two" individuals for authorization, the same dual signature requirement applies to the BIC Certification form.

   A Certification of the Institution’s Auditor or Independent Party should also be completed by the institution’s internal or external auditor. If an institution does not have an internal or external auditor, the certification should be signed by an independent consultant or employee of the depository institution who is not listed in the Appendix 3 or Appendix 4 Form of OC-10 Authorizing Resolutions for Borrowers or Appendix 3 or Appendix 4 Form of OC-10 Official Authorization List. The employee’s job duties, or, if applicable, the scope of work for a consultant, should include the following: provide assurance regarding the adequacy and effectiveness of internal controls for ongoing compliance with the Requirements; and communicate to senior management significant deficiencies and material weaknesses identified in the assessment. In circumstances where the depository institution does not have an independent party, the institution should consult its local Reserve Bank.

   The auditor’s statements on the BIC Certification form are based on an annual audit that is performed to provide reasonable assurance that the depository institution maintains effective internal controls to ensure ongoing compliance with the Requirements, including management oversight in identifying and resolving problems or recommendations of auditors or other assessors. The audit must have been conducted within the 12-month period preceding the date of the certification. The auditor determines the extent and level of testing in line with the institution's risk management framework. Auditors should abide by standards for sampling that require the auditor, at a minimum, to select a representative portion of the population to form conclusions, ensuring all items have a chance of selection through either statistical or nonstatistical methods. Reference the Auditor Job Aid for information related to the key activities to assist in conducting the annual audit of the institution's compliance with the Requirements. In circumstances where the audit cannot be completed as expected, the institution must consult with the Reserve Bank.

2. Audit Report: An audit report must be provided to the Reserve Bank that includes: the scope and time period covered; the assessor’s observations including any significant deficiencies and material weaknesses; senior management responses; and remediation plan with timeline, if applicable.

3. Internal Risk Rating Scale and Definitions: For commercial loan portfolio pledges (e.g., commercial and industrial, commercial real estate, etc.), depository institutions should provide a copy of their current internal risk rating scale and corresponding definitions.

Inspections are conducted by Reserve Bank staff and serve to verify that pledged loan collateral complies with the Requirements.

• For new BIC arrangements, an inspection of the depository institution's pledged loan collateral will occur within 12 months after the date of the Reserve Bank’s approval letter, and periodically thereafter.
• Inspections will be conducted either on-site at the depository institution and/or third-party custodian, or remotely. For remote inspections, relevant pledged loan documentation will be provided electronically to the Reserve Bank in a secure manner by the depository institution.
• The depository institution will be contacted in advance of a scheduled inspection to confirm timing, scope, loan sample, required documentation, and other relevant planning details and instructions.
• Following the conclusion of the inspection, the Reserve Bank will provide a letter detailing the results and any next steps.

Modifying a BIC Arrangement

Depository institutions seeking to modify their existing BIC arrangement must submit a Borrower-In-Custody Program Application to Modify Existing Arrangement form (BIC Modification) prior to implementing any change(s). A modification is defined as a change to any characteristic of a BIC arrangement that was previously approved by the Reserve Bank. This includes, but is not limited to, the addition of new loan types, adding or removing storage locations, or changes to the internal risk rating scale.

The depository institution’s local Reserve Bank will review the BIC Modification form and accompanying documents for compliance with applicable requirements. A decision letter will be provided following the review.

Terminating a BIC Arrangement

Depository institutions may request to terminate their BIC arrangements by delivering written notice to their Reserve Bank. The termination will be effective after the Reserve Bank has had a reasonable time to act on the notice. The BIC arrangement may not be terminated if the depository institution has outstanding discount window advances. Outstanding advances must be repaid or secured by other collateral pledged by the depository institution outside of the BIC arrangement.

Reserve Banks may terminate a depository institution's BIC arrangement at any time.

Situations that will result in a Reserve Bank terminating a depository institution's BIC arrangement include, but are not limited to:

• Depository institutions failing to pledge any loan collateral (i.e., submit the required Collateral Schedules) within the first 12 months after the date of the approval letter or for any consecutive 12-month period.

• Depository institutions exhibiting material noncompliance with one or more Requirements.

• Depository institutions that are non-survivors of a merger or acquisition transaction. Any surviving depository institution intending to pledge collateral of a non-survivor should consult with their Reserve Bank regarding requirements or processes.

Definitions and Forms

Note is the document, typically the promissory note, loan participation, or other similar arrangement, that establishes the written promise of the underlying debtor to pay an amount to the depository institution (i.e., contracts where a party promises to repay funds advanced by the institution).

Physical documents are either 1) originated in paper form with original wet ink signatures (i.e., tangible loans); or 2) originated with a digital signature and that have been printed and stored in tangible form with the electronic record deactivated (i.e., electronic records that have been converted to paper form).

Electronic documents are either 1) originated in tangible form then imaged or converted to electronic form with the original tangible documents destroyed (i.e., imaged and destroyed loans); or 2) originated with a digital signature and stored electronically.

Loan Types and Call Report Mapping

The first column in the chart below lists Reserve Bank loan types that may be pledged. Loan collateral may be maintained in Borrower-in-Custody (BIC) arrangements or Reserve Bank custody arrangements. The last column in the chart lists the corresponding Reserve Bank Margin categories. The center columns show the corresponding report codes on the FFIEC 031/041/051 Call Report, the FBO FFIEC 002 Call Report, or the NCUA Call Report, as applicable (Call Report).

The chart should be used as guidance when pledging loans to a Reserve Bank. Consult the Call Report for the assets that are covered in each Reserve Bank loan type and Margin Category. Final collateral acceptance is determined through review and approval by the local Reserve Bank.

†Note for Raw Land Loans:

The parcel(s) of land securing a loan in this Reserve Bank Loan Type should not have any improvements. These loans should be secured only by an undeveloped parcel of land (e.g. no hookups such as plumbing, sewer, nor electricity) and dirt should be untouched.

†Note for Home Equity Loans and Lines (secured by residential property):

Credit Unions Only

• Exclude all loans secured by non-residential real estate
• Exclude all loans secured by >5 residential mortgage loans

†Note for 1-4 Family Residential Mortgage Loans:

Credit Unions Only

• Exclude all open-ended loans
• Exclude all loans secured by non-residential real estate
• Exclude all loans secured by >5 residential mortgage loans

†Note for Student Loans:

With respect to the Call Report code 6.d on the FFIEC 031/041/051 Call Report, only include loans with a purpose specifically for education.

†Note for U.S. Agency Loans:

The guaranteed portion of the loans is subject to local Reserve Bank evaluation. Institutions may elect to pledge the guaranteed portion of the loan according to its Call Report line item or into this collateral category. This includes the guaranteed portions of loans guaranteed by the Small Business Administration, Rural Housing Services, Export-Import Bank, or Department of Education.

The unguaranteed portion of the loans may be pledged according to its Call Report line item or may be pledged as documented in the In-Scope File Format Specifications and Definitions document.

Loans originated pursuant to the Paycheck Protection Program (PPP) should be reported as U.S. Agency Loans.

Loan Collateral Schedule Submission Process

All depository institutions that pledge loans as collateral to the Reserve Banks are required to submit reports detailing the pledged loans on a monthly basis. Automated Loan Deposit (ALD) is the Federal Reserve’s process for recording loan pledges at the individual loan detail level, and, in most instances, reports must be submitted in an ALD format.

The process for pledging loan collateral to a Reserve Bank depends in part on whether the pledging institution is in the in-scope category or out-of-scope category. The difference between the two groups is the amount of information the pledging institution must provide about each pledged loan. In-scope institutions must provide a more detailed set of data elements for pledged loans. Loans that have matured, are maturing within 30 days of the as-of date of the collateral schedule, or are missing data in required loan fields will result in a pledged loan automatically receiving zero collateral value.

An institution is considered in-scope if it meets one of the following criteria:

• All depository institutions (12 CFR 201.2(c)(1)) that are controlled (12 CFR 225.2(e)) by a Bank Holding Company (12 CFR 225.2(c)(1)) (including a Financial Holding Company (12 CFR 225.81)) or an Intermediate Holding Company (12 CFR 252.2(y)) with Fifty Billion Dollars ($50,000,000,000) or more in total consolidated assets, defined as the average over the last four calendar quarters;
• All Foreign Banking Organizations (12 CFR 211.21(o)(1));
• All other domestic depository institutions with Fifty Billion Dollars ($50,000,000,000) or more in total consolidated assets, defined as the average over the last four calendar quarters; or
• An institution that voluntarily becomes an in-scope institution.

In-Scope File Specifications

General Reporting Requirements

• On a monthly basis, in-scope institutions will submit a plain text file of vertical pipe (|) separated fields containing the required loan fields on loans pledged as collateral.
• Each file should only contain data for one ABA number and Reserve Bank loan type. An institution can submit multiple files for the same Reserve Bank loan type and pledgee account code.
• Each file must contain a unique loan identifier that will be maintained and matched in future file submissions; each new file will replace the previous file with the same loan identifier. Loan identifiers are created by local Reserve Banks for internal purposes. If you have questions, please contact your local Reserve Bank.
• Files should only contain loans that meet all applicable eligibility requirements for the pledge program.
• Depository institutions should encrypt files in transit using an approved secure transmission method. The following methods may be used to securely transmit ALD collateral reports: Discount Window Direct (DWD), FRSecure Message Center, Intralinks or Email with Mandatory Transport Layer Solution (TLS). Please contact your local Reserve Bank collateral staff for additional information.

Each file:

• Must provide updated loan fields for loans currently pledged (revaluations).
• Must exclude loans that the institution no longer wishes to pledge (withdrawals).
• May contain new loan deposits (loans that were not included on the prior report).

Record Types and Requirements

• Each file should include only one Header Record (the first record in the file) and only one Trailer Record (the last record in the file).
• In the format fields for the header and trailer record as well as the loan detail record: when a numerical value is required, it is represented by a 9 and when alphabetic characters are required, they are represented by an X. The numbers in parentheses identify the maximum number of characters in each loan field.
• When coding fields, the following rules should be applied:
  • Decimal points and negative signs in numeric fields should be explicit.
  • Leading zeros in numeric fields should be suppressed.
  • Credit card pledges are to be reported based on credit score “pools”, with each “pool” having a set credit score threshold. In-scope institutions should report Credit Card receivables in segments (The unique identifier for the reported credit card pool should be classified as: 1 = (›760); 2 = (660-760); 3 = (620-659); 4 = (‹620).) Do not report a pool if it does not contain any pledged credit cards.
  • Contact your local Reserve Bank for further instruction.
    • Separate submissions of prime and subprime credit cards are no longer required for in-scope institutions; since credit card reporting is now “pool”-based, only one submission covering all credit cards is needed. However, the format in which an in-scope institution will be required to deliver the new loan fields will be at the discretion of each Reserve Bank.
  • All dates should be in CCYYMMDD format.
  • All times should be in HHMMSS format.
• The Asset Code (for the Reserve Bank loan type) in the header record is used to determine the specific detail record format. Additional information can be found in the In-Scope File Format Specifications and Definitions document.

Out-of-Scope File Specifications

General Reporting Requirements

• On a monthly basis, an institution will submit a Collateral Schedule containing detail on loans pledged as collateral.
• Each file should only contain data for one Reserve Bank loan type. An institution is allowed to submit multiple files for the same Reserve Bank loan type and pledgee account code.
• Each file must have a unique file name that will be maintained and matched in future file submissions; each new file will replace the previous file with the same file name.
• Files should only contain loans that meet all applicable eligibility requirements for the pledge program.
• Credit Card Receivables will be reported as a group deposit and will subsequently have fewer loan data elements to report. Contact your local Reserve Bank for additional instruction.
• The following methods may be used to securely transmit ALD collateral reports: Discount Window Direct (DWD), FRSecure Message Center, Intralinks or Email with Mandatory Transport Layer Solution (TLS). Please contact your local Reserve Bank collateral staff for additional information.

Each file:

• Must provide updated principal balances for loans currently pledged (revaluations).
• Must exclude loans that an institution no longer wishes to pledge (withdrawals).
• May contain new loan deposits (loans that were not included on the prior report).
• While certain fields are optional and may be left blank, loans where required fields are left blank or not completed in accordance with formatting requirements will not receive value.

Record Types and Requirements

The specifications listed below pertain to formatting only and are not intended to serve as a comprehensive list of fields that are required to be reported by institutions that pledge loans. In some cases, Reserve Banks may require institutions to utilize a particular Collateral Schedule for reports. Please contact your local Reserve Bank collateral staff for the Collateral Schedule which lists fields that your institution must provide for pledged loans.

Microsoft Excel^® Format Specifications

• Files should be saved in an Excel Workbook (.xlsx) format utilizing the Collateral Schedule. Contact your Reserve Bank regarding the possibility of submitting files in other formats
• Files should be saved without Excel password protection
• Files should not include merged cells, hidden rows, or hidden columns
• The following Excel number formats should be utilized:
  • “Currency” for dollar amounts ($0.00)
  • “Percent” for interest rate (00.00%)
  • “Short date” for dates (mm/dd/yyyy)

Once an institution's file format has been accepted by a Reserve Bank, the institution is required to utilize the same file layout for each successive collateral report submission

• Column headers, including names, spellings, and positions, must remain unchanged
• Worksheet (tab) names must remain unchanged
• New fields should be appended to the right of all columns in the existing file layout

The interest method should be reported as follows:

• The interest method field is required to be reported by institutions with total assets of $10 billion or more.
• Use the value FX for loans that carry a fixed interest rate.
  • In a fixed-to-floating structure (commonly known as a hybrid ARM), the current interest rate is fixed when the Principal Balance As-Of Date precedes the Initial Reset Date, and floating when the Principal Balance As-Of Date is on or after the Initial Reset Date
• Use the value FL for loans with a floating interest rate.

For demand loans, which are loans without a stated maturity date that are due upon demand by the lender, the maturity date should be reported with one of the following options:

• Leave the maturity date field blank
• Report a maturity date of 01/01/9999
• Report a maturity date of 12/31/9999

Institutions are encouraged to contact their local Reserve Bank collateral staff to learn more about pledging loan collateral, including requirements for periodic collateral reports.

General Operating Hours:

Note: Stated processing times for all pledging processes are approximate and may vary based on asset type, volume, and other constraints and are not guaranteed. For specific questions or requests, please contact your local Reserve Bank.

Pledges, revaluations, and withdrawals of collateral that is pledged pursuant to BIC arrangements may be made during the general hours of operation of the local Reserve Bank.

General Processing Time:

Pledges:
Within one to two business days after receipt of the cover letter (if applicable) and Collateral Schedule (as defined in Operating Circular 10) (only if arrangement has been approved by the local Reserve)

Withdrawals:
Within one to two business days after receipt of the withdrawal request

Revaluations:
Within one to two business days after receipt of the cover letter and Collateral Schedule

Reserve Bank Custody

Reserve Bank custody may be available for tangible assets, such as promissory notes. An institution should contact its local Reserve Bank for additional information regarding pledging requirements.

Pledges and withdrawals of collateral that is in the custody of a Reserve Bank may be made during the general hours of operation of the local Reserve Bank.

General Processing Time:

Pledges:
Within one business day after receipt of the cover letter and schedule of collateral (only if an arrangement has been approved by the local Reserve Bank)

Withdrawals:
Within one business day after receipt of the withdrawal request

Revaluations:
Within one business day after receipt of the cover letter and schedule of collateral