Final Rule to Address the Temporary Deposit Insurance Assessment Effects of the Optional Regulatory Capital Transitions for Implementing the Current Expected Credit Losses (CECL) Methodology
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FDIC Financial Institution Letters › Final Rule to Address the Temporary Deposit Insurance Assessment Effects of the Optional Regulatory Capital Transitions for Implementing the Current Expected Credit Losses (CECL) Methodology
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11391
Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
1 12 U.S.C. 1817(b). As used in this final rule, the
term ‘‘insured depository institution’’ has the same
meaning as it is used in section 3(c)(2) of the FDI
Act, 12 U.S.C. 1813(c)(2). Pursuant to this
requirement, the FDIC first adopted a risk-based
deposit insurance assessment system effective in
1993 that applied to all IDIs. See 57 FR 45263 (Oct.
1, 1992). The FDIC implemented this assessment
system with the goals of making the deposit
insurance system fairer to well-run institutions and
encouraging weaker institutions to improve their
condition, and thus, promote the safety and
soundness of IDIs.
2 As used in this final rule, the term ‘‘small bank’’
is synonymous with ‘‘small institution,’’ the term
‘‘large bank’’ is synonymous with ‘‘large
institution,’’ and the term ‘‘highly complex bank’’
is synonymous with ‘‘highly complex institution,’’
as the terms are defined in 12 CFR 327.8. For
assessment purposes, a large bank is generally
defined as an institution with $10 billion or more
in total assets, a small bank is generally defined as
an institution with less than $10 billion in total
assets, and a highly complex bank is generally
defined as an institution that has $50 billion or
more in total assets and is controlled by a parent
holding company that has $500 billion or more in
total assets, or is a processing bank or trust
company. See 12 CFR 327.8(e), (f), and (g)
in total assets, a small bank is generally defined as
an institution with less than $10 billion in total
assets, and a highly complex bank is generally
defined as an institution that has $50 billion or
more in total assets and is controlled by a parent
holding company that has $500 billion or more in
total assets, or is a processing bank or trust
company. See 12 CFR 327.8(e), (f), and (g).
3 Banking organizations subject to the capital rule
include national banks, state member banks, state
nonmember banks, savings associations, and top-
tier bank holding companies and savings and loan
holding companies domiciled in the United States
not subject to the Federal Reserve Board’s Small
Bank Holding Company Policy Statement (12 CFR
part 225, appendix C), but exclude certain savings
and loan holding companies that are substantially
engaged in insurance underwriting or commercial
activities or that are estate trusts, and bank holding
companies and savings and loan holding companies
that are employee stock ownership plans. See 12
CFR part 3 (Office of the Comptroller of the
Currency)); 12 CFR part 217 (Board); 12 CFR part
324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) and
85 FR 61577 (Sept. 30, 2020).
4 See 84 FR 4225 (Feb. 14, 2019).
TABLE 1 TO PARAGRAPH (h)
Softwood lumber
(by HTSUS number)
Assessment
$/cubic
meter
Assessment
$/square
meter
4407.11.00 ..................
0.1737
0.004412
4407.12.00 ..................
0.1737
0.004412
4407.19.05 ..................
0.1737
0.004412
4407.19.06 ..................
0.1737
0.004412
4407.19.10 ..................
0.1737
0.004412
4409.10.05 ..................
0.1737
0.004412
4409.10.10 ..................
0.1737
0.004412
4409.10.20 ..................
0.1737
0.004412
4409.10.90 ..................
0.1737
0.004412
4418.99.10 ..................
0.1737
0.004412
*
*
*
*
*
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc
......
0.1737
0.004412
4407.19.10 ..................
0.1737
0.004412
4409.10.05 ..................
0.1737
0.004412
4409.10.10 ..................
0.1737
0.004412
4409.10.20 ..................
0.1737
0.004412
4409.10.90 ..................
0.1737
0.004412
4418.99.10 ..................
0.1737
0.004412
*
*
*
*
*
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2021–03467 Filed 2–24–21; 8:45 am]
BILLING CODE P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AF65
Assessments, Amendments To
Address the Temporary Deposit
Insurance Assessment Effects of the
Optional Regulatory Capital
Transitions for Implementing the
Current Expected Credit Losses
Methodology
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Corporation is adopting
amendments to the risk-based deposit
insurance assessment system applicable
to all large insured depository
institutions (IDIs), including highly
complex IDIs, to address the temporary
deposit insurance assessment effects
resulting from certain optional
regulatory capital transition provisions
relating to the implementation of the
current expected credit losses (CECL)
methodology. The final rule removes the
double counting of a specified portion
of the CECL transitional amount or the
modified CECL transitional amount, as
applicable (collectively, the CECL
transitional amounts), in certain
financial measures that are calculated
using the sum of Tier 1 capital and
reserves and that are used to determine
assessment rates for large or highly
complex IDIs. The final rule also adjusts
the calculation of the loss severity
measure to remove the double counting
of a specified portion of the CECL
transitional amounts for a large or
highly complex IDI
ansitional amounts), in certain
financial measures that are calculated
using the sum of Tier 1 capital and
reserves and that are used to determine
assessment rates for large or highly
complex IDIs. The final rule also adjusts
the calculation of the loss severity
measure to remove the double counting
of a specified portion of the CECL
transitional amounts for a large or
highly complex IDI. This final rule does
not affect regulatory capital or the
regulatory capital relief provided in the
form of transition provisions that allow
banking organizations to phase in the
effects of CECL on their regulatory
capital ratios.
DATES: The final rule is effective April
1, 2021.
FOR FURTHER INFORMATION CONTACT:
Scott Ciardi, Chief, Large Bank Pricing,
(202) 898–7079 or sciardi@fdic.gov;
Ashley Mihalik, Chief, Banking and
Regulatory Policy, (202) 898–3793 or
amihalik@fdic.gov; Nefretete Smith,
Counsel, (202) 898–6851 or nefsmith@
fdic.gov; Sydney Mayer, Senior
Attorney, (202) 898–3669 or smayer@
fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives and Overview of
Final Rule
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system for insured
depository institutions (IDIs).1
Consistent with this statutory
requirement, the FDIC’s objective in
finalizing this rule is to ensure that IDIs
are assessed in a manner that is fair and
accurate
ATION:
I. Policy Objectives and Overview of
Final Rule
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system for insured
depository institutions (IDIs).1
Consistent with this statutory
requirement, the FDIC’s objective in
finalizing this rule is to ensure that IDIs
are assessed in a manner that is fair and
accurate. In particular, the primary
objective of this final rule is to remove
a double counting issue in several
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks, which
could result in a deposit insurance
assessment rate for a large or highly
complex bank that does not accurately
reflect the bank’s risk to the deposit
insurance fund (DIF), all else equal.2
The final rule amends the assessment
regulations to remove the double
counting of a portion of the CECL
transitional amounts, in certain
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks. In
particular, certain financial measures
are calculated by summing Tier 1
capital, which includes the CECL
transitional amounts, and reserves,
which already reflects the
implementation of CECL. As a result, a
portion of the CECL transitional
amounts is being double counted in
these measures, which in turn affects
assessment rates for large or highly
complex banks. The final rule also
adjusts the calculation of the loss
severity measure to remove the double
counting of a portion of the CECL
transitional amounts for large or highly
complex banks
lects the
implementation of CECL. As a result, a
portion of the CECL transitional
amounts is being double counted in
these measures, which in turn affects
assessment rates for large or highly
complex banks. The final rule also
adjusts the calculation of the loss
severity measure to remove the double
counting of a portion of the CECL
transitional amounts for large or highly
complex banks.
This final rule amends the deposit
insurance system applicable to large
banks and highly complex banks only,
and it does not affect regulatory capital
or the regulatory capital relief provided
in the form of transition provisions that
allow banking organizations to phase in
the effects of CECL on their regulatory
capital ratios.3 Specifically, in
calculating another measure used to
determine assessment rates for all IDIs,
the Tier 1 leverage ratio, the FDIC will
continue to apply the CECL regulatory
capital transition provisions, consistent
with the regulatory capital relief
provided to address concerns that
despite adequate capital planning,
unexpected economic conditions at the
time of CECL adoption could result in
higher-than-anticipated increases in
allowances.4
The FDIC did not receive any
comment letters in response to the
proposal and is adopting the proposed
rule as final without change. Under this
final rule, amendments to the deposit
insurance assessment system and
changes to regulatory reporting
requirements will be applicable only
while the regulatory capital relief
described above, or any potential future
amendment that may affect the
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nal without change. Under this
final rule, amendments to the deposit
insurance assessment system and
changes to regulatory reporting
requirements will be applicable only
while the regulatory capital relief
described above, or any potential future
amendment that may affect the
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11392
Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
5 12 CFR part 327.
6 See 71 FR 69282 (Nov. 30, 2006).
7 See 76 FR 10672 (Feb. 25, 2011).
8 See 12 CFR 327.3(b)(1).
9 See 12 CFR 327.5.
10 See 12 CFR 327.16(a) and (b).
11 See 12 CFR 327.16(b); see also 76 FR 10672
(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
12 See 76 FR 10688. The FDIC uses a different
scorecard for highly complex IDIs because those
institutions are structurally and operationally
complex, or pose unique challenges and risks in
case of failure. 76 FR 10695.
13 ASU 2016–13 covers measurement of credit
losses on financial instruments and includes three
subtopics within Topic 326: (i) Subtopic 326–10
Financial Instruments—Credit Losses—Overall; (ii)
Subtopic 326–20: Financial Instruments—Credit
Losses—Measured at Amortized Cost; and (iii)
Subtopic 326–30: Financial Instruments—Credit
Losses—Available-for-Sale Debt Securities.
14 ‘‘Other extensions of credit’’ includes trade and
reinsurance receivables, and receivables that relate
to repurchase agreements and securities lending
agreements. ‘‘Off-balance sheet credit exposures’’
includes off-balance sheet credit exposures not
accounted for as insurance, such as loan
commitments, standby letters of credit, and
financial guarantees. The FDIC notes that credit
losses for off-balance sheet credit exposures that are
unconditionally cancellable by the issuer are not
recognized under CECL.
15 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
16 84 FR 4222 (Feb. 14, 2019)
sheet credit exposures not
accounted for as insurance, such as loan
commitments, standby letters of credit, and
financial guarantees. The FDIC notes that credit
losses for off-balance sheet credit exposures that are
unconditionally cancellable by the issuer are not
recognized under CECL.
15 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
16 84 FR 4222 (Feb. 14, 2019).
calculation of CECL transitional
amounts and the double counting of
these amounts for deposit insurance
assessment purposes, is reflected in the
regulatory reports of banks.
II. Background
A. Deposit Insurance Assessments
Pursuant to Section 7 of the FDI Act,
the FDIC has established a risk-based
assessment system in Part 327 of its
Rules and Regulations.5 In 2006, the
FDIC adopted a final rule that created
different risk-based assessment systems
for large IDIs and small IDIs that
combined supervisory ratings with other
risk measures to differentiate risk and
determine assessment rates.6 In 2011,
the FDIC amended the risk-based
assessment system applicable to large
IDIs to, among other things, better
capture risk at the time the institution
assumes the risk, to better differentiate
risk among large IDIs during periods of
good economic and banking conditions
based on how they would fare during
periods of stress or economic
downturns, and to better take into
account the losses that the FDIC may
incur if a large IDI fails.7
The FDIC charges all IDIs an
assessment amount for deposit
insurance equal to the IDI’s deposit
insurance assessment base multiplied
by its risk-based assessment rate.8 An
IDI’s assessment base and assessment
rate are determined each quarter based
on supervisory ratings and information
collected in the Consolidated Reports of
Condition and Income (Call Report) or
the Report of Assets and Liabilities of
U.S. Branches and Agencies of Foreign
Banks (FFIEC 002), as appropriate
deposit
insurance assessment base multiplied
by its risk-based assessment rate.8 An
IDI’s assessment base and assessment
rate are determined each quarter based
on supervisory ratings and information
collected in the Consolidated Reports of
Condition and Income (Call Report) or
the Report of Assets and Liabilities of
U.S. Branches and Agencies of Foreign
Banks (FFIEC 002), as appropriate.
Generally, an IDI’s assessment base
equals its average consolidated total
assets minus its average tangible
equity.9
An IDI’s assessment rate is calculated
using different methods based on
whether the IDI is a small, large, or
highly complex bank.10 A large or
highly complex bank is assessed using
a scorecard approach that combines
CAMELS ratings and certain forward-
looking financial measures to assess the
risk that the bank poses to the DIF.11
The score that each large or highly
complex bank receives is used to
determine its deposit insurance
assessment rate. One scorecard applies
to most large IDIs and another applies
to highly complex banks. Both
scorecards use quantitative financial
measures that are useful in predicting a
large or highly complex bank’s long-
term performance.12
As described in more detail below,
the FDIC is finalizing amendments to
the assessment regulations to remove
the double counting of a specified
portion of the CECL transitional
amounts in the calculation of the loss
severity measure and certain other
financial measures that are calculated
by summing Tier 1 capital and reserves,
which are used to determine assessment
rates for large or highly complex banks.
B. The Current Expected Credit Losses
Methodology
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2016–13, Financial Instruments—
Credit Losses, Topic 326, Measurement
of Credit Losses on Financial
Instruments.13 The ASU resulted in
significant changes to credit loss
accounting under U.S. generally
accepted accounting principles (GAAP)
The Current Expected Credit Losses
Methodology
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2016–13, Financial Instruments—
Credit Losses, Topic 326, Measurement
of Credit Losses on Financial
Instruments.13 The ASU resulted in
significant changes to credit loss
accounting under U.S. generally
accepted accounting principles (GAAP).
The revisions to credit loss accounting
under GAAP included the introduction
of CECL, which replaces the incurred
loss methodology for financial assets
measured at amortized cost. For these
assets, CECL requires banking
organizations to recognize lifetime
expected credit losses and to
incorporate reasonable and supportable
forecasts in developing the estimate of
lifetime expected credit losses, while
also maintaining the current
requirement that banking organizations
consider past events and current
conditions.
CECL allowances cover a broader
range of financial assets than the
allowance for loan and lease losses
(ALLL) under the incurred loss
methodology. Under the incurred loss
methodology, the ALLL generally covers
credit losses on loans held for
investment and lease financing
receivables, with additional allowances
for certain other extensions of credit and
allowances for credit losses on certain
off-balance sheet credit exposures (with
the latter allowances presented as
liabilities).14 These exposures will be
within the scope of CECL. In addition,
CECL applies to credit losses on held-
to-maturity (HTM) debt securities. ASU
2016–13 also introduces new
requirements for available-for-sale (AFS)
debt securities. The new accounting
standard requires that a banking
organization recognize credit losses on
individual AFS debt securities through
credit loss allowances, rather than
through direct write-downs, as is
currently required under U.S. GAAP
es to credit losses on held-
to-maturity (HTM) debt securities. ASU
2016–13 also introduces new
requirements for available-for-sale (AFS)
debt securities. The new accounting
standard requires that a banking
organization recognize credit losses on
individual AFS debt securities through
credit loss allowances, rather than
through direct write-downs, as is
currently required under U.S. GAAP.
The credit loss allowances attributable
to debt securities are separate from the
credit loss allowances attributable to
loans and leases.
C. The 2019 CECL Rule
Upon adoption of CECL, a banking
organization will record a one-time
adjustment to its credit loss allowances
as of the beginning of its fiscal year of
adoption equal to the difference, if any,
between the amount of credit loss
allowances required under the incurred
loss methodology and the amount of
credit loss allowances required under
CECL. A banking organization’s
implementation of CECL will affect its
retained earnings, deferred tax assets
(DTAs), allowances, and, as a result, its
regulatory capital ratios.
In recognition of the potential for the
implementation of CECL to affect
regulatory capital ratios, on February 14,
2019, the FDIC, the Office of the
Comptroller of the Currency (OCC), and
the Board of Governors of the Federal
Reserve System (Board) (collectively,
the agencies) issued a final rule that
revised certain regulations, including
the agencies’ regulatory capital
regulations (capital rule),15 to account
for the aforementioned changes to credit
loss accounting under GAAP, including
CECL (2019 CECL rule).16 The 2019
CECL rule includes a transition
provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios.
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changes to credit
loss accounting under GAAP, including
CECL (2019 CECL rule).16 The 2019
CECL rule includes a transition
provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios.
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
17 85 FR 17723 (Mar. 31, 2020).
18 See 85 FR 61577 (Sept. 30, 2020).
19 A banking organization that is required to
adopt CECL under GAAP in the 2020 calendar year,
but chooses to delay use of CECL for regulatory
reporting in accordance with section 4014 of the
Coronavirus Aid Relief, and Economic Security Act
(CARES Act), is also eligible for the 2020 CECL
transition provision. The CARES Act (Pub. L. 116–
136, 4014, 134 Stat. 281 (March 27, 2020)) provides
banking organizations optional temporary relief
from complying with CECL ending on the earlier of
(1) the termination date of the current national
emergency, declared by the President on March 13,
2020 under the National Emergencies Act (50 U.S.C.
1601 et seq.) concerning COVID–19; or (2)
December 31, 2020. If a banking organization
chooses to revert to the incurred loss methodology
pursuant to the CARES Act in any quarter in 2020,
the banking organization would not apply any
transitional amounts in that quarter but would be
allowed to apply the transitional amounts in
subsequent quarters when the banking organization
resumes use of CECL. The Consolidated
Appropriations Act, 2021 (Pub. L. 116–260 (Dec
ing organization
chooses to revert to the incurred loss methodology
pursuant to the CARES Act in any quarter in 2020,
the banking organization would not apply any
transitional amounts in that quarter but would be
allowed to apply the transitional amounts in
subsequent quarters when the banking organization
resumes use of CECL. The Consolidated
Appropriations Act, 2021 (Pub. L. 116–260 (Dec. 27,
2020)) extended the optional temporary relief from
complying with CECL afforded under the CARES
Act, with an end date on the earlier of (1) the first
day of the fiscal year of the IDI, bank holding
company, or any affiliate thereof that begins after
the date on which the national emergency
concerning the COVID–19 outbreak declared by the
President on March 13, 2020 under the National
Emergencies Act (50 U.S.C. 1601 et seq.) terminates;
or (2) January 1, 2022.
20 See 85 FR 61578 (Sept. 30, 2020).
21 The 2019 CECL rule defined a new term for
regulatory capital purposes, adjusted allowances for
credit losses (AACL). The meaning of the term
AACL for regulatory capital purposes is different
from the meaning of the term allowances of credit
losses (ACL) used in applicable accounting
standards. The term allowance for credit losses as
used by the FASB in ASU 2016–13 applies to both
financial assets measured at amortized cost and
AFS debt securities. In contrast, the AACL
definition includes only those allowances that have
been established through a charge against earnings
or retained earnings. Under the 2019 CECL rule, the
term AACL, rather than ALLL, applies to a banking
organization that has adopted CECL.
22 See 85 FR 61580 (Sept. 30, 2020)
2016–13 applies to both
financial assets measured at amortized cost and
AFS debt securities. In contrast, the AACL
definition includes only those allowances that have
been established through a charge against earnings
or retained earnings. Under the 2019 CECL rule, the
term AACL, rather than ALLL, applies to a banking
organization that has adopted CECL.
22 See 85 FR 61580 (Sept. 30, 2020).
23 Thus, when calculating regulatory capital, a
bank electing the 2019 CECL rule transition
provision would increase the retained earnings
reported on its balance sheet by the applicable
portion of its CECL transitional amount, i.e., 75
percent of its CECL transitional amount during the
first year of the transition period, 50 percent of its
CECL transitional amount during the second year of
the transition period, and 25 percent of its CECL
transitional amount during the third year of the
transition period. A bank electing the 2020 CECL
rule transition provision would increase the
retained earnings reported on its balance sheet by
the applicable portion of its modified CECL
transitional amount, i.e., 100 percent of its modified
CECL transitional amount during the first and
second years of the transition period, 75 percent of
its CECL modified transitional amount during the
third year of the transition period, 50 percent of its
modified CECL transitional amount during the
fourth year of the transition period, and 25 percent
of its CECL transitional amount during the fifth year
of the transition period.
D
modified
CECL transitional amount during the first and
second years of the transition period, 75 percent of
its CECL modified transitional amount during the
third year of the transition period, 50 percent of its
modified CECL transitional amount during the
fourth year of the transition period, and 25 percent
of its CECL transitional amount during the fifth year
of the transition period.
D. The 2020 CECL Rule
As part of the efforts to address the
disruption of economic activity in the
United States caused by the spread of
coronavirus disease 2019 (COVID–19),
on March 31, 2020, the agencies
adopted a second CECL transition
provision through an interim final
rule.17 The agencies subsequently
adopted a final rule (2020 CECL rule) on
September 30, 2020, that is consistent
with the interim final rule, with some
clarifications and adjustments related to
the calculation of the transition and the
eligibility criteria for using the 2020
CECL transition provision.18 The 2020
CECL rule provides banking
organizations that adopt CECL for
purposes of GAAP (as in effect January
1, 2020), for a fiscal year that begins
during the 2020 calendar year, the
option to delay for up to two years an
estimate of CECL’s effect on regulatory
capital, followed by a three-year
transition period (i.e., a five-year
transition period in total).19 The 2020
CECL rule does not replace the three-
year transition provision in the 2019
CECL rule, which remains available to
any banking organization at the time
that it adopts CECL.20
E. Double Counting of a Portion of the
CECL Transitional Amounts in Certain
Financial Measures Used To Determine
Assessments for Large or Highly
Complex Banks
An increase in a banking
organization’s allowances, including
those estimated under CECL, generally
will reduce the banking organization’s
earnings or retained earnings, and
therefore, its Tier 1 capital
me
that it adopts CECL.20
E. Double Counting of a Portion of the
CECL Transitional Amounts in Certain
Financial Measures Used To Determine
Assessments for Large or Highly
Complex Banks
An increase in a banking
organization’s allowances, including
those estimated under CECL, generally
will reduce the banking organization’s
earnings or retained earnings, and
therefore, its Tier 1 capital. For banks
electing the 2019 CECL rule, the CECL
transitional amount is the difference
between the closing balance sheet
amount of retained earnings for the
fiscal year-end immediately prior to the
bank’s adoption of CECL (pre-CECL
amount) and the bank’s balance sheet
amount of retained earnings as of the
beginning of the fiscal year in which it
adopts CECL (post-CECL amount). For
banks electing the 2020 CECL rule
transition provision, retained earnings
are increased for regulatory capital
calculation purposes by a modified
CECL transitional amount that is
adjusted to reflect changes in retained
earnings due to CECL that occur during
the first two years of the five-year
transition period. Under the 2020 CECL
rule, the change in retained earnings
due to CECL is calculated by taking the
change in reported adjusted allowances
for credit losses (AACL) 21 relative to the
first day of the fiscal year in which
CECL was adopted and applying a
scaling multiplier of 25 percent during
the first two years of the transition
period. The resulting amount is added
to the CECL transitional amount
described above. Hence, the modified
CECL transitional amount for banks
electing the 2020 CECL rule is
calculated on a quarterly basis during
the first two years of the transition
period
e fiscal year in which
CECL was adopted and applying a
scaling multiplier of 25 percent during
the first two years of the transition
period. The resulting amount is added
to the CECL transitional amount
described above. Hence, the modified
CECL transitional amount for banks
electing the 2020 CECL rule is
calculated on a quarterly basis during
the first two years of the transition
period. The bank reflects that modified
CECL transitional amount, which
includes 100 percent of the day-one
impact of CECL on retained earnings
plus a portion of the difference between
AACL reported in the most recent
regulatory report and AACL as of the
beginning of the fiscal year that the
banking organization adopts CECL, in
the transitional amount applied to
retained earnings in regulatory capital
calculations.22
For banks electing the 2020 CECL rule
transition provision that enter the third
year of their transition period and for
banks electing the three-year 2019 CECL
rule transition provision, banks must
calculate the transitional amount to
phase into their retained earnings for
purposes of their regulatory capital
calculations over a three-year period.
For banks electing the 2019 CECL rule,
the CECL transitional amount is the
difference between the pre-CECL
amount of retained earnings and the
post-CECL amount of retained earnings.
For banks electing the 2020 CECL rule
that enter the third year of their
transition, the modified CECL
transitional amount is the difference
between the bank’s AACL at the end of
the second year of the transition period
and its AACL as of the beginning of the
fiscal year of CECL adoption multiplied
by 25 percent plus the CECL transitional
amount described above
ount of retained earnings.
For banks electing the 2020 CECL rule
that enter the third year of their
transition, the modified CECL
transitional amount is the difference
between the bank’s AACL at the end of
the second year of the transition period
and its AACL as of the beginning of the
fiscal year of CECL adoption multiplied
by 25 percent plus the CECL transitional
amount described above. The CECL
transitional amount or, at the end of the
second year of the transition period for
banks electing the 2020 CECL rule, the
modified CECL transitional amount, is
fixed and must be phased in over the
three-year transition period or the last
three years of the transition period,
respectively, on a straight-line basis, 25
percent in the first year (or third year for
banks electing the 2020 CECL rule), and
an additional 25 percent of the
transitional amount over each of the
next two years.23 At the beginning of the
sixth year for banks electing the 2020
CECL rule, or the beginning of the
fourth year for banks electing the 2019
CECL rule, the electing bank would
have completely reflected in regulatory
capital the day-one effects of CECL
(plus, for banks electing the 2020 CECL
rule, an estimate of CECL’s effect on
regulatory capital, relative to the
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24 See 84 FR 4228 (Feb. 14, 2019) and 85 FR
61580 (Sept. 30, 2020).
25 The allowance for credit losses on loans and
leases held for investment also is reported in item
7, column A, of Call Report Schedule RI–B, Part II,
Changes in Allowances for Credit Losses.
26 85 FR 78794 (Dec. 7, 2020)
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24 See 84 FR 4228 (Feb. 14, 2019) and 85 FR
61580 (Sept. 30, 2020).
25 The allowance for credit losses on loans and
leases held for investment also is reported in item
7, column A, of Call Report Schedule RI–B, Part II,
Changes in Allowances for Credit Losses.
26 85 FR 78794 (Dec. 7, 2020).
incurred loss methodology’s effect on
regulatory capital, during the first two
years of CECL adoption).24
Certain financial measures that are
used in the scorecard to determine
assessment rates for large or highly
complex banks are calculated using both
Tier 1 capital and reserves. Tier 1
capital is reported in Call Report
Schedule RC–R, Part I, item 26, and for
banks that elect either the three-year
transition provision contained in the
2019 CECL rule or the five-year
transition provision contained in the
2020 CECL rule, Tier 1 capital includes
(due to adjustments to the amount of
retained earnings reported on the
balance sheet) the applicable portion of
the CECL transitional amount (or
modified CECL transitional amount).
For deposit insurance assessment
purposes, reserves are calculated using
the amount reported in Call Report
Schedule RC, item 4.c, ‘‘Allowance for
loan and lease losses.’’ For all banks that
have adopted CECL, this Schedule RC
line item reflects the allowance for
credit losses on loans and leases.25
The issue of double counting arises in
certain financial measures used to
determine assessment rates for large or
highly complex banks that are
calculated using both Tier 1 capital and
reserves because the allowance for
credit losses on loans and leases is
included during the transition period in
both reserves and, as a portion of the
CECL or modified CECL transitional
amount, Tier 1 capital
issue of double counting arises in
certain financial measures used to
determine assessment rates for large or
highly complex banks that are
calculated using both Tier 1 capital and
reserves because the allowance for
credit losses on loans and leases is
included during the transition period in
both reserves and, as a portion of the
CECL or modified CECL transitional
amount, Tier 1 capital. For banks that
elect either the three-year transition
provision contained in the 2019 CECL
rule or the five-year transition provision
contained in the 2020 CECL rule, the
CECL transitional amounts, as defined
in section 301 of the regulatory capital
rules, additionally include the effect on
retained earnings, net of tax effect, of
establishing allowances for credit losses
in accordance with the CECL
methodology on HTM debt securities,
other financial assets measured at
amortized cost, and off-balance sheet
credit exposures as of the beginning of
the fiscal year of adoption (plus, for
banks electing the 2020 CECL rule, the
change during the first two years of the
transition period in reported AACLs for
HTM debt securities, other financial
assets measured at amortized cost, and
off-balance sheet credit exposures
relative to the balances of these AACLs
as of the beginning of the fiscal year of
CECL adoption multiplied by 25
percent). The applicable portions of the
CECL transitional amounts attributable
to allowances for credit losses on HTM
debt securities, other financial assets
measured at amortized cost, and off-
balance sheet credit exposures are
included in Tier 1 capital only and are
not double counted with reserves for
deposit insurance assessment purposes.
The CECL effective dates assigned by
ASU 2016–13 as most recently amended
by ASU No
CECL transitional amounts attributable
to allowances for credit losses on HTM
debt securities, other financial assets
measured at amortized cost, and off-
balance sheet credit exposures are
included in Tier 1 capital only and are
not double counted with reserves for
deposit insurance assessment purposes.
The CECL effective dates assigned by
ASU 2016–13 as most recently amended
by ASU No. 2019–10, the optional
temporary relief from complying with
CECL afforded by the CARES Act and as
extended by the Consolidated
Appropriations Act, 2021, and the
transitions provided for under the 2019
CECL rule and 2020 CECL rule, provide
that all banks will have completely
reflected in regulatory capital the day-
one effects of CECL (plus, if applicable,
an estimate of CECL’s effect on
regulatory capital, relative to the
incurred loss methodology’s effect on
regulatory capital, during the first two
years of CECL adoption) by December
31, 2026. As a result, and as discussed
below, the amendments to the deposit
insurance assessment system and
changes to reporting requirements
pursuant to this final rule will be
applicable only while the temporary
regulatory capital relief described above,
or any potential future amendment that
may affect the calculation of CECL
transitional amounts and the double
counting of these amounts for deposit
insurance assessment purposes, is
reflected in the regulatory reports of
banks.
F. The Proposed Rule
On December 7, 2020, the FDIC
published in the Federal Register a
notice of proposed rulemaking (the
proposed rule, or proposal) 26 that
would amend the risk-based deposit
insurance assessment system applicable
to all large IDIs, including highly
complex IDIs, to address the temporary
deposit insurance assessment effects
resulting from certain optional
regulatory capital transition provisions
relating to the implementation of the
CECL methodology
er a
notice of proposed rulemaking (the
proposed rule, or proposal) 26 that
would amend the risk-based deposit
insurance assessment system applicable
to all large IDIs, including highly
complex IDIs, to address the temporary
deposit insurance assessment effects
resulting from certain optional
regulatory capital transition provisions
relating to the implementation of the
CECL methodology. To address these
temporary deposit insurance assessment
effects, in calculating certain measures
used in the scorecard for determining
deposit insurance assessment rates for
large or highly complex banks, the FDIC
proposed to remove the applicable
portions of the CECL transitional
amounts added to retained earnings for
regulatory capital purposes and
attributable to the allowance for credit
losses on loans and leases held for
investment under the transitions
provided for under the 2019 and 2020
CECL rules. Specifically, in certain
scorecard measures which are
calculated using the sum of Tier 1
capital and reserves, the FDIC proposed
to remove a specified portion of the
CECL transitional amount (or modified
CECL transitional amount) that is added
to retained earnings for regulatory
capital purposes when determining
deposit insurance assessment rates. The
FDIC also proposed to adjust the
calculation of the loss severity measure
to remove the double counting of a
specified portion of the CECL
transitional amounts for a large or
highly complex bank.
The FDIC did not receive any
comment letters in response to the
proposal and is adopting the proposed
rule as final without change.
III. The Final Rule
A. Summary
As proposed, in certain scorecard
measures which are calculated using the
sum of Tier 1 capital and reserves, the
FDIC will remove a specified portion of
the CECL transitional amounts that is
added to retained earnings for
regulatory capital purposes when
determining deposit insurance
assessment rates
is adopting the proposed
rule as final without change.
III. The Final Rule
A. Summary
As proposed, in certain scorecard
measures which are calculated using the
sum of Tier 1 capital and reserves, the
FDIC will remove a specified portion of
the CECL transitional amounts that is
added to retained earnings for
regulatory capital purposes when
determining deposit insurance
assessment rates. The FDIC also will
adjust the calculation of the loss
severity measure to remove the double
counting of a specified portion of the
CECL transitional amounts for a large or
highly complex bank.
Absent the adjustments to the
calculation of certain financial measures
in the large or highly complex bank
scorecards under this final rule, the
inclusion of the applicable portions of
the CECL transitional amounts added to
retained earnings for regulatory capital
purposes and attributable to the
allowance for credit losses on loans and
leases held for investment in regulatory
capital and the implementation of CECL
in calculating reserves would result in
temporary double counting of a portion
of the CECL transitional amounts in
select financial measures used to
determine assessment rates for large or
highly complex banks. For example, in
the denominator of the higher-risk
assets to Tier 1 capital and reserves
ratio, the applicable portions of the
CECL transitional amounts added to
retained earnings for regulatory capital
purposes and attributable to the
allowance for credit losses on loans and
leases held for investment would be
included in Tier 1 capital, and these
portions also would be reflected in the
calculation of reserves using the
allowance amount reported in Call
Report Schedule RC, item 4.c. If left
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ibutable to the
allowance for credit losses on loans and
leases held for investment would be
included in Tier 1 capital, and these
portions also would be reflected in the
calculation of reserves using the
allowance amount reported in Call
Report Schedule RC, item 4.c. If left
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27 This stylized example is included to illustrate
the effect of the final rule and omits the effects of
deferred tax assets on regulatory capital
calculations, which are addressed in the agencies’
capital rule, the 2019 CECL rule, and the 2020 CECL
rule. The example reflects the first-quarter 2020
application by a hypothetical large bank (with no
purchased credit-deteriorated assets) that has
adopted the five-year CECL transition under the
2020 CECL rule and assumes that the full amount
of the CECL transitional amount is attributable to
the allowance for credit losses on loans and leases.
The example does not reflect any changes over the
course of the first quarterly reporting period in year
1 (i.e., no changes in the amounts reported on the
bank’s balance sheet between January 1 and March
31, 2020, the end of the reporting period for the first
quarter). As a consequence, the example bank’s
modified CECL transitional amount as of March 31,
2020 equals its CECL transitional amount. See 12
CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR
part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019)
and 85 FR 61577 (Sept. 30, 2020)
n the
bank’s balance sheet between January 1 and March
31, 2020, the end of the reporting period for the first
quarter). As a consequence, the example bank’s
modified CECL transitional amount as of March 31,
2020 equals its CECL transitional amount. See 12
CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR
part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019)
and 85 FR 61577 (Sept. 30, 2020).
28 While the CECL transitional amount is
calculated using the difference between the closing
balance sheet amount of retained earnings for the
fiscal year-end immediately prior to a bank’s
adoption of CECL and the balance sheet amount of
retained earnings as of the beginning of the fiscal
year in which the bank adopts CECL, the FDIC
calculates financial measures used to determine
deposit insurance assessment rates using data
reported as of each quarter end.
29 Under the 2019 CECL rule, when calculating
regulatory capital ratios during the first year of an
electing bank’s CECL adoption date, the bank must
phase in 25 percent of the transitional amounts. The
bank would phase in an additional 25 percent of
the transitional amounts over each of the next two
years so that the bank would have phased in 75
percent of the day-one adverse effects of adopting
CECL during year three. At the beginning of the
fourth year, the bank would have completely
reflected in regulatory capital the day-one effects of
CECL. Under the 2020 CECL rule, the modified
CECL transitional amount is calculated on a
quarterly basis during the first two years of the
transition period. See 12 CFR part 3 (OCC); 12 CFR
part 217 (Board); 12 CFR part 324 (FDIC). See also
84 FR 4222 (Feb. 14, 2019) and 85 FR 61577 (Sept.
30, 2020).
30 In this stylized example, the entirety of the
CECL transitional amount is attributable to the
allowance for credit losses on loans and leases and
it equals the modified CECL transitional amount
during the first quarter of the transition period
. See 12 CFR part 3 (OCC); 12 CFR
part 217 (Board); 12 CFR part 324 (FDIC). See also
84 FR 4222 (Feb. 14, 2019) and 85 FR 61577 (Sept.
30, 2020).
30 In this stylized example, the entirety of the
CECL transitional amount is attributable to the
allowance for credit losses on loans and leases and
it equals the modified CECL transitional amount
during the first quarter of the transition period. The
applicable portion of the CECL transitional amounts
is the amount that is double counted in certain
financial measures used to determine deposit
insurance assessment rates and that the FDIC will
remove from those financial measures. However,
CECL transitional amounts may also include
amounts attributable to allowances for credit losses
under CECL on HTM debt securities, other financial
assets measured at amortized cost, and off-balance
sheet credit exposures. Under the final rule, in
determining a large or highly complex bank’s
deposit insurance assessment rate, the FDIC will
continue to include in Tier 1 capital the applicable
portion of any CECL transitional amounts
attributable to allowances for credit losses on items
other than loans and leases held for investment.
uncorrected, this temporary double
counting could result in a deposit
insurance assessment rate for a large or
highly complex bank that does not
accurately reflect the bank’s risk to the
DIF, all else equal.
In the following simplified, stylized
example, illustrated in Table 1 below,
consider a hypothetical large bank that
has a CECL effective date of January 1,
2020, and elects a five-year transition.27
On the closing balance sheet date
immediately prior to adopting CECL
(i.e., December 31, 2019), the electing
bank has $1 million of ALLL and $10
million of Tier 1 capital
IF, all else equal.
In the following simplified, stylized
example, illustrated in Table 1 below,
consider a hypothetical large bank that
has a CECL effective date of January 1,
2020, and elects a five-year transition.27
On the closing balance sheet date
immediately prior to adopting CECL
(i.e., December 31, 2019), the electing
bank has $1 million of ALLL and $10
million of Tier 1 capital. On the opening
balance sheet date immediately after
adopting CECL (i.e., January 1, 2020),
the electing bank has $1.2 million of
allowances for credit losses, of which
the entire $1.2 million qualifies as
AACL for regulatory capital purposes
and is attributable to the allowance for
credit losses on loans and leases held
for investment.28 The bank would
recognize the adoption of CECL as of
January 1, 2020, by recording an
increase in its allowances for credit
losses, and in its AACL for regulatory
capital purposes, of $200,000, with a
reduction in beginning retained
earnings of $200,000, which flows
through and results in Tier 1 capital of
$9.8 million. For each of the quarterly
reporting periods in year 1 of the five-
year transition period (i.e., 2020), the
electing bank would increase the
retained earnings reported on its
balance sheet by $200,000 for purposes
of calculating its regulatory capital
ratios, resulting in an increase in its Tier
1 capital of $200,000 to $10 million, all
else equal.29
In this example, in determining the
hypothetical large bank’s deposit
insurance assessment rate, the bank’s
Tier 1 capital of $10 million would
include the $200,000 addition to the
bank’s reported retained earnings due to
the CECL transition (entirely
attributable to the allowance for credit
losses on loans and leases), and its
reserves would equal $1.2 million, the
entire amount of which is attributable to
the allowance for credit losses on loans
and leases held for investment
ate, the bank’s
Tier 1 capital of $10 million would
include the $200,000 addition to the
bank’s reported retained earnings due to
the CECL transition (entirely
attributable to the allowance for credit
losses on loans and leases), and its
reserves would equal $1.2 million, the
entire amount of which is attributable to
the allowance for credit losses on loans
and leases held for investment. Its
combined Tier 1 capital and reserves
would equal $11.2 million ($10 million
plus $1.2 million), reflecting double
counting of the $200,000 applicable
portion of the bank’s CECL transitional
amount attributable to the allowance for
credit losses on loans and leases.30
Under the final rule, for purposes of
calculating assessments for large or
highly complex banks, the FDIC would
subtract $200,000 from the denominator
of financial measures that sum Tier 1
capital and reserves, since the amount
of $200,000 is incorporated in both Tier
1 capital (as the applicable portion of
the CECL transitional amount in year
one of the five-year transition period)
and reserves in the denominator. The
bank’s adjusted Tier 1 capital and
reserves would equal $11 million. The
FDIC also would adjust the calculation
of the loss severity measure by
$200,000, as described below.
TABLE 1—STYLIZED EXAMPLE 1 OF FIRST-QUARTER APPLICATION OF A FIVE-YEAR CECL TRANSITION IN CALCULATING
TIER 1 CAPITAL AND RESERVES FOR DEPOSIT INSURANCE ASSESSMENT PURPOSES
In thousands
Dec. 31, 2019
Jan. 1, 2020
Reserves .................................................................................................................
$1,000 (ALLL) ........................................
$1,200 (AACL).
Tier 1 Capital ..........................................................................................................
$10,000 ..................................................
$10,000.
Tier 1 Capital and Reserves (absent final rule) .....................................................
....................................
$1,000 (ALLL) ........................................
$1,200 (AACL).
Tier 1 Capital ..........................................................................................................
$10,000 ..................................................
$10,000.
Tier 1 Capital and Reserves (absent final rule) ......................................................
$11,000 ..................................................
$11,200.
Applicable Portion of the CECL Transitional Amount .............................................
................................................................
$200.
Tier 1 Capital and Reserves (under final rule) .......................................................
................................................................
$11,000.
1 This stylized example reflects the first-quarter application of a hypothetical bank that has adopted a five-year CECL transition under the 2020
CECL rule and assumes that the full amount of the CECL transitional amount is attributable to the allowance for credit losses on loans and
leases. The example does not reflect any changes over the course of the first quarter of 2020 (i.e., no changes in the amounts reported on the
bank’s balance sheet between January 1 and March 31, 2020, the end of the reporting period for the first quarter). As a consequence, the bank’s
modified CECL transitional amount as of March 31, 2020, equals its CECL transitional amount. This stylized example omits the effects of de-
ferred tax assets, which are addressed in the agencies’ capital rule, the 2019 CECL rule, and the 2020 CECL rule.
The final rule amends the deposit
insurance system applicable to large
banks and highly complex banks only,
and does not affect regulatory capital or
the regulatory capital relief provided
under the 2019 CECL rule or 2020 CECL
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rule, the 2019 CECL rule, and the 2020 CECL rule.
The final rule amends the deposit
insurance system applicable to large
banks and highly complex banks only,
and does not affect regulatory capital or
the regulatory capital relief provided
under the 2019 CECL rule or 2020 CECL
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31 See 12 CFR part 3 (OCC); 12 CFR part 217
(Board); 12 CFR part 324 (FDIC). See also 84 FR
4222 (Feb. 14, 2019) and 85 FR 61577 (Sept. 30,
2020).
32 As discussed in the section on the Paperwork
Reduction Act below, the agencies published a joint
notice and request for comment (85 FR 82580 (Dec.
18, 2020)) requesting one additional temporary item
on the Call Report (FFIEC 031 and FFIEC 041 only)
to make the adjustments described below.
33 See 12 CFR 327.16(b)(ii)(A)(2)(iv).
34 See Appendix A to subpart A of 23 CFR 327.
35 Appendix D to subpart A of 12 CFR part 327
describes the calculation of the loss severity
measure.
36 The loss severity measure is an average loss
severity ratio for the three most recent quarters of
data available. It is anticipated that the temporary
reporting changes proposed pursuant to this final
rule would be implemented no earlier than the first
applicable reporting period following the
anticipated effective date of this final rule. As such,
the FDIC will adjust the calculation of the loss
severity measure to remove the double counting of
the specified portion of the CECL transitional
amounts for one of the three quarters averaged in
the first reporting period following the effective
date, for two of the three quarters averaged in the
second reporting period following the effective
date, and for all three quarters averaged in all
subsequent reporting periods, as applicable
s
severity measure to remove the double counting of
the specified portion of the CECL transitional
amounts for one of the three quarters averaged in
the first reporting period following the effective
date, for two of the three quarters averaged in the
second reporting period following the effective
date, and for all three quarters averaged in all
subsequent reporting periods, as applicable.
rule.31 The FDIC will continue the
application of the transition provisions
provided for under the 2019 and 2020
CECL rules to the Tier 1 leverage ratio
used in determining deposit insurance
assessment rates for all IDIs.
Temporary changes to the Call Report
forms and instructions are required to
implement the amendments to the
assessment system to remove the double
counting under the final rule. These
changes are being effectuated in
coordination with the other member
entities of the Federal Financial
Institutions Examination Council
(FFIEC).32 Changes to regulatory
reporting requirements pursuant to this
final rule will be required only while
the regulatory capital relief is reflected
in the regulatory reports of banks.
B. Adjustments to Certain Measures
Used in the Scorecard Approach for
Determining Assessment Rates for Large
or Highly Complex Banks
Under the final rule, the FDIC will
adjust the calculations of certain
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks to remove
the applicable portions of the CECL
transitional amounts added to retained
earnings that is attributable to the
allowance for credit losses on loans and
leases held for investment. The FDIC is
removing this part of the CECL
transitional amounts because, for large
or highly complex banks that have
adopted CECL, the measure of reserves
used in the scorecard is the allowance
for credit losses on loans and leases
reported in Call Report Schedule RC,
item 4.c
ained
earnings that is attributable to the
allowance for credit losses on loans and
leases held for investment. The FDIC is
removing this part of the CECL
transitional amounts because, for large
or highly complex banks that have
adopted CECL, the measure of reserves
used in the scorecard is the allowance
for credit losses on loans and leases
reported in Call Report Schedule RC,
item 4.c.
This amount, which will be reported
in a new line item in Schedule RC–O
only on the FFIEC 031 and FFIEC 041
versions of the Call Report, will be
removed from scorecard measures that
are calculated using the sum of Tier 1
capital and reserves, as described in
more detail below. The FDIC also will
adjust the calculation of the loss
severity measure to remove the double
counting by removing the applicable
portions of the CECL transitional
amounts added to retained earnings for
regulatory capital purposes and
attributable to the allowance for credit
losses on loans and leases held for
investment for large or highly complex
banks.
While the FDIC recognizes that by the
April 1, 2021, effective date for this final
rule, numerous large or highly complex
banks will have implemented CECL and
many will have elected the transition
provided under either the 2019 CECL
rule or 2020 CECL rule, the FDIC is not
making adjustments to prior quarterly
assessments.
1. Credit Quality Measure
The score for the credit quality
measure, applicable to both large banks
and highly complex banks, is the greater
of (1) the ratio of criticized and
classified items to Tier 1 capital and
reserves score or (2) the ratio of
underperforming assets to Tier 1 capital
and reserves score.33 The double
counting results in lower ratios and a
credit quality measure that reflects less
risk than a bank actually poses to the
DIF
y
measure, applicable to both large banks
and highly complex banks, is the greater
of (1) the ratio of criticized and
classified items to Tier 1 capital and
reserves score or (2) the ratio of
underperforming assets to Tier 1 capital
and reserves score.33 The double
counting results in lower ratios and a
credit quality measure that reflects less
risk than a bank actually poses to the
DIF. Under the final rule, the FDIC is
adjusting the denominator, Tier 1
capital and reserves, used in both ratios
by removing the applicable portions of
the CECL transitional amounts added to
retained earnings for regulatory capital
purposes and attributable to the
allowance for credit losses on loans and
leases held for investment.
2. Concentration Measure
For large banks, the concentration
measure is the higher of (1) the ratio of
higher-risk assets to Tier 1 capital and
reserves or (2) the growth-adjusted
portfolio concentration measure. The
growth-adjusted portfolio concentration
measure includes the ratio of
concentration levels for several loan
portfolios to Tier 1 capital and reserves.
For highly complex banks, the
concentration measure is the highest of
three measures: (1) The ratio of higher-
risk assets to Tier 1 capital and reserves,
(2) the ratio of top 20 counterparty
exposures to Tier 1 capital and reserves,
or (3) the ratio of the largest
counterparty exposure to Tier 1 capital
and reserves.34
The double counting results in lower
ratios and a concentration measure that
reflects less risk than a bank actually
poses to the DIF. Under the final rule,
the FDIC is adjusting the denominator,
Tier 1 capital and reserves, used in each
of these ratios by removing the
applicable portions of the CECL
transitional amounts added to retained
earnings for regulatory capital purposes
and attributable to the allowance for
credit losses on loans and leases held
for investment.
3
ess risk than a bank actually
poses to the DIF. Under the final rule,
the FDIC is adjusting the denominator,
Tier 1 capital and reserves, used in each
of these ratios by removing the
applicable portions of the CECL
transitional amounts added to retained
earnings for regulatory capital purposes
and attributable to the allowance for
credit losses on loans and leases held
for investment.
3. Loss Severity Measure
The loss severity measure estimates
the relative magnitude of potential
losses to the DIF in the event of an IDI’s
failure.35 In calculating this measure,
the FDIC applies a standardized set of
assumptions based on historical failures
regarding liability runoffs and the
recovery value of asset categories to
simulate possible losses to the FDIC,
reducing capital and assets until the
Tier 1 leverage ratio declines to 2
percent. The double counting results in
a greater reduction of assets during the
capital reduction phase and therefore a
lower resolution value of assets at the
time of failure, which in turn results in
a higher loss severity measure that
reflects more risk than a bank actually
poses to the DIF. Under the final rule,
the FDIC is adjusting the calculation of
the capital adjustment in the loss
severity measure to remove the double
counting of the applicable portion of the
CECL transitional amounts added to
retained earnings for regulatory capital
purposes and attributable to the
allowance for credit losses on loans and
leases held for investment for both large
banks and highly complex banks.36
C. Other Conforming Amendments to
the Assessment Regulations
Under the final rule, the FDIC is
making conforming amendments to the
FDIC’s assessment regulations to
effectuate the adjustments described
above and consistent with the proposed
rule. These conforming amendments
ensure that the adjustments to the
financial measures used to calculate a
large or highly complex bank’s
assessment rate are properly
incorporated into the assessment
regulations.
D
the final rule, the FDIC is
making conforming amendments to the
FDIC’s assessment regulations to
effectuate the adjustments described
above and consistent with the proposed
rule. These conforming amendments
ensure that the adjustments to the
financial measures used to calculate a
large or highly complex bank’s
assessment rate are properly
incorporated into the assessment
regulations.
D. Regulatory Reporting Changes
A bank electing a transition under
either the 2019 CECL rule or the 2020
CECL rule must indicate its election to
use the 3-year 2019 or the 5-year 2020
CECL transition provision in Call Report
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37 See 84 FR 4227 and 85 FR 17726.
38 85 FR 82580 (Dec. 18, 2020).
Schedule RC–R, Part I, item 2.a. In
addition, such an electing bank must
report the applicable portions of the
transitional amounts under the 2019
CECL rule or the 2020 CECL rule in the
affected Call Report items during the
transition period. For example, an
electing bank would add the applicable
portion of the CECL transitional amount
(or the modified CECL transitional
amount) when calculating the amount of
retained earnings it would report in
Schedule RC–R, Part I, item 2, of the
Call Report.37
In calculating certain measures used
in the scorecard approach for
determining deposit insurance
assessments for large or highly complex
banks, under the final rule the FDIC will
remove a specified portion of the CECL
transitional amounts added to retained
earnings under the transitions provided
for under the 2020 and 2019 CECL rules
Schedule RC–R, Part I, item 2, of the
Call Report.37
In calculating certain measures used
in the scorecard approach for
determining deposit insurance
assessments for large or highly complex
banks, under the final rule the FDIC will
remove a specified portion of the CECL
transitional amounts added to retained
earnings under the transitions provided
for under the 2020 and 2019 CECL rules.
Specifically, in certain measures used in
the scorecard approach for determining
assessments for large or highly complex
banks, the FDIC will remove the
applicable portion of the CECL
transitional amount (or modified CECL
transitional amount) added to retained
earnings for regulatory capital purposes
(Call Report Schedule RC–R, Part I, Item
2), attributable to the allowance for
credits losses on loans and leases held
for investment and included in the
amount reported on the Call Report
balance sheet in Schedule RC, item 4.c.
However, large or highly complex
banks that have elected a CECL
transition provision do not currently
report these specific portions of the
CECL transitional amounts in the Call
Report. Thus, implementing the
finalized amendments to the risk-based
deposit insurance assessment system
applicable to large or highly complex
banks requires temporary changes to the
reporting requirements applicable to the
Call Report and its related instructions.
These reporting changes have been
proposed and are being effectuated in
coordination with the other member
entities of the FFIEC.38 As previously
described, changes to reporting
requirements for large or highly
complex banks pursuant to this final
rule will be required only while the
temporary relief is reflected in banks’
regulatory reports.
E
Call Report and its related instructions.
These reporting changes have been
proposed and are being effectuated in
coordination with the other member
entities of the FFIEC.38 As previously
described, changes to reporting
requirements for large or highly
complex banks pursuant to this final
rule will be required only while the
temporary relief is reflected in banks’
regulatory reports.
E. Expected Effects
The final rule removes the applicable
portions of the CECL transitional
amounts added to retained earnings for
regulatory capital purposes and
attributable to the allowance for credit
losses on loans and leases held for
investment from certain financial
measures used in the scorecards that
determine deposit insurance assessment
rates for large or highly complex banks.
Absent the final rule, this amount
would be temporarily double counted
and could result in a deposit insurance
assessment rate for a large or highly
complex bank that does not accurately
reflect the bank’s risk to the DIF, all else
equal. Furthermore, the double counting
could result in inequitable deposit
insurance assessments, as a large or
highly complex bank that has not yet
implemented CECL or that does not
utilize a transition provision could pay
a higher or lower assessment rate than
a bank that has implemented CECL and
utilizes a transition provision, even if
both banks pose equal risk to the DIF.
The FDIC estimates that the majority of
large or highly complex banks affected
by the double counting are currently
paying a lower rate than they would
absent the final rule. However, the FDIC
also estimates that a few banks are
currently paying a higher rate than they
otherwise would pay if the issue of
double counting is corrected
ovision, even if
both banks pose equal risk to the DIF.
The FDIC estimates that the majority of
large or highly complex banks affected
by the double counting are currently
paying a lower rate than they would
absent the final rule. However, the FDIC
also estimates that a few banks are
currently paying a higher rate than they
otherwise would pay if the issue of
double counting is corrected. The FDIC
estimates that the rate these latter banks
are paying is higher by only a de
minimis amount, and occurs where the
double counting on the loss severity
measure more than offsets the effect of
double counting on the other scorecard
measures that are calculated using the
sum of Tier 1 capital and reserves.
Based on FDIC data as of September
30, 2020, the FDIC estimates that this
double counting could result in
approximately $55 million in annual
foregone assessment revenue, or 0.047
percent of the DIF balance as of that
date. This estimate includes the
majority of large or highly complex
banks that are paying a lower rate due
to the double counting and the few
banks that are paying a higher rate
absent correction of double counting.
The FDIC expects that absent this final
rule, the estimated amount of foregone
assessment revenue would increase as
additional large or highly complex
banks adopt CECL, to the extent those
large or highly complex banks elect to
apply a transition. Absent the final rule,
the FDIC expects that this amount of
foregone assessment revenue also may
increase as large or highly complex
banks electing the 2020 CECL rule
include in their modified CECL
transitional amounts an estimate of
CECL’s effect on regulatory capital,
relative to the incurred loss
methodology’s effect on regulatory
capital, during the first two years of
CECL adoption. As of September 30,
2020, the FDIC estimates that 109 of 139
large or highly complex banks had
implemented CECL, and that 94 had
elected a transition provided under
either the 2019 CECL rule or the 2020
CECL rule
ounts an estimate of
CECL’s effect on regulatory capital,
relative to the incurred loss
methodology’s effect on regulatory
capital, during the first two years of
CECL adoption. As of September 30,
2020, the FDIC estimates that 109 of 139
large or highly complex banks had
implemented CECL, and that 94 had
elected a transition provided under
either the 2019 CECL rule or the 2020
CECL rule. As banks phase out the
transitional amounts over time, the
assessment effect also will decline. As
described previously, the optional
temporary relief from CECL afforded by
the CARES Act and as extended by the
Consolidated Appropriations Act, 2021,
and the transitions provided for under
the 2019 CECL rule and 2020 CECL rule,
provide that all banks will have
completely reflected in regulatory
capital the day-one effects of CECL
(plus, if applicable, an estimate of
CECL’s effect on regulatory capital,
relative to the incurred loss
methodology’s effect on regulatory
capital, during the first two years of
CECL adoption) by December 31, 2026,
thereby eliminating the double counting
effects from the scorecard for large or
highly complex banks. These above
estimates are subject to uncertainty
given differing CECL implementation
dates and the option for large or highly
complex banks to choose between the
transitions offered under the 2019 CECL
rule or the 2020 CECL rule, or to
recognize the full impact of CECL on
regulatory capital upon implementation.
The final rule could pose some
additional regulatory costs for large or
highly complex banks that elect a
transition under either the 2019 CECL
rule or the 2020 CECL rule associated
with changes to internal systems or
processes, or changes to reporting
requirements
he 2019 CECL
rule or the 2020 CECL rule, or to
recognize the full impact of CECL on
regulatory capital upon implementation.
The final rule could pose some
additional regulatory costs for large or
highly complex banks that elect a
transition under either the 2019 CECL
rule or the 2020 CECL rule associated
with changes to internal systems or
processes, or changes to reporting
requirements. It is the FDIC’s
understanding that banks already
calculate, for internal purposes, the
portion of the CECL transitional amount
(or modified CECL transitional amount)
added to retained earnings for
regulatory capital purposes that is
attributable to the allowance for credit
losses on loans and leases held for
investment. As such, the FDIC
anticipates that the addition of this
temporary item to the Call Report would
not impose significant additional
burden and any additional costs are
likely to be de minimis.
IV. Effective Date of the Final Rule
The FDIC is issuing this final rule
with an effective date of April 1, 2021,
and applicable to the second quarterly
assessment period of 2021 (i.e., April 1–
June 30, 2021). Based on this effective
date, the temporary effects of the double
counting of the applicable portions of
the CECL transitional amounts in select
financial measures used in the scorecard
approach for determining assessments
for large or highly complex banks will
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June 30, 2021). Based on this effective
date, the temporary effects of the double
counting of the applicable portions of
the CECL transitional amounts in select
financial measures used in the scorecard
approach for determining assessments
for large or highly complex banks will
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
39 5 U.S.C. 553.
40 5 U.S.C. 553(d).
41 5 U.S.C. 601 et seq.
42 The SBA defines a small banking organization
as having $600 million or less in assets, where an
organization’s ‘‘assets are determined by averaging
the assets reported on its four quarterly financial
statements for the preceding year.’’ See 13 CFR
121.201 (as amended, effective August 19, 2019). In
its determination, the SBA ‘‘counts the receipts,
employees, or other measure of size of the concern
whose size is at issue and all of its domestic and
foreign affiliates.’’ 13 CFR 121.103. Following these
regulations, the FDIC uses a covered entity’s
affiliated and acquired assets, averaged over the
preceding four quarters, to determine whether the
covered entity is ‘‘small’’ for the purposes of RFA.
43 5 U.S.C. 601.
44 FDIC Call Report data, September 30, 2020.
45 5 U.S.C. 553(b)(B).
45 U.S.C. 553(d).
45 U.S.C. 601 et seq.
45 U.S.C. 801 et seq.
45 U.S.C. 801(a)(3).
45 U.S.C. 804(2).
45 U.S.C. 808(2).
45 12 U.S.C. 4802(a).
45 12 U.S.C. 4802(b).
46 4 U.S.C. 3501–3521.
47 85 FR 82580 (Dec. 18, 2020).
48 12 U.S.C. 4809.
be corrected beginning with the second
quarterly assessment period of 2021.
V. Administrative Law Matters
A
tember 30, 2020.
45 5 U.S.C. 553(b)(B).
45 U.S.C. 553(d).
45 U.S.C. 601 et seq.
45 U.S.C. 801 et seq.
45 U.S.C. 801(a)(3).
45 U.S.C. 804(2).
45 U.S.C. 808(2).
45 12 U.S.C. 4802(a).
45 12 U.S.C. 4802(b).
46 4 U.S.C. 3501–3521.
47 85 FR 82580 (Dec. 18, 2020).
48 12 U.S.C. 4809.
be corrected beginning with the second
quarterly assessment period of 2021.
V. Administrative Law Matters
A. Administrative Procedure Act
Under the Administrative Procedure
Act (APA),39 ‘‘[t]he required publication
or service of a substantive rule shall be
made not less than 30 days before its
effective date, except as otherwise
provided by the agency for good cause
found and published with the rule.’’ 40
An effective date of April 1, 2021
would mean that the temporary effects
of the double counting of the applicable
portions of the CECL transitional
amounts in select financial measures
used in the scorecard approach for
determining assessments for large or
highly complex banks are corrected,
beginning with the second quarterly
assessment period of 2021 (i.e., April 1–
June 30, 2021), with a payment due date
of September 30, 2021.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., generally requires
an agency, in connection with a final
rule, to prepare and make available for
public comment a final regulatory
flexibility analysis that describes the
impact of a final rule on small entities.41
However, a regulatory flexibility
analysis is not required if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities.
The U.S
s
an agency, in connection with a final
rule, to prepare and make available for
public comment a final regulatory
flexibility analysis that describes the
impact of a final rule on small entities.41
However, a regulatory flexibility
analysis is not required if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities.
The U.S. Small Business Administration
(SBA) has defined ‘‘small entities’’ to
include banking organizations with total
assets of less than or equal to $600
million.42 Certain types of rules, such as
rules of particular applicability relating
to rates, corporate or financial
structures, or practices relating to such
rates or structures, are expressly
excluded from the definition of ‘‘rule’’
for purposes of the RFA.43 Because the
final rule relates directly to the rates
imposed on IDIs for deposit insurance
and to the deposit insurance assessment
system that measures risk and
determines each bank’s assessment rate,
the final rule is not subject to the RFA.
Nonetheless, the FDIC is voluntarily
presenting information in this RFA
section.
Based on Call Report data as of
September 30, 2020, the FDIC insures
5,042 depository institutions, of which
3,585 are defined as small entities by
the terms of the RFA.44 The final rule,
however, only applies to institutions
with $10 billion or greater in total
assets. Consequently, small entities for
purposes of the RFA will experience no
economic impact as a result of the
implementation of this final rule.
C
as of
September 30, 2020, the FDIC insures
5,042 depository institutions, of which
3,585 are defined as small entities by
the terms of the RFA.44 The final rule,
however, only applies to institutions
with $10 billion or greater in total
assets. Consequently, small entities for
purposes of the RFA will experience no
economic impact as a result of the
implementation of this final rule.
C. Riegle Community Development and
Regulatory Improvement Act of 1994
Section 302(a) of the Riegle
Community Development and
Regulatory Improvement Act (RCDRIA)
requires that the Federal banking
agencies, including the FDIC, in
determining the effective date and
administrative compliance requirements
of new regulations that impose
additional reporting, disclosure, or other
requirements on IDIs, consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on IDIs generally to take
effect on the first day of a calendar
quarter that begins on or after the date
on which the regulations are published
in final form, with certain exceptions,
including for good cause.45
The amendments to the FDIC’s
deposit insurance assessment
regulations under this final rule do
impose additional reporting,
disclosures, or other new requirements.
As discussed above, the FDIC is making
temporary changes to the FFIEC 031 and
FFIEC 041 Call Report forms and
instructions to implement the
amendments to the assessment system
to remove the double counting under
the final rule. These changes are being
effectuated in coordination with the
other member entities of the FFIEC
pose additional reporting,
disclosures, or other new requirements.
As discussed above, the FDIC is making
temporary changes to the FFIEC 031 and
FFIEC 041 Call Report forms and
instructions to implement the
amendments to the assessment system
to remove the double counting under
the final rule. These changes are being
effectuated in coordination with the
other member entities of the FFIEC. As
such, the FDIC considered the
requirements of the RCDRIA and are
finalizing this rule with an effective date
of April 1, 2021. The FDIC invited
comments regarding the application of
RCDRIA to the final rule, but did not
receive comments on this topic.
D. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) states that no agency may
conduct or sponsor, nor is the
respondent required to respond to, an
information collection unless it displays
a currently valid Office of Management
and Budget (OMB) control number.46
The FDIC’s OMB control numbers for its
assessment regulations are 3064–0057,
3064–0151, and 3064–0179. The final
rule does not revise any of these existing
assessment information collections
pursuant to the PRA and consequently,
no submissions in connection with
these OMB control numbers will be
made to the OMB for review. However,
the final rule affects the agencies’
current information collections for the
Call Report (FFIEC 031 and FFIEC 041,
but not FFIEC 051). The agencies’ OMB
control numbers for the Call Reports are:
OCC OMB No. 1557–0081; Board OMB
No. 7100–0036; and FDIC OMB No.
3064–0052. The changes to the Call
Report forms and instructions have been
addressed in a separate Federal Register
notice or notices.47
E. Plain Language
Section 722 of the Gramm-Leach-
Bliley Act 48 requires the Federal
banking agencies to use plain language
in all proposed and final rulemakings
published in the Federal Register after
January 1, 2000. The FDIC invited
comment regarding the use of plain
language, but did not receive any
comments on this topic.
E
essed in a separate Federal Register
notice or notices.47
E. Plain Language
Section 722 of the Gramm-Leach-
Bliley Act 48 requires the Federal
banking agencies to use plain language
in all proposed and final rulemakings
published in the Federal Register after
January 1, 2000. The FDIC invited
comment regarding the use of plain
language, but did not receive any
comments on this topic.
E. The Congressional Review Act
For purposes of Congressional Review
Act, the OMB makes a determination as
to whether a final rule constitutes a
‘‘major’’ rule. The OMB has determined
that the final rule is not a major rule for
purposes of the Congressional Review
Act.
If a rule is deemed a ‘‘major rule’’ by
the OMB, the Congressional Review Act
generally provides that the rule may not
take effect until at least 60 days
following its publication. The
Congressional Review Act defines a
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‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in—(A) an annual effect
on the economy of $100,000,000 or
more; (B) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or Local
government agencies or geographic
regions, or (C) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreign-
based enterprises in domestic and
export markets. As required by the
Congressional Review Act, the FDIC
will submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks,
Banking, Savings associations
bility of United States-based
enterprises to compete with foreign-
based enterprises in domestic and
export markets. As required by the
Congressional Review Act, the FDIC
will submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks,
Banking, Savings associations.
Authority and Issuance
For the reasons stated in the
preamble, the Federal Deposit Insurance
Corporation amends 12 CFR part 327 as
follows:
PART 327—ASSESSMENTS
■1. The authority citation for part 327
continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817–19,
1821.
■2. In Appendix A to Subpart A, revise
the table under the heading, ‘‘VI.
Description of Scorecard Measures’’ to
read as follows:
Appendix A to Subpart A of Part 327—
Method To Derive Pricing Multipliers
and Uniform Amount
*
*
*
*
*
VI. Description of Scorecard Measures
Scorecard
measures 1
Description
Leverage Ratio .....................
Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average assets based on the definition for
prompt corrective action.
Concentration Measure for
Large Insured depository
institutions (excluding
Highly Complex Institu-
tions).
The concentration score for large institutions is the higher of the following two scores:
(1) Higher-Risk Assets/
Tier 1 Capital and Re-
serves 2.
Sum of construction and land development (C&D) loans (funded and unfunded), higher-risk C&I loans (funded
and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by
Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio.
(2) Growth-Adjusted
Portfolio Concentra-
tions 2.
The measure is calculated in the following steps:
nstruction and land development (C&D) loans (funded and unfunded), higher-risk C&I loans (funded
and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by
Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio.
(2) Growth-Adjusted
Portfolio Concentra-
tions 2.
The measure is calculated in the following steps:
(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio cat-
egory:
• C&D,
• Other commercial real estate loans,
• First lien residential mortgages (including non-agency residential mortgage-backed securities),
• Closed-end junior liens and home equity lines of credit (HELOCs),
• Commercial and industrial loans,
• Credit card loans, and
• Other consumer loans.
(2) Risk weights are assigned to each loan category based on historical loss rates.
(3) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration
ratio for each portfolio.
(4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth factor of 1 to 1.2 where a
3-year cumulative growth rate of 20 percent or less equals a factor of 1 and a growth rate of 80 percent or
greater equals a factor of 1.2. If three years of data are not available, a growth factor of 1 will be assigned.
(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting val-
ues are summed.
See Appendix C for the detailed description of the measure.
Concentration Measure for
Highly Complex Institu-
tions.
Concentration score for highly complex institutions is the highest of the following three scores:
available, a growth factor of 1 will be assigned.
(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting val-
ues are summed.
See Appendix C for the detailed description of the measure.
Concentration Measure for
Highly Complex Institu-
tions.
Concentration score for highly complex institutions is the highest of the following three scores:
(1) Higher-Risk Assets/
Tier 1 Capital and Re-
serves 2.
Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and unfunded), nontraditional mort-
gages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See
Appendix C for the detailed description of the measure.
(2) Top 20 Counterparty
Exposure/Tier 1 Cap-
ital and Reserves 2.
Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 capital and reserves. The total
exposure amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower)
for derivatives, securities financing transactions (SFTs), and cleared transactions, and its gross lending expo-
sure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an enti-
ty’s own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one
counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government
and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and
credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared trans-
actions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the
methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral
that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and
for derivatives, including OTC derivatives, cleared trans-
actions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the
methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral
that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and
(iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure amount associated with SFTs, including cleared trans-
actions that are SFTs, must be calculated using the standardized approach set forth in 12 CFR 324.37(b) or
(c). For both derivatives and SFT exposures, the exposure amount to central counterparties must also include
the default fund contribution.3
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Scorecard
measures 1
Description
(3) Largest Counterparty
Exposure/Tier 1 Cap-
ital and Reserves 2.
The largest total exposure amount to one counterparty divided by Tier 1 capital and reserves. The total exposure
amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower) for deriva-
tives, SFTs, and cleared transactions, and its gross lending exposure (including all unfunded commitments) to
that counterparty (or borrower). A counterparty includes an entity’s own affiliates. Exposures to entities that are
affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure ex-
cludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government
that is unconditionally guaranteed by the full faith and credit of the United States
r borrower). A counterparty includes an entity’s own affiliates. Exposures to entities that are
affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure ex-
cludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government
that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for de-
rivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of deriv-
ative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any re-
duction for collateral other than cash collateral that is all or part of variation margin and that satisfies the re-
quirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure
amount associated with SFTs, including cleared transactions that are SFTs, must be calculated using the
standardized approach set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures, the expo-
sure amount to central counterparties must also include the default fund contribution.3
Core Earnings/Average
Quarter-End Total Assets.
Core earnings are defined as net income less extraordinary items and tax-adjusted realized gains and losses on
available-for-sale (AFS) and held-to-maturity (HTM) securities, adjusted for mergers. The ratio takes a four-
quarter sum of merger-adjusted core earnings and divides it by an average of five quarter-end total assets
(most recent and four prior quarters). If four quarters of data on core earnings are not available, data for quar-
ters that are available will be added and annualized. If five quarters of data on total assets are not available,
data for quarters that are available will be averaged.
Credit Quality Measure ........
The credit quality score is the higher of the following two scores:
total assets
(most recent and four prior quarters). If four quarters of data on core earnings are not available, data for quar-
ters that are available will be added and annualized. If five quarters of data on total assets are not available,
data for quarters that are available will be averaged.
Credit Quality Measure ........
The credit quality score is the higher of the following two scores:
(1) Criticized and Classi-
fied Items/Tier 1 Cap-
ital and Reserves 2.
Sum of criticized and classified items divided by the sum of Tier 1 capital and reserves. Criticized and classified
items include items an institution or its primary federal regulator have graded ‘‘Special Mention’’ or worse and
include retail items under Uniform Retail Classification Guidelines, securities, funded and unfunded loans, other
real estate owned (ORE), other assets, and marked-to-market counterparty positions, less credit valuation ad-
justments.4 Criticized and classified items exclude loans and securities in trading books, and the amount recov-
erable from the U.S. government, its agencies, or government-sponsored enterprises, under guarantee or in-
surance provisions.
(2) Underperforming As-
sets/Tier 1 Capital
and Reserves 2.
Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans
(including restructured 1–4 family loans), and ORE, excluding the maximum amount recoverable from the U.S.
government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions, di-
vided by a sum of Tier 1 capital and reserves.
Core Deposits/Total Liabil-
ities.
Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total li-
abilities.
Balance Sheet Liquidity
Ratio
luding the maximum amount recoverable from the U.S.
government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions, di-
vided by a sum of Tier 1 capital and reserves.
Core Deposits/Total Liabil-
ities.
Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total li-
abilities.
Balance Sheet Liquidity
Ratio.
Sum of cash and balances due from depository institutions, federal funds sold and securities purchased under
agreements to resell, and the market value of available for sale and held to maturity agency securities (ex-
cludes agency mortgage-backed securities but includes all other agency securities issued by the U.S. Treasury,
U.S. government agencies, and U.S. government-sponsored enterprises) divided by the sum of federal funds
purchased and repurchase agreements, other borrowings (including FHLB) with a remaining maturity of one
year or less, 5 percent of insured domestic deposits, and 10 percent of uninsured domestic and foreign depos-
its.5
Potential Losses/Total Do-
mestic Deposits (Loss Se-
verity Measure) 6.
Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D describes the
calculation of the loss severity measure in detail.
Market Risk Measure for
Highly Complex Institu-
tions.
The market risk score is a weighted average of the following three scores:
(1) Trading Revenue
Volatility/Tier 1 Capital.
Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital.
(2) Market Risk Capital/
Tier 1 Capital.
Market risk capital divided by Tier 1 capital.7
sure in detail.
Market Risk Measure for
Highly Complex Institu-
tions.
The market risk score is a weighted average of the following three scores:
(1) Trading Revenue
Volatility/Tier 1 Capital.
Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital.
(2) Market Risk Capital/
Tier 1 Capital.
Market risk capital divided by Tier 1 capital.7
(3) Level 3 Trading As-
sets/Tier 1 Capital.
Level 3 trading assets divided by Tier 1 capital.
Average Short-term Funding/
Average Total Assets.
Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of
total assets as reported on Schedule RC–K of the Call Reports.
1 The FDIC retains the flexibility, as part of the risk-based assessment system, without the necessity of additional notice-and-comment rule-
making, to update the minimum and maximum cutoff values for all measures used in the scorecard. The FDIC may update the minimum and
maximum cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio in order to maintain an approximately similar distribution of
higher-risk assets to Tier 1 capital and reserves ratio scores as reported prior to April 1, 2013, or to avoid changing the overall amount of as-
sessment revenue collected. 76 FR 10672, 10700 (February 25, 2011). The FDIC will review changes in the distribution of the higher-risk assets
to Tier 1 capital and reserves ratio scores and the resulting effect on total assessments and risk differentiation between banks when determining
changes to the cutoffs. The FDIC may update the cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio more frequently than
annually. The FDIC will provide banks with a minimum one quarter advance notice of changes in the cutoff values for the higher-risk assets to
Tier 1 capital and reserves ratio with their quarterly deposit insurance invoice
ween banks when determining
changes to the cutoffs. The FDIC may update the cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio more frequently than
annually. The FDIC will provide banks with a minimum one quarter advance notice of changes in the cutoff values for the higher-risk assets to
Tier 1 capital and reserves ratio with their quarterly deposit insurance invoice.
2 The applicable portions of the current expected credit loss methodology (CECL) transitional amounts attributable to the allowance for credit
losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital
regulations, as they may be amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
84 FR 4222 (Feb. 14, 2019)), will be removed from the sum of Tier 1 capital and reserves.
3 SFTs include repurchase agreements, reverse repurchase agreements, security lending and borrowing, and margin lending transactions,
where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements. The default fund
contribution is the funds contributed or commitments made by a clearing member to a central counterparty’s mutualized loss sharing arrange-
ment. The other terms used in this description are as defined in 12 CFR part 324, subparts A and D, unless defined otherwise in 12 CFR part
327.
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ntribution is the funds contributed or commitments made by a clearing member to a central counterparty’s mutualized loss sharing arrange-
ment. The other terms used in this description are as defined in 12 CFR part 324, subparts A and D, unless defined otherwise in 12 CFR part
327.
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4 A marked-to-market counterparty position is equal to the sum of the net marked-to-market derivative exposures for each counterparty. The
net marked-to-market derivative exposure equals the sum of all positive marked-to-market exposures net of legally enforceable netting provisions
and net of all collateral held under a legally enforceable CSA plus any exposure where excess collateral has been posted to the counterparty.
For purposes of the Criticized and Classified Items/Tier 1 Capital and Reserves definition a marked-to-market counterparty position less any
credit valuation adjustment can never be less than zero.
5 Deposit runoff rates for the balance sheet liquidity ratio reflect changes issued by the Basel Committee on Banking Supervision in its Decem-
ber 2010 document, ‘‘Basel III: International Framework for liquidity risk measurement, standards, and monitoring,’’ http://www.bis.org/publ/
bcbs188.pdf.
6 The applicable portions of the CECL transitional amounts attributable to the allowance for credit losses on loans and leases held for invest-
ment and added to retained earnings for regulatory capital purposes will be removed from the calculation of the loss severity measure.
7 Market risk is defined in 12 CFR 324.202.
*
*
*
*
*
■3. Amend Appendix C to Subpart A
by:
■a. Redesignating footnotes 2 through
16 as footnotes 3 through 17; and
■b. Revising the paragraph under the
heading, ‘‘I
es on loans and leases held for invest-
ment and added to retained earnings for regulatory capital purposes will be removed from the calculation of the loss severity measure.
7 Market risk is defined in 12 CFR 324.202.
*
*
*
*
*
■3. Amend Appendix C to Subpart A
by:
■a. Redesignating footnotes 2 through
16 as footnotes 3 through 17; and
■b. Revising the paragraph under the
heading, ‘‘I. Concentration Measures,’’
to read as follows:
Appendix C to Subpart A of Part 327—
Description of Concentration Measures
I. Concentration Measures
The concentration score for large banks is
the higher of the higher-risk assets to Tier 1
capital and reserves score or the growth-
adjusted portfolio concentrations score.1 The
concentration score for highly complex
institutions is the highest of the higher-risk
assets to Tier 1 capital and reserves score, the
Top 20 counterparty exposure to Tier 1
capital and reserves score, or the largest
counterparty to Tier 1 capital and reserves
score.2 The higher-risk assets to Tier 1 capital
and reserves ratio and the growth-adjusted
portfolio concentration measure are
described herein.
1 For the purposes of this Appendix, the
term ‘‘bank’’ means insured depository
institution.
2 As described in Appendix A to this
subpart, the applicable portions of the
current expected credit loss methodology
(CECL) transitional amounts attributable to
the allowance for credit losses on loans and
leases held for investment and added to
retained earnings for regulatory capital
purposes pursuant to the regulatory capital
regulations, as they may be amended from
time to time (12 CFR part 3, 12 CFR part 217,
12 CFR part 324, 85 FR 61577 (Sept. 30,
2020), and 84 FR 4222 (Feb
credit loss methodology
(CECL) transitional amounts attributable to
the allowance for credit losses on loans and
leases held for investment and added to
retained earnings for regulatory capital
purposes pursuant to the regulatory capital
regulations, as they may be amended from
time to time (12 CFR part 3, 12 CFR part 217,
12 CFR part 324, 85 FR 61577 (Sept. 30,
2020), and 84 FR 4222 (Feb. 14, 2019)), will
be removed from the sum of Tier 1 capital
and reserves throughout the large bank and
highly complex bank scorecards, including in
the ratio of Higher-Risk Assets to Tier 1
Capital and Reserves, the Growth-Adjusted
Portfolio Concentrations Measure, the ratio of
Top 20 Counterparty Exposure to Tier 1
Capital and Reserves, and the Ratio of Largest
Counterparty Exposure to Tier 1 Capital and
Reserves.
*
*
*
*
*
■4. In Appendix D to Subpart A, revise
the introductory text to read as follows:
Appendix D to Subpart A of Part 327—
Description of the Loss Severity
Measure
The loss severity measure applies a
standardized set of assumptions to an
institution’s balance sheet to measure
possible losses to the FDIC in the event of an
institution’s failure. To determine an
institution’s loss severity rate, the FDIC first
applies assumptions about uninsured deposit
and other unsecured liability runoff, and
growth in insured deposits, to adjust the size
and composition of the institution’s
liabilities. Assets are then reduced to match
any reduction in liabilities.1 The institution’s
asset values are then further reduced so that
the Leverage ratio reaches 2 percent.2 3 In
both cases, assets are adjusted pro rata to
preserve the institution’s asset composition.
Assumptions regarding loss rates at failure
for a given asset category and the extent of
secured liabilities are then applied to
estimated assets and liabilities at failure to
determine whether the institution has
enough unencumbered assets to cover
domestic deposits
ge ratio reaches 2 percent.2 3 In
both cases, assets are adjusted pro rata to
preserve the institution’s asset composition.
Assumptions regarding loss rates at failure
for a given asset category and the extent of
secured liabilities are then applied to
estimated assets and liabilities at failure to
determine whether the institution has
enough unencumbered assets to cover
domestic deposits. Any projected shortfall is
divided by current domestic deposits to
obtain an end-of-period loss severity ratio.
The loss severity measure is an average loss
severity ratio for the three most recent
quarters of data available.
1 In most cases, the model would yield
reductions in liabilities and assets prior to
failure. Exceptions may occur for institutions
primarily funded through insured deposits
which the model assumes to grow prior to
failure.
2 Of course, in reality, runoff and capital
declines occur more or less simultaneously
as an institution approaches failure. The loss
severity measure assumptions simplify this
process for ease of modeling.
3 The applicable portions of the current
expected credit loss methodology (CECL)
transitional amounts attributable to the
allowance for credit losses on loans and
leases held for investment and added to
retained earnings for regulatory capital
purposes pursuant to the regulatory capital
regulations, as they may be amended from
time to time (12 CFR part 3, 12 CFR part 217,
12 CFR part 324, 85 FR 61577 (Sept. 30,
2020), and 84 FR 4222 (Feb. 14, 2019)), will
be removed from the calculation of the loss
severity measure.
*
*
*
*
*
■5. In Appendix E to subpart A, under
the heading ‘‘II
o
retained earnings for regulatory capital
purposes pursuant to the regulatory capital
regulations, as they may be amended from
time to time (12 CFR part 3, 12 CFR part 217,
12 CFR part 324, 85 FR 61577 (Sept. 30,
2020), and 84 FR 4222 (Feb. 14, 2019)), will
be removed from the calculation of the loss
severity measure.
*
*
*
*
*
■5. In Appendix E to subpart A, under
the heading ‘‘II. Mitigating the
Assessment Effects of Paycheck
Protection Program Loans for Large or
Highly Complex Institutions’’, revise
Table E.2 and paragraph (a) to read as
follows:
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS
Scorecard
measures 1
Description
Exclusions
Leverage Ratio ......................
Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average as-
sets based on the definition for prompt corrective action.
No Exclusion.
Concentration Measure for
Large Insured depository
institutions (excluding High-
ly Complex Institutions).
The concentration score for large institutions is the higher of the following two
scores:
(1) Higher-Risk Assets/
Tier 1 Capital and Re-
serves.
Sum of construction and land development (C&D) loans (funded and unfunded),
higher-risk commercial and industrial (C&I) loans (funded and unfunded), non-
traditional mortgages, higher-risk consumer loans, and higher-risk securitizations
divided by Tier 1 capital and reserves. See Appendix C for the detailed descrip-
tion of the ratio.
No Exclusion.
(2) Growth-Adjusted Port-
folio Concentrations.
The measure is calculated in the following steps:
(funded and unfunded),
higher-risk commercial and industrial (C&I) loans (funded and unfunded), non-
traditional mortgages, higher-risk consumer loans, and higher-risk securitizations
divided by Tier 1 capital and reserves. See Appendix C for the detailed descrip-
tion of the ratio.
No Exclusion.
(2) Growth-Adjusted Port-
folio Concentrations.
The measure is calculated in the following steps:
(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are cal-
culated for each broad portfolio category:
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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard
measures 1
Description
Exclusions
• Constructions and land development (C&D),
• Other commercial real estate loans,
• First lien residential mortgages (including non-agency residential mort-
gage-backed securities),
• Closed-end junior liens and home equity lines of credit (HELOCs),
• Commercial and industrial loans (C&I),
• Credit card loans, and
• Other consumer loans.
(2) Risk weights are assigned to each loan category based on historical loss
rates.
(3) Concentration levels are multiplied by risk weights and squared to produce
a risk-adjusted concentration ratio for each portfolio.
(4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth
factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less
equals a factor of 1 and a growth rate of 80 percent or greater equals a factor
of 1.2. If three years of data are not available, a growth factor of 1 will be as-
signed.
Exclude from C&I loan
growth rate the out-
standing amount of loans
provided under the Pay-
check Protection Pro-
gram.
then scaled to a growth
factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less
equals a factor of 1 and a growth rate of 80 percent or greater equals a factor
of 1.2. If three years of data are not available, a growth factor of 1 will be as-
signed.
Exclude from C&I loan
growth rate the out-
standing amount of loans
provided under the Pay-
check Protection Pro-
gram.
(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the
growth factor and resulting values are summed.
See Appendix C for the detailed description of the measure.
Concentration Measure for
Highly Complex Institutions.
Concentration score for highly complex institutions is the highest of the following
three scores:
(1) Higher-Risk Assets/
Tier 1 Capital and Re-
serves.
Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and un-
funded), nontraditional mortgages, higher-risk consumer loans, and higher-risk
securitizations divided by Tier 1 capital and reserves. See Appendix C for the
detailed description of the measure.
No Exclusion.
(2) Top 20 Counterparty
Exposure/Tier 1 Cap-
ital and Reserves.
Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1
capital and reserves. The total exposure amount is equal to the sum of the insti-
tution’s exposure amounts to one counterparty (or borrower) for derivatives, se-
curities financing transactions (SFTs), and cleared transactions, and its gross
lending exposure (including all unfunded commitments) to that counterparty (or
borrower). A counterparty includes an entity’s own affiliates. Exposures to enti-
ties that are affiliates of each other are treated as exposures to one
counterparty (or borrower). Counterparty exposure excludes all counterparty ex-
posure to the U.S. Government and departments or agencies of the U.S. Gov-
ernment that is unconditionally guaranteed by the full faith and credit of the
United States
rrower). A counterparty includes an entity’s own affiliates. Exposures to enti-
ties that are affiliates of each other are treated as exposures to one
counterparty (or borrower). Counterparty exposure excludes all counterparty ex-
posure to the U.S. Government and departments or agencies of the U.S. Gov-
ernment that is unconditionally guaranteed by the full faith and credit of the
United States. The exposure amount for derivatives, including OTC derivatives,
cleared transactions that are derivative contracts, and netting sets of derivative
contracts, must be calculated using the methodology set forth in 12 CFR
324.34(b), but without any reduction for collateral other than cash collateral that
is all or part of variation margin and that satisfies the requirements of 12 CFR
324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The expo-
sure amount associated with SFTs, including cleared transactions that are
SFTs, must be calculated using the standardized approach set forth in 12 CFR
324.37(b) or (c). For both derivatives and SFT exposures, the exposure amount
to central counterparties must also include the default fund contribution.
No Exclusion.
(3) Largest Counterparty
Exposure/Tier 1 Cap-
ital and Reserves.
The largest total exposure amount to one counterparty divided by Tier 1 capital
and reserves. The total exposure amount is equal to the sum of the institution’s
exposure amounts to one counterparty (or borrower) for derivatives, SFTs, and
cleared transactions, and its gross lending exposure (including all unfunded
commitments) to that counterparty (or borrower). A counterparty includes an en-
tity’s own affiliates. Exposures to entities that are affiliates of each other are
treated as exposures to one counterparty (or borrower). Counterparty exposure
excludes all counterparty exposure to the U.S. Government and departments or
agencies of the U.S. Government that is unconditionally guaranteed by the full
faith and credit of the United States
borrower). A counterparty includes an en-
tity’s own affiliates. Exposures to entities that are affiliates of each other are
treated as exposures to one counterparty (or borrower). Counterparty exposure
excludes all counterparty exposure to the U.S. Government and departments or
agencies of the U.S. Government that is unconditionally guaranteed by the full
faith and credit of the United States. The exposure amount for derivatives, in-
cluding OTC derivatives, cleared transactions that are derivative contracts, and
netting sets of derivative contracts, must be calculated using the methodology
set forth in 12 CFR 324.34(b), but without any reduction for collateral other than
cash collateral that is all or part of variation margin and that satisfies the re-
quirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3)
through (7). The exposure amount associated with SFTs, including cleared
transactions that are SFTs, must be calculated using the standardized approach
set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures,
the exposure amount to central counterparties must also include the default
fund contribution.
No Exclusion.
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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard
measures 1
Description
Exclusions
Core Earnings/Average Quar-
ter-End Total Assets.
Core earnings are defined as net income less extraordinary items and tax-ad-
justed realized gains and losses on available-for-sale (AFS) and held-to-maturity
(HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of
merger-adjusted core earnings and divides it by an average of five quarter-end
total assets (most recent and four prior quarters)
ge Quar-
ter-End Total Assets.
Core earnings are defined as net income less extraordinary items and tax-ad-
justed realized gains and losses on available-for-sale (AFS) and held-to-maturity
(HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of
merger-adjusted core earnings and divides it by an average of five quarter-end
total assets (most recent and four prior quarters). If four quarters of data on
core earnings are not available, data for quarters that are available will be
added and annualized. If five quarters of data on total assets are not available,
data for quarters that are available will be averaged.
Prior to averaging, exclude
from total assets for the
applicable quarter-end
periods the outstanding
balance of loans provided
under the Paycheck Pro-
tection Program.
Credit Quality Measure. 2
The credit quality score is the higher of the following two scores:
(1) Criticized and Classi-
fied Items/Tier 1 Cap-
ital and Reserves.
Sum of criticized and classified items divided by the sum of Tier 1 capital and re-
serves. Criticized and classified items include items an institution or its primary
federal regulator have graded ‘‘Special Mention’’ or worse and include retail
items under Uniform Retail Classification Guidelines, securities, funded and un-
funded loans, other real estate owned (ORE), other assets, and marked-to-mar-
ket counterparty positions, less credit valuation adjustments. Criticized and clas-
sified items exclude loans and securities in trading books, and the amount re-
coverable from the U.S. government, its agencies, or government-sponsored
enterprises, under guarantee or insurance provisions.
No Exclusion.
funded and un-
funded loans, other real estate owned (ORE), other assets, and marked-to-mar-
ket counterparty positions, less credit valuation adjustments. Criticized and clas-
sified items exclude loans and securities in trading books, and the amount re-
coverable from the U.S. government, its agencies, or government-sponsored
enterprises, under guarantee or insurance provisions.
No Exclusion.
(2) Underperforming As-
sets/Tier 1 Capital and
Reserves.
Sum of loans that are 30 days or more past due and still accruing interest, non-
accrual loans, restructured loans (including restructured 1–4 family loans), and
ORE, excluding the maximum amount recoverable from the U.S. government,
its agencies, or government-sponsored enterprises, under guarantee or insur-
ance provisions, divided by a sum of Tier 1 capital and reserves.
No Exclusion.
Core Deposits/Total Liabilities
Total domestic deposits excluding brokered deposits and uninsured non-brokered
time deposits divided by total liabilities.
Exclude from total liabilities
outstanding borrowings
from Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a maturity of one
year or less and out-
standing borrowings from
the Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a maturity of greater
than one year.
Balance Sheet Liquidity Ratio
Sum of cash and balances due from depository institutions, federal funds sold and
securities purchased under agreements to resell, and the market value of avail-
able for sale and held to maturity agency securities (excludes agency mortgage-
backed securities but includes all other agency securities issued by the U.S.
Treasury, U.S. government agencies, and U.S
.
Balance Sheet Liquidity Ratio
Sum of cash and balances due from depository institutions, federal funds sold and
securities purchased under agreements to resell, and the market value of avail-
able for sale and held to maturity agency securities (excludes agency mortgage-
backed securities but includes all other agency securities issued by the U.S.
Treasury, U.S. government agencies, and U.S. government sponsored enter-
prises) divided by the sum of federal funds purchased and repurchase agree-
ments, other borrowings (including FHLB) with a remaining maturity of one year
or less, 5 percent of insured domestic deposits, and 10 percent of uninsured do-
mestic and foreign deposits.
Include in highly liquid as-
sets the outstanding bal-
ance of PPP loans that
exceed borrowings from
the Federal Reserve
Banks under the PPPLF,
until September 30,
2020, or if extended by
the Board of Governors
of the Federal Reserve
System and the Sec-
retary of the Treasury,
until such date of exten-
sion.
Exclude from other bor-
rowings with a remaining
maturity of one year or
less the balance of out-
standing borrowings from
the Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a remaining maturity
of one year or less.
Potential Losses/Total Do-
mestic Deposits (Loss Se-
verity Measure).
Potential losses to the DIF in the event of failure divided by total domestic depos-
its. Paragraph (a) of this section describes the calculation of the loss severity
measure in detail.
Exclusions are described in
paragraph (a) of this sec-
tion.
Market Risk Measure for
Highly Complex Institu-
tions 2.
The market risk score is a weighted average of the following three scores:
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(a) of this section describes the calculation of the loss severity
measure in detail.
Exclusions are described in
paragraph (a) of this sec-
tion.
Market Risk Measure for
Highly Complex Institu-
tions 2.
The market risk score is a weighted average of the following three scores:
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11404
Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard
measures 1
Description
Exclusions
(1) Trading Revenue Vol-
atility/Tier 1 Capital.
Trailing 4-quarter standard deviation of quarterly trading revenue (merger-ad-
justed) divided by Tier 1 capital.
No Exclusion.
(2) Market Risk Capital/
Tier 1 Capital.
Market risk capital divided by Tier 1 capital ..............................................................
No Exclusion.
(3) Level 3 Trading As-
sets/Tier 1 Capital.
Level 3 trading assets divided by Tier 1 capital ........................................................
No Exclusion.
Average Short-term Funding/
Average Total Assets.
Quarterly average of federal funds purchased and repurchase agreements divided
by the quarterly average of total assets as reported on Schedule RC–K of the
Call Reports.
Exclude from the quarterly
average of total assets
the outstanding balance
of loans provided under
the Paycheck Protection
Program.
1 The applicable portions of the current expected credit loss methodology (CECL) transitional amounts attributable to the allowance for credit
losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital
regulations, as they may be amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
84 FR 4222 (Feb
ected credit loss methodology (CECL) transitional amounts attributable to the allowance for credit
losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital
regulations, as they may be amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
84 FR 4222 (Feb. 14, 2019)), will be removed from the sum of Tier 1 capital and reserves throughout the large bank and highly complex bank
scorecards, including in the ratio of Higher-Risk Assets to Tier 1 Capital and Reserves, the Growth-Adjusted Portfolio Concentrations Measure,
the ratio of Top 20 Counterparty Exposure to Tier 1 Capital and Reserves, the Ratio of Largest Counterparty Exposure to Tier 1 Capital and Re-
serves, the ratio of Criticized and Classified Items to Tier 1 Capital and Reserves, and the ratio of Underperforming Assets to Tier 1 Capital and
Reserves. All of these ratios are described in appendix A of this subpart.
2 The credit quality score is the greater of the criticized and classified items to Tier 1 capital and reserves score or the underperforming assets
to Tier 1 capital and reserves score. The market risk score is the weighted average of three scores—the trading revenue volatility to Tier 1 cap-
ital score, the market risk capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios are described in
appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart. Each score is multiplied by its re-
spective weight, and the resulting weighted score is summed to compute the score for the market risk measure. An overall weight of 35 percent
is allocated between the scores for the credit quality measure and market risk measure
tios are described in
appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart. Each score is multiplied by its re-
spective weight, and the resulting weighted score is summed to compute the score for the market risk measure. An overall weight of 35 percent
is allocated between the scores for the credit quality measure and market risk measure. The allocation depends on the ratio of average trading
assets to the sum of average securities, loans and trading assets (trading asset ratio) as follows: (1) Weight for credit quality score = 35 percent
* (1—trading asset ratio); and, (2) Weight for market risk score = 35 percent * trading asset ratio. In calculating the trading asset ratio, exclude
from the balance of loans the outstanding balance of loans provided under the Paycheck Protection Program.
(a) Description of the loss severity
measure. The loss severity measure
applies a standardized set of
assumptions to an institution’s balance
sheet to measure possible losses to the
FDIC in the event of an institution’s
failure. To determine an institution’s
loss severity rate, the FDIC first applies
assumptions about uninsured deposit
and other liability runoff, and growth in
insured deposits, to adjust the size and
composition of the institution’s
liabilities. Exclude total outstanding
borrowings from Federal Reserve Banks
under the Paycheck Protection Program
Liquidity Facility from short-and long-
term secured borrowings, as
appropriate. Assets are then reduced to
match any reduction in liabilities.
Exclude from an institution’s balance of
commercial and industrial loans the
outstanding balance of loans provided
under the Paycheck Protection Program
total outstanding
borrowings from Federal Reserve Banks
under the Paycheck Protection Program
Liquidity Facility from short-and long-
term secured borrowings, as
appropriate. Assets are then reduced to
match any reduction in liabilities.
Exclude from an institution’s balance of
commercial and industrial loans the
outstanding balance of loans provided
under the Paycheck Protection Program.
In the event that the outstanding
balance of loans provided under the
Paycheck Protection Program exceeds
the balance of commercial and
industrial loans, exclude any remaining
balance of loans provided under the
Paycheck Protection Program first from
the balance of all other loans, up to the
total amount of all other loans, followed
by the balance of agricultural loans, up
to the total amount of agricultural loans.
Increase cash balances by outstanding
loans provided under the Paycheck
Protection Program that exceed total
outstanding borrowings from Federal
Reserve Banks under the Paycheck
Protection Program Liquidity Facility, if
any. The institution’s asset values are
then further reduced so that the
Leverage Ratio reaches 2 percent. In
both cases, assets are adjusted pro rata
to preserve the institution’s asset
composition. Assumptions regarding
loss rates at failure for a given asset
category and the extent of secured
liabilities are then applied to estimated
assets and liabilities at failure to
determine whether the institution has
enough unencumbered assets to cover
domestic deposits. Any projected
shortfall is divided by current domestic
deposits to obtain an end-of-period loss
severity ratio. The loss severity measure
is an average loss severity ratio for the
three most recent quarters of data
available
ities are then applied to estimated
assets and liabilities at failure to
determine whether the institution has
enough unencumbered assets to cover
domestic deposits. Any projected
shortfall is divided by current domestic
deposits to obtain an end-of-period loss
severity ratio. The loss severity measure
is an average loss severity ratio for the
three most recent quarters of data
available. The applicable portions of the
current expected credit loss
methodology (CECL) transitional
amounts attributable to the allowance
for credit losses on loans and leases
held for investment and added to
retained earnings for regulatory capital
purposes pursuant to the regulatory
capital regulations, as they may be
amended from time to time (12 CFR part
3, 12 CFR part 217, 12 CFR part 324, 85
FR 61577 (Sept. 30, 2020), and 84 FR
4222 (Feb. 14, 2019)), will be removed
from the calculation of the loss severity
measure.
*
*
*
*
*
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on February 16,
2021.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2021–03456 Filed 2–23–21; 11:15 am]
BILLING CODE 6714–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2020–0503; Product
Identifier 2018–SW–006–AD; Amendment
39–21386; AD 2021–02–03]
RIN 2120–AA64
Airworthiness Directives; Leonardo
S.p.a. Helicopters
AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
SUMMARY: The FAA is adopting a new
airworthiness directive (AD) for certain
Leonardo S.p.a. (Leonardo) Model
AW189 helicopters. This AD requires
various repetitive inspections of the
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.