Notice of Proposed Rulemaking on Assessments, Amendments to Incorporate Troubled Debt Restructuring Accounting Standards Update
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Federal Deposit Insurance
Corporation
Concur:
________________________
Harrel M. Pettway
General Counsel
MEMO
TO:
The Board of Directors
FROM:
Patrick Mitchell
Director, Division of Insurance and Research
DATE:
July 19, 2022
RE:
Assessments, Amendments to Incorporate Troubled Debt Restructuring Accounting Standards Update
RECOMMENDATION
Staff recommend that the FDIC Board of Directors (the Board) adopt and authorize publication of the
attached notice of proposed rulemaking (NPR or proposal) with a 30-day comment period. The NPR would
conform the risk-based deposit insurance assessment system applicable to all large banks, including highly
complex banks, to incorporate a recently updated accounting standard that eliminates the recognition of
troubled debt restructurings (TDRs) and enhances financial statement disclosure requirements for loan
modifications to borrowers experiencing financial difficulty.
The proposal would amend the assessment regulations to expressly include the new accounting term,
“modifications to borrowers experiencing financial difficulty,” recently introduced by the Financial Accounting
Standards Board (FASB), to replace TDRs in the underperforming assets ratio and higher-risk assets ratio in the
scorecards for large and highly complex banks. The proposal would not affect the deposit insurance assessment
system for small banks.
BACKGROUND
Deposit Insurance Assessments
The FDIC maintains a risk-based deposit insurance assessment system
introduced by the Financial Accounting
Standards Board (FASB), to replace TDRs in the underperforming assets ratio and higher-risk assets ratio in the
scorecards for large and highly complex banks. The proposal would not affect the deposit insurance assessment
system for small banks.
BACKGROUND
Deposit Insurance Assessments
The FDIC maintains a risk-based deposit insurance assessment system. A bank’s assessment rate is
calculated using different methods dependent upon whether the bank is classified as a small, large, or highly
complex bank.1 Large and highly complex banks are assessed using a scorecard approach that combines
CAMELS ratings and certain forward-looking financial measures to assess the risk that a large or highly complex
bank poses to the Deposit Insurance Fund (DIF).2 Both scorecards use quantitative financial measures that are
useful for predicting a large or highly complex bank’s long-term performance.
1 For deposit insurance assessment purposes, large banks generally have $10 billion or more in total assets and small banks
have less than $10 billion in total assets. 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).
2 See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
PATRICK
MITCHELL
Digitally signed by PATRICK
MITCHELL
Date: 2022.07.12 15:16:52
-04'00'
HARREL
PETTWAY
Digitally signed by HARREL
PETTWAY
Date: 2022.07.12 17:51:59
-04'00'
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).
2 See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
PATRICK
MITCHELL
Digitally signed by PATRICK
MITCHELL
Date: 2022.07.12 15:16:52
-04'00'
HARREL
PETTWAY
Digitally signed by HARREL
PETTWAY
Date: 2022.07.12 17:51:59
-04'00'
MEMO
2
Two of the measures in the large and highly complex bank scorecards, the credit quality measure and
the concentration measure, are determined, in part, using restructured loans or TDRs. These measures are
described in more detail below.
Credit Quality Measure
The credit quality measure is the greater of (1) the criticized and classified items to the sum of Tier 1
capital and reserves score or (2) the underperforming assets to the sum of Tier 1 capital and reserves score.
Each risk measure is converted to a score between 0 and 100 based upon minimum and maximum cutoff values.
The underperforming assets ratio is described identically in the large and highly complex bank
scorecards as the:
“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 agencies, under
guarantee or insurance provisions, divided by a sum of Tier 1 capital and reserves.”3
The specific data used to identify the “restructured loans” referenced in the above description are those items
that banks disclose in their Call Report on Schedule RC-C, Part I, Memorandum items 1.a. through 1.g, “Loans
restructured in troubled debt restructurings that are in compliance with their modified terms.” The portion of
restructured loans that is guaranteed or insured by the U.S. government are excluded from underperforming
assets
ured loans” referenced in the above description are those items
that banks disclose in their Call Report on Schedule RC-C, Part I, Memorandum items 1.a. through 1.g, “Loans
restructured in troubled debt restructurings that are in compliance with their modified terms.” The portion of
restructured loans that is guaranteed or insured by the U.S. government are excluded from underperforming
assets. This data is collected in Call Report Schedule RC-O, Memorandum item 16, “Portion of loans restructured
in troubled debt restructurings that are in compliance with their modified terms and are guaranteed or insured
by the U.S. government.”
Concentration Measure
The concentration measure is the greater of (1) the higher-risk assets to the sum of Tier 1 capital and
reserves score or (2) the growth-adjusted portfolio concentrations score. Each risk measure is converted to a
score between 0 and 100 based upon minimum and maximum cutoff values. The higher-risk assets ratio
captures the risk associated with concentrated lending in higher-risk areas. Higher-risk assets include
construction and development (C&D) loans, higher-risk commercial and industrial (C&I) loans, higher-risk
consumer loans, nontraditional mortgage loans, and higher-risk securitizations.
Higher-risk C&I loans are defined, in part, based on whether the loan is owed to the bank by a higher-
risk C&I borrower, which includes, among other things, a borrower that obtains a refinance of an existing C&I
loan, subject to certain conditions. Higher-risk consumer loans are defined as all consumer loans where, as of
origination, or, if the loan has been refinanced, as of refinance, the probability of default within two years is
greater than 20 percent, excluding those consumer loans that meet the definition of a nontraditional mortgage
loan. A refinance for purposes of higher-risk C&I loans and higher-risk consumer loans is defined in the
assessment regulations and explicitly excludes TDRs
ns where, as of
origination, or, if the loan has been refinanced, as of refinance, the probability of default within two years is
greater than 20 percent, excluding those consumer loans that meet the definition of a nontraditional mortgage
loan. A refinance for purposes of higher-risk C&I loans and higher-risk consumer loans is defined in the
assessment regulations and explicitly excludes TDRs.
FASB’s Elimination of Troubled Debt Restructurings
On March 31, 2022, FASB issued Accounting Standards Update No. 2022-02 (ASU No. 2022-02),
“Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.”4 This
3 See 12 CFR 327 Appendix A.
4 FASB Accounting Standards Update No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures,” March 2022.
MEMO
3
update eliminated the recognition and measurement guidance for TDRs for all entities that have adopted ASU
2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments” and the Current Expected Credit Losses (CECL) methodology.5 FASB’s rationale was that ASU 2016-
13 requires the measurement and recording of lifetime expected credit losses on an asset that is within the
scope of ASU 2016-13, and as a result, credit losses from TDRs have been captured in the allowance for credit
losses. Therefore, stakeholders observed and asserted that the additional designation of a loan modification as
a TDR and the related accounting were unnecessarily complex and provided less meaningful information than
under the incurred loss methodology
s on an asset that is within the
scope of ASU 2016-13, and as a result, credit losses from TDRs have been captured in the allowance for credit
losses. Therefore, stakeholders observed and asserted that the additional designation of a loan modification as
a TDR and the related accounting were unnecessarily complex and provided less meaningful information than
under the incurred loss methodology.
The accounting update introduces new financial statement disclosure requirements related to certain
modifications of receivables made to borrowers experiencing financial difficulty, or “modifications to borrowers
experiencing financial difficulty.” Such modifications are limited to those that result in principal forgiveness,
interest rate reductions, other-than-insignificant payment delays, or term extensions in the current reporting
period. Modifications to borrowers experiencing financial difficulty may be different from those previously
captured in TDR disclosures because an entity no longer would have to determine whether the creditor has
granted a concession, which is a current requirement to determine whether a modification represents a TDR.
The update requires entities to disclose in financial statements information about (a) the types of modifications
provided, disaggregated by modification type, (b) the expected financial effect of those modifications, and (c)
the performance of the loans after modification.
For entities that have adopted CECL, ASU 2022-02 is effective for fiscal years beginning after December
15, 2022. FASB also permitted the early adoption of ASU 2022-02 by any entity that has adopted CECL
(a) the types of modifications
provided, disaggregated by modification type, (b) the expected financial effect of those modifications, and (c)
the performance of the loans after modification.
For entities that have adopted CECL, ASU 2022-02 is effective for fiscal years beginning after December
15, 2022. FASB also permitted the early adoption of ASU 2022-02 by any entity that has adopted CECL. For
regulatory reporting purposes, if an institution chooses to early adopt ASU 2022-02 during 2022, Supplemental
Instructions to the Call Report specify that the institution should implement ASU 2022-02 for the same quarter-
end report date and report “modifications to borrowers experiencing financial difficulty” in the current TDR Call
Report line items.6 These line items include Schedule RC-C, Part I, Memorandum items 1.a. through 1.g., which
are used to identify “restructured loans” for the underperforming assets ratio used in the large and highly
complex bank scorecards, described above. As a result, a large or highly complex institution that has early
adopted ASU 2022-02 and is reporting modifications to borrowers experiencing financial difficulty in the current
TDR Call Report line items will be assigned a deposit insurance assessment rate that relies, in part, on this
reporting. The FDIC and other members of the Federal Financial Institutions Examination Council (FFIEC) are
planning to revise the Call Report forms and instructions to replace the current TDR terminology with updated
language from ASU 2022-02 for the first quarter of 2023
the current
TDR Call Report line items will be assigned a deposit insurance assessment rate that relies, in part, on this
reporting. The FDIC and other members of the Federal Financial Institutions Examination Council (FFIEC) are
planning to revise the Call Report forms and instructions to replace the current TDR terminology with updated
language from ASU 2022-02 for the first quarter of 2023.
PROPOSED RULE
Summary
Staff propose to incorporate into the large and highly complex bank assessment scorecards the
updated accounting standard that eliminates the recognition of TDRs and, instead, requires new financial
statement disclosures on “modifications to borrowers experiencing financial difficulty.” Staff are proposing to
expressly define restructured loans in the underperforming assets ratio to include “modifications to borrowers
experiencing financial difficulty.” Staff are also proposing to amend the definition of a refinance for purposes of
determining whether a loan is a higher-risk C&I loan or a higher-risk consumer loan, both elements of the higher-
risk assets ratio. Under the proposal, a refinance would not include modifications to a loan that otherwise would
meet the definition of a refinance, but that result in the classification of a loan as a modification to borrowers
5 FASB Accounting Standards Update No. 2016–13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments.”
6 See Financial Institution Letter (FIL) 17-2022, Consolidated Reports of Condition and Income for First Quarter 2022. See also
Supplemental Instructions, March 2022 Call Report Materials, First 2022 Call, Number 299, available at
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
it Losses (Topic 326), Measurement of Credit
Losses on Financial Instruments.”
6 See Financial Institution Letter (FIL) 17-2022, Consolidated Reports of Condition and Income for First Quarter 2022. See also
Supplemental Instructions, March 2022 Call Report Materials, First 2022 Call, Number 299, available at
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
MEMO
4
experiencing financial difficulty. This proposal would not affect the small bank deposit insurance assessment
system.
Underperforming Assets Ratio
Staff propose to amend the underperforming assets ratio used in the large and highly complex bank
pricing scorecards to conform to the updated accounting standards in ASU 2022-02. The amended text explicitly
defines restructured loans for large and highly complex banks that have adopted CECL and ASU 2022-02 as
modifications to borrowers experiencing financial difficulty. For the remaining large and highly complex banks
that have not yet adopted CECL and ASU 2022-02, the FDIC would continue to use TDRs for restructured loans
and the amended text would explicitly define restructured loans for these banks as TDRs.
The FDIC has included restructured loans in the underperforming assets ratio since the introduction of
the large and highly complex bank scorecards in 2011. Restructured loans, in the context of the
underperforming assets measure, typically present an elevated level of credit risk because they represent loans
to borrowers unable to perform according to the original contractual terms. The FDIC believes it is important to
capture such elevated credit risk in its measurement of credit quality. Staff believe the accounting term
introduced by FASB in ASU 2022-02, “modifications to borrowers experiencing financial difficulty,” will provide a
similar and meaningful indicator of credit risk
represent loans
to borrowers unable to perform according to the original contractual terms. The FDIC believes it is important to
capture such elevated credit risk in its measurement of credit quality. Staff believe the accounting term
introduced by FASB in ASU 2022-02, “modifications to borrowers experiencing financial difficulty,” will provide a
similar and meaningful indicator of credit risk.
Higher-Risk Assets Ratio
Staff propose to amend the definition of a refinance, in determining whether a loan is a higher-risk C&I
loan or a higher-risk consumer loan for deposit insurance assessment purposes, to conform to the updated
accounting standards in ASU 2022-02. Specifically, a refinance of a C&I loan would not include a modification or
series of modifications to a commercial loan that would otherwise meet the definition of a refinance, but that
results in the classification of a loan as a modification to borrowers experiencing financial difficulty, for a large
or highly complex bank that has adopted CECL and ASU 2022-02, or that results in the classification of a loan as a
TDR, for all remaining large and highly complex banks. For purposes of higher-risk consumer loans, a refinance
would not include modifications to a loan that would otherwise meet the definition of a refinance, but that
result in the classification of a loan as a modification to borrowers experiencing financial difficulty, for a large or
highly complex bank that has adopted CECL and ASU 2022-02, or that result in the classification of a loan as a
TDR, for all remaining large and highly complex banks.
EXPECTED EFFECTS
As of December 31, 2021, the FDIC insured 148 banks that were classified as large or highly complex for
deposit insurance assessment purposes, and that would be affected by this proposed rule. Staff expect most of
these institutions will adopt CECL by January 1, 2023, the proposed effective date of the rule
of a loan as a
TDR, for all remaining large and highly complex banks.
EXPECTED EFFECTS
As of December 31, 2021, the FDIC insured 148 banks that were classified as large or highly complex for
deposit insurance assessment purposes, and that would be affected by this proposed rule. Staff expect most of
these institutions will adopt CECL by January 1, 2023, the proposed effective date of the rule.
The primary expected effect of the proposed rule is the change in underperforming assets, and
consequent change in assessment rates, that could occur as a result of the difference between the amount of
TDRs that most banks are currently reporting and the amount of modifications to borrowers experiencing
financial difficulty that banks will report upon adoption of ASU 2022-02. The effect of this proposed rule on
assessments paid by large and highly complex banks is difficult to estimate since most banks are not yet
reporting modifications to borrowers experiencing financial difficulty, and staff do not know how the amount of
reported modifications to borrowers experiencing financial difficulty will compare to the amount of TDRs that
affected banks report.
In general, staff expect that the initial amount of modifications made to borrowers experiencing
financial difficulty will be lower than previously reported TDRs. This is because under ASU 2022-02, reporting of
MEMO
5
modifications to borrowers experiencing financial difficulty should be applied prospectively and would
therefore apply only to modifications made after a bank adopts the standard. However, in the long term it is
possible that the amount of modifications to borrowers experiencing financial difficulty could be higher or lower
than the amount of TDRs that banks would have reported prior to adoption of ASU 2022-02
borrowers experiencing financial difficulty should be applied prospectively and would
therefore apply only to modifications made after a bank adopts the standard. However, in the long term it is
possible that the amount of modifications to borrowers experiencing financial difficulty could be higher or lower
than the amount of TDRs that banks would have reported prior to adoption of ASU 2022-02. Therefore, under the
proposed rule, the underperforming assets ratio could be higher or lower due to the adoption of ASU 2022-02,
and the resulting ratio may or may not affect an individual bank’s assessment rate, depending on whether it is
the binding ratio for the credit quality measure.
Staff do not have the information necessary to estimate the expected effect of the proposal to
incorporate the new accounting standard into the large and highly complex bank scorecards. However, the
following analysis illustrates a range of potential outcomes based on TDRs reported prior to ASU 2022-02, as the
amount of modifications to borrowers experiencing financial difficulty could be higher, lower, or similar to
previously reported TDRs. The analysis shows the effect on assessments of higher or lower TDRs in calculating
the underperforming assets ratio for deposit insurance assessment purposes.
Staff calculated some illustrative examples of the effect on assessments if modifications made to
borrowers experiencing financial difficulty are lower than certain amounts of previously reported TDRs. For
example, if all large and highly complex banks had reported zero TDRs as of December 31, 2021, the quarter
before FASB issued ASU 2022-02, the impact on the underperforming assets ratio would have reduced total
deposit insurance assessment revenue by an annualized amount of approximately $90 million; if modifications
were 50 percent lower than TDRs reported as of December 31, 2021, annualized assessments would have
decreased by $52 million
had reported zero TDRs as of December 31, 2021, the quarter
before FASB issued ASU 2022-02, the impact on the underperforming assets ratio would have reduced total
deposit insurance assessment revenue by an annualized amount of approximately $90 million; if modifications
were 50 percent lower than TDRs reported as of December 31, 2021, annualized assessments would have
decreased by $52 million.
Alternatively, as an extreme and unlikely scenario, if all large and highly complex banks had reported
zero TDRs during a period when overall risk in the banking industry was higher, such as December 31, 2011, the
impact on the underperforming assets ratio would have reduced total deposit insurance assessment revenue by
an annualized amount of approximately $957 million. Between 2015 and 2019, if TDRs were zero, the resulting
underperforming assets ratio would have reduced total deposit insurance assessment revenue by about $279
million annually, on average.
Over time, however, under ASU 2022-02 large and highly complex banks will begin to report
modifications to borrowers experiencing financial difficulties. As noted above, the effect on assessments will
depend on how the newly reported modifications compare to the TDRs that would have been reported under
the prior accounting standard. For example, if all large and highly complex banks had reported modifications to
borrowers experiencing financial difficulty that were 25 percent greater than the TDRs reported as of December
31, 2021, the impact on the underperforming assets ratio would have increased total deposit insurance
assessment revenue by an annualized amount of approximately $30 million; if the modifications exceeded TDRs
by 50 percent, annualized assessments would have increased by $65 million; and if the modifications exceeded
TDRs by 100 percent, annualized assessments would have increased by $137 million.
The analysis presented above serves as an illustrative example of potential effects of the proposed rule
ment revenue by an annualized amount of approximately $30 million; if the modifications exceeded TDRs
by 50 percent, annualized assessments would have increased by $65 million; and if the modifications exceeded
TDRs by 100 percent, annualized assessments would have increased by $137 million.
The analysis presented above serves as an illustrative example of potential effects of the proposed rule.
The analysis does not estimate potential future modifications to borrowers experiencing financial difficulty or
how those amounts, once reported, will compare to previously reported TDRs for a few reasons. First, banks
were granted temporary relief from reporting TDRs that were modified due to the COVID-19 pandemic, so recent
reporting of TDRs is likely lower than it may otherwise have been.7 Second, the amount of modifications made
7 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. Section 4013 of
the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provided banks the option to temporarily suspend
certain requirements under U.S. GAAP related to TDRs to account for the effects of COVID-19. Division N of the Consolidated
Appropriations Act, 2021 ((Title V, subtitle C, section 541)) was signed into law on December 27, 2020, extending the
provisions in Section 4013 of the CARES Act to January 1, 2022. This relief applied to certain loans modified between March 1,
2020 and January 1, 2022.
certain requirements under U.S. GAAP related to TDRs to account for the effects of COVID-19. Division N of the Consolidated
Appropriations Act, 2021 ((Title V, subtitle C, section 541)) was signed into law on December 27, 2020, extending the
provisions in Section 4013 of the CARES Act to January 1, 2022. This relief applied to certain loans modified between March 1,
2020 and January 1, 2022.
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by large or highly complex banks vary based on economic conditions and future economic conditions are
uncertain. Third, a restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons related
to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider, while
a modification to borrowers experiencing financial difficulty is not evaluated based on whether or not a
concession has been granted. Finally, future Call Report revisions and instructions on how modifications to
borrowers experiencing financial difficulties should be reported will affect the future reported amount of
modifications to borrowers experiencing financial difficulty.
With regard to the higher-risk assets ratio, the effect on assessments paid by large and highly complex
banks is likely to be more muted. The assessment regulations define a higher-risk C&I or consumer loan as a
loan or refinance that meets certain risk criteria. The proposed rule would exclude modifications to borrowers
experiencing financial difficulty from the definition of a refinance for purposes of the higher-risk assets ratio. As
a result, if a modification to a C&I or consumer loan results in the classification of the loan as a TDR under the
current regulations, or as a modification to borrowers experiencing financial difficulty under the proposed rule,
a large or highly complex bank would not have to re-evaluate whether the modified loan meets the definition of
a higher-risk asset
of the higher-risk assets ratio. As
a result, if a modification to a C&I or consumer loan results in the classification of the loan as a TDR under the
current regulations, or as a modification to borrowers experiencing financial difficulty under the proposed rule,
a large or highly complex bank would not have to re-evaluate whether the modified loan meets the definition of
a higher-risk asset. For example, if a higher-risk C&I loan was subsequently modified as a TDR or modification to
borrowers experiencing financial difficulty, it would not be considered a refinance and, therefore, would
continue to be considered a higher-risk asset. Conversely, if a C&I loan that does not meet the definition of a
higher-risk asset was subsequently modified as a TDR or modification to borrowers experiencing financial
difficulty, it would not be considered a refinance and, therefore, would not have to be re-evaluated to determine
if it meets the definition of a higher-risk asset. Staff assume that these possible outcomes are offsetting and the
change to the rule will have minimal to no effect on deposit insurance assessments for large and highly complex
banks.
The proposed rule would pose no additional reporting burden for large and highly complex banks.
ALTERNATIVES CONSIDERED
Staff considered two reasonable and possible alternatives. First, the FDIC could require banks to
continue to report TDRs specifically for deposit insurance assessment purposes, even after they have adopted
CECL and ASU 2022-02. This alternative would maintain consistency of the data used in the underperforming
assets ratio and higher-risk assets ratio with prior reporting periods. However, this alternative would impose
additional reporting burden on large and highly complex banks. This alternative would also fail to recognize the
potential usefulness of the new data on modifications to borrowers experiencing financial difficulty
ative would maintain consistency of the data used in the underperforming
assets ratio and higher-risk assets ratio with prior reporting periods. However, this alternative would impose
additional reporting burden on large and highly complex banks. This alternative would also fail to recognize the
potential usefulness of the new data on modifications to borrowers experiencing financial difficulty. Ultimately,
staff do not believe any benefits from continued reporting of TDRs expressly for assessment purposes would
justify the cost to affected banks.
Staff also considered removing restructured loans from the definition of underperforming assets
entirely and not incorporating the new data on modifications to borrowers experiencing financial difficulty.
However, this alternative fails to recognize that data on modifications to borrowers experiencing financial
difficulty provide a meaningful indicator of credit risk throughout economic cycles and should be captured in
credit quality measures such as the underperforming assets ratio and the higher-risk assets ratio. Staff believe
that the new modifications data required under ASU 2022-02 can provide valuable information and would not
MEMO
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impose additional reporting burden. Incorporating this new data in place of TDRs would be the most reasonable
option to ensure that large and highly complex banks are assessed fairly and accurately, all else equal.
On balance, staff believe the current proposal would determine deposit insurance assessment rates for
large and highly complex banks in the most appropriate, accurate, and straightforward manner.
COMMENT PERIOD, EFFECTIVE DATE, AND APPLICATION DATE
Staff recommend issuing this proposal with a 30-day comment period. Staff expect to issue a final rule
with an effective date of January 1, 2023, and applicable to the first quarterly assessment period of 2023 (i.e.,
January 1-April 1, 2023)
es for
large and highly complex banks in the most appropriate, accurate, and straightforward manner.
COMMENT PERIOD, EFFECTIVE DATE, AND APPLICATION DATE
Staff recommend issuing this proposal with a 30-day comment period. Staff expect to issue a final rule
with an effective date of January 1, 2023, and applicable to the first quarterly assessment period of 2023 (i.e.,
January 1-April 1, 2023). Most institutions that have implemented CECL will adopt FASB’s ASU 2022-02 in 2023,
unless an institution chooses to early adopt in 2022. Institutions implementing CECL on January 1, 2023, also
will adopt FASB’s ASU 2022-02 at that time. Therefore, by the first quarter of 2023, ASU 2022-02 will be in effect
for most, if not all, large and highly complex banks.
Staff Contacts:
Division of Insurance and Research
Scott Ciardi
Chief, Large Bank Pricing
(202) 898-7079
Ashley Mihalik
Chief, Banking and Regulatory Policy
(202) 898-3793
Legal Division
Kathryn Marks
Counsel
(202) 898-3896
RESOLUTION
8
RESOLUTION
WHEREAS, section 7(b)(1)(A) of the Federal Deposit Insurance Act (FDI Act) provides
that the FDIC Board of Directors (Board) shall, by regulation, establish a risk-based assessment
system for insured depository institutions (IDI); and
WHEREAS, section 7(b)(1)(D) of the FDI Act provides that the Board may
establish separate risk-based assessment systems for large and small IDIs; and
WHEREAS, in 2006, the Board adopted a final rule that created separate risk-based
assessment systems for large and small IDIs that combined supervisory ratings with other risk
measures to differentiate risk and determine assessment rates; and
WHEREAS, in March, 2022, the Financial Accounting Standards Board (FASB) issued
2022 Accounting Standards Update No
ystems for large and small IDIs; and
WHEREAS, in 2006, the Board adopted a final rule that created separate risk-based
assessment systems for large and small IDIs that combined supervisory ratings with other risk
measures to differentiate risk and determine assessment rates; and
WHEREAS, in March, 2022, the Financial Accounting Standards Board (FASB) issued
2022 Accounting Standards Update No. 2022-02 (ASU 2022-02), “Financial Instruments –
Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” that
eliminates the recognition and measurement guidance for troubled debt restructurings (TDRs)
and enhances financial statement disclosure requirements for loan modifications to borrowers
experiencing financial difficulty; and
WHEREAS, the accounting revisions adopted by the FASB affect IDIs’ reporting of
certain information that the FDIC uses to calculate deposit insurance assessments under the risk-
based assessment system applicable to large and highly complex IDIs by eliminating TDRs and
requiring disclosure of loan modifications to borrowers experiencing financial difficulty; and
WHEREAS, to ensure the risk-based deposit insurance assessment system conforms to
current accounting requirements and terminology set forth in ASU 2022-02, FDIC staff propose
to incorporate “modifications to borrowers experiencing financial difficulty” into the
RESOLUTION
9
underperforming assets ratio and the higher-risk assets ratio, both of which are used to determine
risk-based deposit insurance assessments for large or highly complex institutions; and
WHEREAS, the FDIC seeks comment on the effect of the accounting and reporting
changes on assessment rates for IDIs assessed under the large bank pricing system; and
WHEREAS, FDIC staff recommends the Board adopt and approve the attached Notice
of Proposed Rulemaking for publication and provide notice and opportunity for public comment,
to propose incorporation of recent accounting changes regarding the addition of modifications to
effect of the accounting and reporting
changes on assessment rates for IDIs assessed under the large bank pricing system; and
WHEREAS, FDIC staff recommends the Board adopt and approve the attached Notice
of Proposed Rulemaking for publication and provide notice and opportunity for public comment,
to propose incorporation of recent accounting changes regarding the addition of modifications to
borrowers experiencing financial difficulty to the risk-based assessment system applicable to
large and highly complex IDIs; and
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby approves and
authorizes publication in the Federal Register the attached Notice of Proposed Rulemaking
proposing the incorporation of accounting changes to the risk-based assessment system
applicable to large and highly complex IDIs; and authorizes the Executive Secretary, or her
designee, to publish the Notice of Proposed Rulemaking in the Federal Register in a form and
manner acceptable to the Executive Secretary, or her designee, and the General Counsel, or his
designee.
BE IT FURTHER RESOLVED, that the Board hereby authorizes the Executive
Secretary, or her designee, and the General Counsel, or his designee, to make such technical,
nonsubstantive, or conforming changes to the text of the attached Notice of Proposed
Rulemaking to ensure that the FDIC can publish this document in the Federal Register, and to
take such other actions and issue such other documents incident and related to the foregoing as
they deem necessary or appropriate to fulfill the Board’s objectives in connection with this
matter.
make such technical,
nonsubstantive, or conforming changes to the text of the attached Notice of Proposed
Rulemaking to ensure that the FDIC can publish this document in the Federal Register, and to
take such other actions and issue such other documents incident and related to the foregoing as
they deem necessary or appropriate to fulfill the Board’s objectives in connection with this
matter.
1
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 327
RIN 3064-AF85
Assessments, Amendments to Incorporate Troubled Debt Restructuring Accounting
Standards Update
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Notice of proposed rulemaking.
SUMMARY: The Federal Deposit Insurance Corporation seeks comment on a proposed
rule that would incorporate updated accounting standards in the risk-based deposit
insurance assessment system applicable to all large insured depository institutions (IDIs),
including highly complex IDIs. The FDIC calculates deposit insurance assessment rates
for large and highly complex IDIs based on supervisory ratings and financial measures,
including the underperforming assets ratio and the higher-risk assets ratio, both of which
are determined, in part, using restructured loans or troubled debt restructurings (TDRs).
The FDIC is proposing to include modifications to borrowers experiencing financial
difficulty, an accounting term recently introduced by the Financial Accounting Standards
Board (FASB) to replace TDRs, in the underperforming assets ratio and higher-risk
assets ratio for purposes of deposit insurance assessments.
DATES: Comments must be received no later than [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments on the notice of proposed rulemaking using
any of the following methods:
Accounting Standards
Board (FASB) to replace TDRs, in the underperforming assets ratio and higher-risk
assets ratio for purposes of deposit insurance assessments.
DATES: Comments must be received no later than [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL REGISTER].
ADDRESSES: You may submit comments on the notice of proposed rulemaking using
any of the following methods:
2
•
Agency Web Site: https://www.fdic.gov/regulations/laws/federal. Follow the
instructions for submitting comments on the agency website.
•
E-mail: comments@fdic.gov. Include RIN 3064-AF85 on the subject line of the
message.
•
Mail: Debra B. Decker, Executive Secretary, Attention: Comments – RIN 3064-
AF85, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington,
DC 20429.
•
Hand Delivery: Comments may be hand delivered to the guard station at the rear
of the 550 17th Street building (located on F Street NW) on business days
between 7 a.m. and 5 p.m.
•
Public Inspection: Comments received, including any personal information
provided, may be posted without change to
https://www.fdic.gov/resources/regulations/federal-register-publications/.
Commenters should submit only information that the commenter wishes to make
available publicly. The FDIC may review, redact, or refrain from posting all or
any portion of any comment that it may deem to be inappropriate for publication,
such as irrelevant or obscene material. The FDIC may post only a single
representative example of identical or substantially identical comments, and in
such cases will generally identify the number of identical or substantially identical
comments represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain comments on the
merits of this notice will be retained in the public comment file and will be
resentative example of identical or substantially identical comments, and in
such cases will generally identify the number of identical or substantially identical
comments represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain comments on the
merits of this notice will be retained in the public comment file and will be
3
considered as required under all applicable laws. All comments may be accessible
under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: Scott Ciardi, Chief, Large Bank
Pricing, 202- 898-7079, sciardi@fdic.gov; Ashley Mihalik, Chief, Banking and
Regulatory Policy, 202- 898-3793, amihalik@fdic.gov; Kathryn Marks, Counsel, 202-
898-3896, kmarks@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objective
The FDIC’s objective in setting forth this proposal is to ensure that the risk-based
deposit insurance assessment system applicable to large and highly complex banks
conforms to recently updated accounting standards.8 In March 2022, FASB issued
Accounting Standards Update No. 2022-02 (ASU 2022-02), “Financial Instruments –
Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” that
eliminates the recognition and measurement guidance of TDRs and, instead, introduces
new requirements related to financial statement disclosure of certain modifications of
receivables made to borrowers experiencing financial difficulty, or “modifications to
borrowers experiencing financial difficulty.”9 Risk-based deposit insurance assessments
for large and highly complex banks are determined, in part, using TDRs. Therefore, to
incorporate the updated accounting standards, the proposed amendment would include
8 For deposit insurance assessment purposes, large IDIs are generally those that have $10 billion or more in
total assets
difficulty.”9 Risk-based deposit insurance assessments
for large and highly complex banks are determined, in part, using TDRs. Therefore, to
incorporate the updated accounting standards, the proposed amendment would include
8 For deposit insurance assessment purposes, large IDIs are generally those that have $10 billion or more in
total assets. A highly complex IDI 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 (f) and (g). As used in this proposed rule, the term
“large bank” is synonymous with “large institution,” and the term “highly complex bank” is synonymous
with “highly complex institution,” as those terms are defined in 12 CFR 327.8.
9 FASB Accounting Standards Update No. 2022-02, “Financial Instruments - Credit Losses (Topic 326):
Troubled Debt Restructurings and Vintage Disclosures,” March 2022.
4
modifications to borrowers experiencing financial difficulty in the description of the
underperforming assets ratio, which includes restructured loans, and definitions used in
the higher-risk assets ratio, which reference TDRs. Both of these ratios are used to
determine risk-based deposit insurance assessments for large and highly complex banks.
II. Background
A. Deposit Insurance Assessments
The Federal Deposit Insurance Act (FDI Act) requires that the FDIC establish a
risk-based deposit insurance assessment system.10 The FDIC charges all IDIs an
assessment for deposit insurance equal to the IDI’s deposit insurance assessment base
multiplied by its risk-based assessment rate.11 An IDI’s assessment base and assessment
rate are determined each quarter using supervisory ratings and information collected from
the Consolidated Reports of Condition and Income (Call Report) or the Report of Assets
and Liabilities of U.S
C charges all IDIs an
assessment for deposit insurance equal to the IDI’s deposit insurance assessment base
multiplied by its risk-based assessment rate.11 An IDI’s assessment base and assessment
rate are determined each quarter using supervisory ratings and information collected from
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.12
An IDI’s assessment rate is calculated using different methods dependent upon
whether the IDI is classified for deposit insurance assessment purposes as a small, large,
or highly complex bank.13 Large and highly complex banks are assessed using a
scorecard approach that combines CAMELS ratings and certain forward-looking
financial measures to assess the risk that a large or highly complex bank poses to the
10 12 U.S.C. 1817(b).
11 See 12 CFR 327.3(b)(1).
12 See 12 CFR 327.5.
13 See 12 CFR 327.8(e), (f), and (g).
5
Deposit Insurance Fund (DIF).14 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 banks and another applies to highly complex banks. Both scorecards use
quantitative financial measures that are useful for predicting a large or highly complex
bank’s long-term performance. Two of the measures in the large and highly complex
bank scorecards, the credit quality measure and the concentration measure, are
determined using restructured loans or TDRs. These measures are described in more
detail below.
B. Credit Quality Measure
Both the large bank and the highly complex bank scorecards include a credit
quality measure
or highly complex
bank’s long-term performance. Two of the measures in the large and highly complex
bank scorecards, the credit quality measure and the concentration measure, are
determined using restructured loans or TDRs. These measures are described in more
detail below.
B. Credit Quality Measure
Both the large bank and the highly complex bank scorecards include a credit
quality measure. The credit quality measure is the greater of (1) the criticized and
classified items to the sum of Tier 1 capital and reserves score or (2) the underperforming
assets to the sum of Tier 1 capital and reserves score.15 Each risk measure, including the
criticized and classified items ratio and the underperforming assets ratio, is converted to a
score between 0 and 100 based upon minimum and maximum cutoff values.16
The underperforming assets ratio is described identically in the large and highly
complex bank scorecards as the:
“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 agencies, under guarantee or
insurance provisions, divided by a sum of Tier 1 capital and reserves.” 17
14 See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
15 See 12 CFR 327.16(b)(1)(ii)(A)(2)(iv).
16 See 12 CFR 327 Appendix B.
17 See 12 CFR 327 Appendix A.
t, its agencies, or government-sponsored agencies, under guarantee or
insurance provisions, divided by a sum of Tier 1 capital and reserves.” 17
14 See 12 CFR 327.16(b); see also 76 FR 10672 (Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
15 See 12 CFR 327.16(b)(1)(ii)(A)(2)(iv).
16 See 12 CFR 327 Appendix B.
17 See 12 CFR 327 Appendix A.
6
The specific data used to identify the “restructured loans” referenced in the above
description are those items that banks disclose in their Call Report on Schedule RC-C,
Part I, Memorandum items 1.a. through 1.g, “Loans restructured in troubled debt
restructurings that are in compliance with their modified terms.” The portion of
restructured loans that is guaranteed or insured by the U.S. government are excluded
from underperforming assets. This data is collected in Call Report Schedule RC-O,
Memorandum item 16, “Portion of loans restructured in troubled debt restructurings that
are in compliance with their modified terms and are guaranteed or insured by the U.S.
government.”
C. Concentration Measure
Both the large and highly complex bank scorecards also include a concentration
measure. The concentration measure is the greater of (1) the higher-risk assets to the sum
of Tier 1 capital and reserves score or (2) the growth-adjusted portfolio concentrations
score.18 Each risk measure, including the criticized and classified items ratio and the
underperforming assets ratio, is converted to a score between 0 and 100 based upon
minimum and maximum cutoff values.19 The higher-risk assets ratio captures the risk
associated with concentrated lending in higher-risk areas
er 1 capital and reserves score or (2) the growth-adjusted portfolio concentrations
score.18 Each risk measure, including the criticized and classified items ratio and the
underperforming assets ratio, is converted to a score between 0 and 100 based upon
minimum and maximum cutoff values.19 The higher-risk assets ratio captures the risk
associated with concentrated lending in higher-risk areas. Higher-risk assets include
construction and development (C&D) loans, higher-risk commercial and industrial (C&I)
loans, higher-risk consumer loans, nontraditional mortgage loans, and higher-risk
securitizations.20
Higher-risk C&I loans are defined, in part, based on whether the loan is owed to
18 See 12 CFR 327.16(b)(1)(ii)(A)(2)(iii).
19 See 12 CFR 327 Appendix C.
20 Id.
7
the bank by a higher-risk C&I borrower, which includes, among other things, a borrower
that obtains a refinance of an existing C&I loan, subject to certain conditions. Higher-risk
consumer loans are defined as all consumer loans where, as of origination, or, if the loan
has been refinanced, as of refinance, the probability of default within two years is greater
than 20 percent, excluding those consumer loans that meet the definition of a
nontraditional mortgage loan. A refinance for purposes of higher-risk C&I loans and
higher-risk consumer loans is defined in the assessment regulations and explicitly does
not include modifications to a loan that would otherwise meet the definition of a
refinance, but that result in the classification of a loan as a TDR.
D
percent, excluding those consumer loans that meet the definition of a
nontraditional mortgage loan. A refinance for purposes of higher-risk C&I loans and
higher-risk consumer loans is defined in the assessment regulations and explicitly does
not include modifications to a loan that would otherwise meet the definition of a
refinance, but that result in the classification of a loan as a TDR.
D. FASB’s Elimination of Troubled Debt Restructurings
On March 31, 2022, FASB issued ASU 2022-02.21 This update eliminated the
recognition and measurement guidance for TDRs for all entities that have adopted ASU
2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” and the Current Expected Credit Losses (CECL)
methodology.22 The rationale was that ASU 2016-13 requires the measurement and
recording of lifetime expected credit losses on an asset that is within the scope of ASU
2016-13, and as a result, credit losses from TDRs have been captured in the allowance for
credit losses. Therefore, stakeholders observed and asserted that the additional
designation of a loan modification as a TDR and the related accounting were
unnecessarily complex and provided less meaningful information than under the incurred
21 FASB Accounting Standards Update No. 2022–02, “Financial Instruments–Credit Losses (Topic 326):
Troubled Debt Restructurings and Vintage Disclosures.”
22 FASB Accounting Standards Update No. 2016–13, “Financial Instruments—Credit Losses (Topic 326),
Measurement of Credit Losses on Financial Instruments.”
information than under the incurred
21 FASB Accounting Standards Update No. 2022–02, “Financial Instruments–Credit Losses (Topic 326):
Troubled Debt Restructurings and Vintage Disclosures.”
22 FASB Accounting Standards Update No. 2016–13, “Financial Instruments—Credit Losses (Topic 326),
Measurement of Credit Losses on Financial Instruments.”
8
loss methodology.23
The update eliminates the recognition of TDRs and, instead, introduces new
financial statement disclosure requirements related to certain modifications of receivables
made to borrowers experiencing financial difficulty, or “modifications to borrowers
experiencing financial difficulty.” Such modifications are limited to those that result in
principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or
term extensions in the current reporting period. Modifications to borrowers experiencing
financial difficulty may be different from those previously captured in TDR disclosures
because an entity no longer would have to determine whether the creditor has granted a
concession, which is a current requirement to determine whether a modification
represents a TDR. The update requires entities to disclose information about (a) the types
of modifications provided, disaggregated by modification type, (b) the expected financial
effect of those modifications, and (c) the performance of the loans after modification.
For entities that have adopted CECL, ASU 2022-02 is effective for fiscal years
beginning after December 15, 2022.24 FASB also permitted the early adoption of ASU
2022-02 by any entity that has adopted CECL
) the types
of modifications provided, disaggregated by modification type, (b) the expected financial
effect of those modifications, and (c) the performance of the loans after modification.
For entities that have adopted CECL, ASU 2022-02 is effective for fiscal years
beginning after December 15, 2022.24 FASB also permitted the early adoption of ASU
2022-02 by any entity that has adopted CECL. For regulatory reporting purposes, if an
institution chooses to early adopt ASU 2022-02 during 2022, Supplemental Instructions
to the Call Report specify that the institution should implement ASU 2022-02 for the
same quarter-end report date and report “modifications to borrowers experiencing
23 FASB Accounting Standards Update No. 2022–02, at BC19, pp.57-58.
24 Generally speaking, entities that are U.S. Securities and Exchange Commission (SEC) filers, excluding
smaller reporting companies as defined by the SEC, were required to adopt CECL beginning in January
2020. Most other entities are required to adopt CECL beginning in January 2023.
9
financial difficulty” in the current TDR Call Report line items.25 These line items include
Schedule RC-C, Part I, Memorandum items 1.a. through 1.g., which are used to identify
“restructured loans” for the underperforming asset ratio used in the large and highly
complex bank scorecards, described above. As a result, a large or highly complex
institution that has early adopted ASU 2022-02 and is reporting modifications to
borrowers experiencing financial difficulty in the current TDR Call Report line items will
be assigned a deposit insurance assessment rate that relies, in part, on this reporting. The
FDIC and other members of the Federal Financial Institutions Examination Council
(FFIEC) are planning to revise the Call Report forms and instructions to replace the
current TDR terminology with updated language from ASU 2022-02 for the first quarter
of 2023.
III. Proposed Rule
A
ort line items will
be assigned a deposit insurance assessment rate that relies, in part, on this reporting. The
FDIC and other members of the Federal Financial Institutions Examination Council
(FFIEC) are planning to revise the Call Report forms and instructions to replace the
current TDR terminology with updated language from ASU 2022-02 for the first quarter
of 2023.
III. Proposed Rule
A. Summary
The FDIC proposes to incorporate into the large and highly complex bank
assessment scorecards the updated accounting standard that eliminates the recognition of
TDRs and, instead, requires new financial statement disclosures on “modifications to
borrowers experiencing financial difficulty.” The FDIC is proposing to expressly define
restructured loans in the underperforming assets ratio to include “modifications to
borrowers experiencing financial difficulty.” The FDIC is also proposing to amend the
definition of a refinance for the purposes of determining whether a loan is a higher-risk
C&I loan or a higher-risk consumer loan, both elements of the higher-risk assets ratio.
25 See Financial Institution Letter (FIL) 17-2022, Consolidated Reports of Condition and Income for First
Quarter 2022. See also Supplemental Instructions, March 2022 Call Report Materials, First 2022 Call,
Number 299, available at
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
e higher-risk assets ratio.
25 See Financial Institution Letter (FIL) 17-2022, Consolidated Reports of Condition and Income for First
Quarter 2022. See also Supplemental Instructions, March 2022 Call Report Materials, First 2022 Call,
Number 299, available at
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_FFIEC051_suppinst_202203.pdf.
10
Under the proposal, a refinance would not include modifications to a loan that otherwise
would meet the definition of a refinance, but that result in the classification of a loan as a
modification to borrowers experiencing financial difficulty. This proposal would not
affect the small bank deposit insurance assessment system.
B. Underperforming Assets Ratio
The FDIC proposes to amend the underperforming assets ratio used in the large
and highly complex bank pricing scorecards to conform to the updated accounting
standards in ASU 2022-02. The amended text explicitly defines restructured loans for
large and highly complex banks that have adopted CECL and ASU 2022-02 as
modifications to borrowers experiencing financial difficulty. For the remaining large and
highly complex banks that have not yet adopted CECL and ASU 2022-02, the FDIC
would continue to use TDRs for restructured loans, and the amended text would
explicitly define restructured loans for these banks as TDRs.
The FDIC has included restructured loans in the underperforming assets ratio
since the introduction of the large and highly complex bank scorecards in 2011.
Restructured loans, in the context of the underperforming assets measure, typically
present an elevated level of credit risk because they represent loans to borrowers unable
to perform according to the original contractual terms. The FDIC believes it is important
to capture such elevated credit risk in its measurement of credit quality
n of the large and highly complex bank scorecards in 2011.
Restructured loans, in the context of the underperforming assets measure, typically
present an elevated level of credit risk because they represent loans to borrowers unable
to perform according to the original contractual terms. The FDIC believes it is important
to capture such elevated credit risk in its measurement of credit quality. The FDIC
believes the accounting term introduced by FASB in ASU 2022-02, “modifications to
borrowers experiencing financial difficulty,” will provide a similar and meaningful
indicator of credit risk.
11
C. Higher-Risk Assets Ratio
The FDIC proposes to amend the definition of a refinance, in determining
whether a loan is a higher-risk C&I loan or a higher-risk consumer loan for deposit
insurance assessment purposes, to conform to the updated accounting standards in ASU
2022-02. Specifically, a refinance of a C&I loan would not include a modification or
series of modifications to a commercial loan that would otherwise meet the definition of a
refinance, but that result in the classification of a loan as a modification to borrowers
experiencing financial difficulty, for a large or highly complex bank that has adopted
CECL and ASU 2022-02, or that result in the classification of a loan as a TDR, for all
remaining large and highly complex banks. For purposes of higher-risk consumer loans, a
refinance would not include modifications to a loan that would otherwise meet the
definition of a refinance, but that result in the classification of a loan as a modification to
borrowers experiencing financial difficulty, for a large or highly complex bank that has
adopted CECL and ASU 2022-02, or that result in the classification of a loan as a TDR,
for all remaining large and highly complex banks
nce would not include modifications to a loan that would otherwise meet the
definition of a refinance, but that result in the classification of a loan as a modification to
borrowers experiencing financial difficulty, for a large or highly complex bank that has
adopted CECL and ASU 2022-02, or that result in the classification of a loan as a TDR,
for all remaining large and highly complex banks.
Question 1: The FDIC invites comment on its proposal to include modifications to
borrowers experiencing financial difficulty in the definition of restructured loans, used in
part to determine the underperforming assets ratio, and in the definition of refinance,
used in part to determine the higher-risk assets ratio. Does the proposal appropriately
meet the objective to incorporate updated accounting standards under ASU 2022-02 into
the large and highly complex bank scorecards?
12
IV. Expected Effects
As of December 31, 2021, the FDIC insured 148 banks that were classified as
large or highly complex for deposit insurance assessment purposes, and that would be
affected by this proposed rule.26 The FDIC expects most of these institutions will adopt
CECL by January 1, 2023, the proposed effective date of the rule.
The primary expected effect of the proposed rule is the change in
underperforming assets, and consequent change in assessment rates, that could occur as a
result of the difference between the amount of TDRs that most banks are currently
reporting and the amount of modifications to borrowers experiencing financial difficulty
that banks will report upon adoption of ASU 2022-02. The effect of this proposed rule on
assessments paid by large and highly complex banks is difficult to estimate since most
banks are not yet reporting modifications to borrowers experiencing financial difficulty,
and the FDIC does not know how the amount of reported modifications to borrowers
experiencing financial difficulty will compare to the amount of TDRs that affected banks
report
-02. The effect of this proposed rule on
assessments paid by large and highly complex banks is difficult to estimate since most
banks are not yet reporting modifications to borrowers experiencing financial difficulty,
and the FDIC does not know how the amount of reported modifications to borrowers
experiencing financial difficulty will compare to the amount of TDRs that affected banks
report.
In general, the FDIC expects that the initial amount of modifications made to
borrowers experiencing financial difficulty will be lower than previously reported TDRs.
This is because under ASU 2022-02, reporting of modifications to borrowers
experiencing financial difficulty should be applied prospectively and would therefore
apply only to modifications made after a bank adopts the standard. However, in the long
term it is possible that the amount of modifications to borrowers experiencing financial
difficulty could be higher or lower than the amount of TDRs that banks would have
26 FDIC Call Report data December 31, 2021.
13
reported prior to adoption of ASU 2022-02. Therefore, under the proposed rule, the
underperforming assets ratio could be higher or lower due to the adoption of ASU 2022-
02, and the resulting ratio may or may not affect an individual bank’s assessment rate,
depending on whether it is the binding ratio for the credit quality measure.
The FDIC does not have the information necessary to estimate the expected
effects of the proposal to incorporate the new accounting standard into the large and
highly complex bank scorecards. However, the following analysis illustrates a range of
potential outcomes based on TDRs reported prior to ASU 2022-02, as the amount of
modifications to borrowers experiencing financial difficulty could be higher, lower, or
similar to previously reported TDRs
mate the expected
effects of the proposal to incorporate the new accounting standard into the large and
highly complex bank scorecards. However, the following analysis illustrates a range of
potential outcomes based on TDRs reported prior to ASU 2022-02, as the amount of
modifications to borrowers experiencing financial difficulty could be higher, lower, or
similar to previously reported TDRs. The analysis shows the effect on assessments of
higher or lower TDRs in calculating the underperforming assets ratio for deposit
insurance assessment purposes.
The FDIC calculated some illustrative examples of the effect on assessments if
modifications made to borrowers experiencing financial difficulty are lower than certain
amounts of previously reported TDRs. For example, if all large and highly complex
banks had reported zero TDRs as of December 31, 2021, before FASB issued ASU 2022-
02, the impact on the underperforming assets ratio would have reduced total deposit
insurance assessment revenue by an annualized amount of approximately $90 million; if
modifications were 50 percent lower than TDRs reported as of December 31, 2021,
annualized assessments would have decreased by $52 million.
Alternatively, as an extreme and unlikely scenario, if all large and highly complex
banks had reported zero TDRs during a period when overall risk in the banking industry
was higher, such as December 31, 2011, the resulting underperforming assets ratio would
fications were 50 percent lower than TDRs reported as of December 31, 2021,
annualized assessments would have decreased by $52 million.
Alternatively, as an extreme and unlikely scenario, if all large and highly complex
banks had reported zero TDRs during a period when overall risk in the banking industry
was higher, such as December 31, 2011, the resulting underperforming assets ratio would
14
have reduced total deposit insurance assessment revenue by an annualized amount of
approximately $957 million. Between 2015 and 2019, if TDRs were zero, the resulting
underperforming assets ratio would have reduced total deposit insurance assessment
revenue by about $279 million annually, on average.
Over time, however, under ASU 2022-02 large and highly complex banks will
begin to report modifications to borrowers experiencing financial difficulties. As noted
above, the effect on assessments will depend on how the newly reported modifications
compare to the TDRs that would have been reported under the prior accounting standard.
For example, if all large and highly complex banks had reported modifications to
borrowers experiencing financial difficulty that were 25 percent greater than the TDRs
reported as of December 31, 2021, the impact on the underperforming assets ratio would
have increased total deposit insurance assessment revenue by an annualized amount of
approximately $30 million; if the modifications exceeded TDRs by 50 percent,
annualized assessments would have increased by $65 million; and if the modifications
exceeded TDRs by 100 percent, annualized assessments would have increased by $137
million.
The analysis presented above serves as an illustrative example of potential effects
of the proposed rule. The analysis does not estimate potential future modifications to
borrowers experiencing financial difficulty or how those amounts, once reported, will
compare to previously reported TDRs for a few reasons
ed TDRs by 100 percent, annualized assessments would have increased by $137
million.
The analysis presented above serves as an illustrative example of potential effects
of the proposed rule. The analysis does not estimate potential future modifications to
borrowers experiencing financial difficulty or how those amounts, once reported, will
compare to previously reported TDRs for a few reasons. First, banks were granted
temporary relief from reporting TDRs that were modified due to the COVID-19
15
pandemic, so recent reporting of TDRs is likely lower than it may otherwise have been.27
Second, the amount of modifications or restructurings made by large or highly complex
banks vary based on economic conditions and future economic conditions are uncertain.
Third, a restructuring of a debt constitutes a TDR if the creditor for economic or legal
reasons related to the debtor’s financial difficulties grants a concession to the debtor that
it would not otherwise consider, while a modification to borrowers experiencing financial
difficulty is not evaluated based on whether or not a concession has been granted. Finally,
future Call Report revisions and instructions on how modifications to borrowers
experiencing financial difficulties should be reported will affect the future reported
amount of modifications to borrowers experiencing financial difficulty.
With regard to the higher-risk assets ratio, the effect on assessments paid by large
and highly complex banks is likely to be more muted. The assessment regulations define
a higher-risk C&I or consumer loan as a loan or refinance that meets certain risk criteria.
The proposed rule would exclude modifications to borrowers experiencing financial
difficulty from the definition of a refinance for purposes of the higher-risk assets ratio
tio, the effect on assessments paid by large
and highly complex banks is likely to be more muted. The assessment regulations define
a higher-risk C&I or consumer loan as a loan or refinance that meets certain risk criteria.
The proposed rule would exclude modifications to borrowers experiencing financial
difficulty from the definition of a refinance for purposes of the higher-risk assets ratio. As
a result, if a modification to a C&I or consumer loan results in the classification of the
loan as a TDR, under the current regulations, or as a modification to borrowers
experiencing financial difficulty, under the proposed rule, a large or highly complex bank
would not have to re-evaluate whether the modified loan meets the definition of a higher-
risk asset. For example, if a higher-risk C&I loan was subsequently modified as a TDR or
27 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed
into law. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,”
provided banks the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs
to account for the effects of COVID-19. Division N of the Consolidated Appropriations Act, 2021 (Title V,
subtitle C, section 541) was signed into law on December 27, 2020, extending the provisions in Section
4013 of the CARES Act to January 1, 2022. This relief applied to certain loans modified between March 1,
2020 and January 1, 2022.
nd certain requirements under U.S. GAAP related to TDRs
to account for the effects of COVID-19. Division N of the Consolidated Appropriations Act, 2021 (Title V,
subtitle C, section 541) was signed into law on December 27, 2020, extending the provisions in Section
4013 of the CARES Act to January 1, 2022. This relief applied to certain loans modified between March 1,
2020 and January 1, 2022.
16
modification to borrowers experiencing financial difficulty, it would not be considered a
refinance and, therefore, would continue to be considered a higher-risk asset. Conversely,
if a C&I loan that does not meet the definition of a higher-risk asset was subsequently
modified as a TDR or modification to borrowers experiencing financial difficulty, it
would not be considered a refinance and, therefore, would not have to be re-evaluated to
determine if it meets the definition of a higher-risk asset. The FDIC assumes that these
possible outcomes are offsetting and the change to the rule will have minimal to no effect
on deposit insurance assessments for large and highly complex banks.
The proposed rule would pose no additional reporting burden for large and highly
complex banks.
Question 2: The FDIC invites comments on the expected effects of the proposal on large
and highly complex institutions.
V. Alternatives Considered
The FDIC considered two reasonable and possible alternatives as described
below. On balance, the FDIC believes the current proposal would determine deposit
insurance assessment rates for large and highly complex banks in the most appropriate,
accurate, and straightforward manner.
One alternative would be to require banks to continue to report TDRs specifically
for deposit insurance assessment purposes, even after they have adopted CECL and ASU
2022-02. This alternative would maintain consistency of the data used in the
underperforming assets ratio and higher-risk assets ratio with prior reporting periods
s in the most appropriate,
accurate, and straightforward manner.
One alternative would be to require banks to continue to report TDRs specifically
for deposit insurance assessment purposes, even after they have adopted CECL and ASU
2022-02. This alternative would maintain consistency of the data used in the
underperforming assets ratio and higher-risk assets ratio with prior reporting periods.
However, this alternative would impose additional reporting burden on large and highly
complex banks. This alternative would also fail to recognize the potential usefulness of
17
the new data on modifications to borrowers experiencing financial difficulty. Ultimately,
the FDIC does not believe any benefits from continued reporting of TDRs expressly for
assessment purposes would justify the cost to affected banks.
The FDIC also considered a second alternative: removing restructured loans from
the definition of underperforming assets entirely and not incorporating the new data on
modifications to borrowers experiencing financial difficulty. Similar to the first
alternative, this second alternative would apply uniformly to all large and highly complex
banks, regardless of their early adoption status. However, this alternative fails to
recognize that data on modifications to borrowers experiencing financial difficulty
provide a meaningful indicator of credit risk throughout economic cycles and should be
captured in credit quality measures such as the underperforming assets ratio and the
higher-risk assets ratio. The FDIC believes that the new modifications data required
under ASU 2022-02 can provide valuable information and would not impose additional
reporting burden. Incorporating this new data in place of TDRs would be the most
reasonable option to ensure that large and highly complex banks are assessed fairly and
accurately, all else equal.
Question 3: The FDIC invites comment on the reasonable and possible alternatives
described in this proposed rule
under ASU 2022-02 can provide valuable information and would not impose additional
reporting burden. Incorporating this new data in place of TDRs would be the most
reasonable option to ensure that large and highly complex banks are assessed fairly and
accurately, all else equal.
Question 3: The FDIC invites comment on the reasonable and possible alternatives
described in this proposed rule. Are there other reasonable and possible alternatives that
the FDIC should consider?
VI. Comment Period, Effective Date, and Application Date
The FDIC is issuing this proposal with a 30-day comment period. Following the
comment period, the FDIC expects to issue a final rule with an effective date of January
1, 2023, and applicable to the first quarterly assessment period of 2023 (i.e., January 1-
18
April 1, 2023). Most institutions that have implemented CECL, will adopt FASB’s ASU
2022-02 in 2023, unless an institution chooses to early adopt in 2022. Institutions (those
with a calendar year fiscal year) implementing CECL on January 1, 2023, will also adopt,
FASB’s ASU 2022-02 at that time. Therefore, by the first quarter of 2023, ASU 2022-02
also will be in effect for most, if not all, large and highly complex banks. The FDIC
believes that coordinating the assessment system amendments to conform to the new
accounting standards will promote a more efficient transition and will result in affected
banks reporting their data in a consistent manner based on the correct accounting
concepts.
VII. Request for Comment
The FDIC is requesting comment on all aspects of the notice of proposed
rulemaking, in addition to the specific requests for comment above.
VIII. Administrative Law Matters
A
the new
accounting standards will promote a more efficient transition and will result in affected
banks reporting their data in a consistent manner based on the correct accounting
concepts.
VII. Request for Comment
The FDIC is requesting comment on all aspects of the notice of proposed
rulemaking, in addition to the specific requests for comment above.
VIII. Administrative Law Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency, in connection
with a proposed rule, to prepare and make available for public comment an initial
regulatory flexibility analysis that describes the impact of a proposed rule on small
entities.28 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 $750 million.29
28 5 U.S.C. 601 et seq.
29 The SBA defines a small banking organization as having $750 million or less in assets, where an
organization's “assets are determined by averaging the assets reported on its four quarterly financial
19
Certain types of rules, such as rules 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.30 Because the proposed 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 proposed rule is not
subject to the RFA. Nonetheless, the FDIC is voluntarily presenting information in this
RFA section
excluded from the definition of
“rule” for purposes of the RFA.30 Because the proposed 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 proposed 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 December 31, 2021, the FDIC insures 4,848 IDIs,
of which 3,478 are defined as small entities by the terms of the RFA.31 The proposed
rule, however, would apply only to institutions with $10 billion or greater in total assets
which, by definition, do not meet the criteria to be considered small entities for the
purposes of the RFA. Since no small entities would be affected by the proposed rule, the
FDIC certifies that the proposed rule would not have a significant economic effect on a
substantial number of small entities.
B. Riegle Community Development and Regulatory Improvement Act
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
statements for the preceding year.” See 13 CFR 121.201 (as amended by 87 FR 18627, effective May 2,
2022). 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. See 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.
30 5 U.S.C. 601.
31 FDIC Call Report data, December 31, 2021.
sure of size of the concern
whose size is at issue and all of its domestic and foreign affiliates. See 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.
30 5 U.S.C. 601.
31 FDIC Call Report data, December 31, 2021.
20
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.32 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.33
The proposed rule would not impose additional reporting, disclosure, or other new
requirements on insured depository institutions, including small depository institutions,
or on the customers of depository institutions. Accordingly, section 302 of RCDRIA does
not apply. Nevertheless, the requirements of RCDRIA have been considered in setting the
proposed effective date. The FDIC invites comments that will further inform its
consideration of RCDRIA.
C. 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.34
The FDIC’s OMB control numbers for its assessment regulations are 3064-0057, 3064-
0151, and 3064-0179
of RCDRIA.
C. 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.34
The FDIC’s OMB control numbers for its assessment regulations are 3064-0057, 3064-
0151, and 3064-0179. The proposed rule does not revise any of these existing assessment
information collections pursuant to the PRA and consequently, no submissions in
32 12 U.S.C. 4802(a).
33 12 U.S.C. 4802(b).
34 4 U.S.C. 3501-3521.
21
connection with these OMB control numbers will be made to the OMB for review.
However, the proposed 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. Proposed changes to the Call Report forms
and instructions will be addressed in a separate Federal Register notice.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act35 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 invites your comments on how to
make this proposed rule easier to understand
Call Report forms
and instructions will be addressed in a separate Federal Register notice.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act35 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 invites your comments on how to
make this proposed rule easier to understand. For example:
•
Has the FDIC organized the material to suit your needs? If not, how could
the material be better organized?
•
Are the requirements in the proposed regulation clearly stated? If not,
how could the regulation be stated more clearly?
•
Does the proposed regulation contain language or jargon that is unclear?
If so, which language requires clarification?
•
Would a different format (grouping and order of sections, use of headings,
paragraphing) make the regulation easier to understand?
List of Subjects in 12 CFR Part 327
Bank deposit insurance, Banks, banking, Savings associations.
35 Pub. L. 106-102, section 722, 113 Stat. 1338, 1471 (1999), 12 U.S.C. 4809.
22
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit Insurance Corporation
proposes to amend 12 CFR part 327 as follows:
PART 327—ASSESSMENTS
1. The authority for 12 CFR part 327 continues to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817-19, 1821.
2. Amend section IV, as proposed to be redesignated from section VI, on July 1,
2022 at 87 Federal Register 39409, by:
a. Redesignate footnotes 5 as 6, 6 as 7, and 7 as 8; and
b. Add a new footnote 5
The revisions and additions read as follows:
Appendix A to Subpart A of Part 327—Method to Derive Pricing Multipliers and
Uniform Amount
* * * * *
VI
on IV, as proposed to be redesignated from section VI, on July 1,
2022 at 87 Federal Register 39409, by:
a. Redesignate footnotes 5 as 6, 6 as 7, and 7 as 8; and
b. Add a new footnote 5
The revisions and additions 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 measures1
Description
* * * * * * *
Credit Quality Measure
The credit quality score is the higher of the
following two scores:
(1) Criticized and Classified
Items/Tier 1 Capital and
Reserves2
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
adjustments.4 Criticized and classified items exclude
23
loans and securities in trading books, and the amount
recoverable from the U.S. government, its agencies,
or government-sponsored enterprises, under
guarantee or insurance provisions.
(2) Underperforming Assets/Tier
1 Capital and Reserves2
Sum of loans that are 30 days or more past due and
still accruing interest, nonaccrual loans, restructured
loans5 (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, divided by a sum of Tier 1
capital and reserves.
1 The FDIC retains the flexibility, as part of the risk-based assessment system, without
the necessity of additional notice-and-comment rulemaking, to update the minimum and
maximum cutoff values for all measures used in the scorecard
e U.S. government, its agencies, or
government-sponsored enterprises, under guarantee
or insurance provisions, divided by a sum of Tier 1
capital and reserves.
1 The FDIC retains the flexibility, as part of the risk-based assessment system, without
the necessity of additional notice-and-comment rulemaking, 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 assessment 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.
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
he 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 arrangement.
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.
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
24
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 Restructured loans include troubled debt restructurings and modifications to borrowers
experiencing financial difficulty, as these terms are defined in the glossary to the Call
Report, as they may be amended from time to time
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 Restructured loans include troubled debt restructurings and modifications to borrowers
experiencing financial difficulty, as these terms are defined in the glossary to the Call
Report, as they may be amended from time to time.
6 Deposit runoff rates for the balance sheet liquidity ratio reflect changes issued by the
Basel Committee on Banking Supervision in its December 2010 document, “Basel III:
International Framework for liquidity risk measurement, standards, and
monitoring,” http://www.bis.org/publ/bcbs188.pdf.
7 The applicable portions of the 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 will be removed from the calculation of the loss severity
measure.
8 Market risk is defined in 12 CFR 324.202.
* * * * *
3. Amend appendix C to subpart A as follows:
Appendix C to Subpart A of Part 327—Description of Concentration Measures
(1)(A)(1) * * *
(1)(A)(2) Higher-Risk Commercial and Industrial (C&I) Loans and Securities
Definitions
* * * * *
Refinance
For purposes of a C&I loan, a refinance includes:
(a) Replacing an original obligation by a new or modified obligation or loan
agreement;
(b) Increasing the master commitment of the line of credit (but not adjusting sub-
limits under the master commitment);
(c) Disbursing additional money other than amounts already committed to the
borrower;
25
(d) Extending the legal maturity date;
(e) Rescheduling principal or interest payments to create or increase a balloon
payment;
(f) Releasing a substantial amount of collateral;
(g) Consolidating multiple existing obligations; or
but not adjusting sub-
limits under the master commitment);
(c) Disbursing additional money other than amounts already committed to the
borrower;
25
(d) Extending the legal maturity date;
(e) Rescheduling principal or interest payments to create or increase a balloon
payment;
(f) Releasing a substantial amount of collateral;
(g) Consolidating multiple existing obligations; or
(h) Increasing or decreasing the interest rate.
A refinance of a C&I loan does not include a modification or series of modifications to a
commercial loan other than as described above or modifications to a commercial loan
that would otherwise meet this definition of refinance, but that result in the classification
of a loan as a troubled debt restructuring (TDR) or a modification to borrowers
experiencing financial difficulty, as these terms are defined in the glossary of the Call
Report instructions, as they may be amended from time to time.
* * * * *
(1)(A)(3) Higher-Risk Consumer Loans
Definitions
* * * * *
Refinance
For purposes of higher-risk consumer loans, a refinance includes:
(a) Extending new credit or additional funds on an existing loan;
(b) Replacing an existing loan with a new or modified obligation;
(c) Consolidating multiple existing obligations;
(d) Disbursing additional funds to the borrower. Additional funds include a
material disbursement of additional funds or, with respect to a line of credit, a
26
material increase in the amount of the line of credit, but not a disbursement, draw,
or the writing of convenience checks within the original limits of the line of
credit. A material increase in the amount of a line of credit is defined as a 10
percent or greater increase in the quarter-end line of credit limit; however, a
temporary increase in a credit card line of credit is not a material increase;
(e) Increasing or decreasing the interest rate (except as noted herein for credit card
loans); or
ience checks within the original limits of the line of
credit. A material increase in the amount of a line of credit is defined as a 10
percent or greater increase in the quarter-end line of credit limit; however, a
temporary increase in a credit card line of credit is not a material increase;
(e) Increasing or decreasing the interest rate (except as noted herein for credit card
loans); or
(f) Rescheduling principal or interest payments to create or increase a balloon
payment or extend the legal maturity date of the loan by more than six months.
A refinance for this purpose does not include:
(a) A re-aging, defined as returning a delinquent, open-end account to current
status without collecting the total amount of principal, interest, and fees that are
contractually due, provided:
(i) The re-aging is part of a program that, at a minimum, adheres to the re-aging
guidelines recommended in the interagency approved Uniform Retail Credit
Classification and Account Management Policy;[12]
(ii) The program has clearly defined policy guidelines and parameters for re-
aging, as well as internal methods of ensuring the reasonableness of those
guidelines and monitoring their effectiveness; and
(iii) The bank monitors both the number and dollar amount of re-aged accounts,
collects and analyzes data to assess the performance of re-aged accounts, and
determines the effect of re-aging practices on past due ratios;
27
(b) Modifications to a loan that would otherwise meet this definition of refinance,
but result in the classification of a loan as a TDR or modification to borrowers
experiencing financial difficulty;
(c) Any modification made to a consumer loan pursuant to a government
program, such as the Home Affordable Modification Program or the Home
Affordable Refinance Program;
(d) Deferrals under the Servicemembers Civil Relief Act;
ld otherwise meet this definition of refinance,
but result in the classification of a loan as a TDR or modification to borrowers
experiencing financial difficulty;
(c) Any modification made to a consumer loan pursuant to a government
program, such as the Home Affordable Modification Program or the Home
Affordable Refinance Program;
(d) Deferrals under the Servicemembers Civil Relief Act;
(e) A contractual deferral of payments or change in interest rate that is consistent
with the terms of the original loan agreement (e.g., as allowed in some student
loans);
(f) Except as provided above, a modification or series of modifications to a
closed-end consumer loan;
(g) An advance of funds, an increase in the line of credit, or a change in the
interest rate that is consistent with the terms of the loan agreement for an open-
end or revolving line of credit (e.g., credit cards or home equity lines of credit);
(h) For credit card loans:
(i) Replacing an existing card because the original is expiring, for security
reasons, or because of a new technology or a new system;
(ii) Reissuing a credit card that has been temporarily suspended (as opposed to
closed);
(iii) Temporarily increasing the line of credit;
(iv) Providing access to additional credit when a bank has internally approved a
higher credit line than it has made available to the customer; or
28
(v) Changing the interest rate of a credit card line when mandated by law (such
as in the case of the Credit CARD Act).
* * * * *
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on July XX, 2022.
Debra B. Decker,
Executive Secretary
BILLING CODE 6714-01-P
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.