11391Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
1 12 U.S.C. 1817(b). As used in this final rule, the
term ‘‘insured depository institution’’ has the same
meaning as it is used in section 3(c)(2) of the FDI
Act, 12 U.S.C. 1813(c)(2). Pursuant to this
requirement, the FDIC first adopted a risk-based
deposit insurance assessment system effective in
1993 that applied to all IDIs. See 57 FR 45263 (Oct.
1, 1992). The FDIC implemented this assessment
system with the goals of making the deposit
insurance system fairer to well-run institutions and
encouraging weaker institutions to improve their
condition, and thus, promote the safety and
soundness of IDIs.
2 As used in this final rule, the term ‘‘small bank’’
is synonymous with ‘‘small institution,’’ the term
‘‘large bank’’ is synonymous with ‘‘large
institution,’’ and the term ‘‘highly complex bank’’
is synonymous with ‘‘highly complex institution,’’
as the terms are defined in 12 CFR 327.8. For
assessment purposes, a large bank is generally
defined as an institution with $10 billion or more
in total assets, a small bank is generally defined as
an institution with less than $10 billion in total
assets, and a highly complex bank is generally
defined as an institution that has $50 billion or
more in total assets and is controlled by a parent
holding company that has $500 billion or more in
total assets, or is a processing bank or trust
company. See 12 CFR 327.8(e), (f), and (g).
3 Banking organizations subject to the capital rule
include national banks, state member banks, state
nonmember banks, savings associations, and top-
tier bank holding companies and savings and loan
holding companies domiciled in the United States
not subject to the Federal Reserve Board’s Small
Bank Holding Company Policy Statement (12 CFR
part 225, appendix C), but exclude certain savings
and loan holding companies that are substantially
engaged in insurance underwriting or commercial
activities or that are estate trusts, and bank holding
companies and savings and loan holding companies
that are employee stock ownership plans. See 12
CFR part 3 (Office of the Comptroller of the
Currency)); 12 CFR part 217 (Board); 12 CFR part
324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) and
85 FR 61577 (Sept. 30, 2020).
4 See 84 FR 4225 (Feb. 14, 2019).
TABLE 1 TO PARAGRAPH (h)
Softwood lumber
(by HTSUS number)
Assessment
$/cubic
meter
Assessment
$/square
meter
4407.11.00 .................. 0.1737 0.004412
4407.12.00 .................. 0.1737 0.004412
4407.19.05 .................. 0.1737 0.004412
4407.19.06 .................. 0.1737 0.004412
4407.19.10 .................. 0.1737 0.004412
4409.10.05 .................. 0.1737 0.004412
4409.10.10 .................. 0.1737 0.004412
4409.10.20 .................. 0.1737 0.004412
4409.10.90 .................. 0.1737 0.004412
4418.99.10 .................. 0.1737 0.004412
* * * * *
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2021–03467 Filed 2–24–21; 8:45 am]
BILLING CODE P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AF65
Assessments, Amendments To
Address the Temporary Deposit
Insurance Assessment Effects of the
Optional Regulatory Capital
Transitions for Implementing the
Current Expected Credit Losses
Methodology
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Corporation is adopting
amendments to the risk-based deposit
insurance assessment system applicable
to all large insured depository
institutions (IDIs), including highly
complex IDIs, to address the temporary
deposit insurance assessment effects
resulting from certain optional
regulatory capital transition provisions
relating to the implementation of the
current expected credit losses (CECL)
methodology. The final rule removes the
double counting of a specified portion
of the CECL transitional amount or the
modified CECL transitional amount, as
applicable (collectively, the CECL
transitional amounts), in certain
financial measures that are calculated
using the sum of Tier 1 capital and
reserves and that are used to determine
assessment rates for large or highly
complex IDIs. The final rule also adjusts
the calculation of the loss severity
measure to remove the double counting
of a specified portion of the CECL
transitional amounts for a large or
highly complex IDI. This final rule does
not affect regulatory capital or the
regulatory capital relief provided in the
form of transition provisions that allow
banking organizations to phase in the
effects of CECL on their regulatory
capital ratios.
DATES: The final rule is effective April
1, 2021.
FOR FURTHER INFORMATION CONTACT:
Scott Ciardi, Chief, Large Bank Pricing,
(202) 898–7079 or sciardi@fdic.gov;
Ashley Mihalik, Chief, Banking and
Regulatory Policy, (202) 898–3793 or
amihalik@fdic.gov; Nefretete Smith,
Counsel, (202) 898–6851 or nefsmith@
fdic.gov; Sydney Mayer, Senior
Attorney, (202) 898–3669 or smayer@
fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives and Overview of
Final Rule
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system for insured
depository institutions (IDIs).1
Consistent with this statutory
requirement, the FDIC’s objective in
finalizing this rule is to ensure that IDIs
are assessed in a manner that is fair and
accurate. In particular, the primary
objective of this final rule is to remove
a double counting issue in several
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks, which
could result in a deposit insurance
assessment rate for a large or highly
complex bank that does not accurately
reflect the bank’s risk to the deposit
insurance fund (DIF), all else equal.2
The final rule amends the assessment
regulations to remove the double
counting of a portion of the CECL
transitional amounts, in certain
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks. In
particular, certain financial measures
are calculated by summing Tier 1
capital, which includes the CECL
transitional amounts, and reserves,
which already reflects the
implementation of CECL. As a result, a
portion of the CECL transitional
amounts is being double counted in
these measures, which in turn affects
assessment rates for large or highly
complex banks. The final rule also
adjusts the calculation of the loss
severity measure to remove the double
counting of a portion of the CECL
transitional amounts for large or highly
complex banks.
This final rule amends the deposit
insurance system applicable to large
banks and highly complex banks only,
and it does not affect regulatory capital
or the regulatory capital relief provided
in the form of transition provisions that
allow banking organizations to phase in
the effects of CECL on their regulatory
capital ratios.3 Specifically, in
calculating another measure used to
determine assessment rates for all IDIs,
the Tier 1 leverage ratio, the FDIC will
continue to apply the CECL regulatory
capital transition provisions, consistent
with the regulatory capital relief
provided to address concerns that
despite adequate capital planning,
unexpected economic conditions at the
time of CECL adoption could result in
higher-than-anticipated increases in
allowances.4
The FDIC did not receive any
comment letters in response to the
proposal and is adopting the proposed
rule as final without change. Under this
final rule, amendments to the deposit
insurance assessment system and
changes to regulatory reporting
requirements will be applicable only
while the regulatory capital relief
described above, or any potential future
amendment that may affect the
VerDate Sep<11>2014 16:18 Feb 24, 2021 Jkt 253001 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 E:\FR\FM\25FER1.SGM 25FER1
1 12 U.S.C. 1817(b). As used in this final rule, the
term ‘‘insured depository institution’’ has the same
meaning as it is used in section 3(c)(2) of the FDI
Act, 12 U.S.C. 1813(c)(2). Pursuant to this
requirement, the FDIC first adopted a risk-based
deposit insurance assessment system effective in
1993 that applied to all IDIs. See 57 FR 45263 (Oct.
1, 1992). The FDIC implemented this assessment
system with the goals of making the deposit
insurance system fairer to well-run institutions and
encouraging weaker institutions to improve their
condition, and thus, promote the safety and
soundness of IDIs.
2 As used in this final rule, the term ‘‘small bank’’
is synonymous with ‘‘small institution,’’ the term
‘‘large bank’’ is synonymous with ‘‘large
institution,’’ and the term ‘‘highly complex bank’’
is synonymous with ‘‘highly complex institution,’’
as the terms are defined in 12 CFR 327.8. For
assessment purposes, a large bank is generally
defined as an institution with $10 billion or more
in total assets, a small bank is generally defined as
an institution with less than $10 billion in total
assets, and a highly complex bank is generally
defined as an institution that has $50 billion or
more in total assets and is controlled by a parent
holding company that has $500 billion or more in
total assets, or is a processing bank or trust
company. See 12 CFR 327.8(e), (f), and (g).
3 Banking organizations subject to the capital rule
include national banks, state member banks, state
nonmember banks, savings associations, and top-
tier bank holding companies and savings and loan
holding companies domiciled in the United States
not subject to the Federal Reserve Board’s Small
Bank Holding Company Policy Statement (12 CFR
part 225, appendix C), but exclude certain savings
and loan holding companies that are substantially
engaged in insurance underwriting or commercial
activities or that are estate trusts, and bank holding
companies and savings and loan holding companies
that are employee stock ownership plans. See 12
CFR part 3 (Office of the Comptroller of the
Currency)); 12 CFR part 217 (Board); 12 CFR part
324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) and
85 FR 61577 (Sept. 30, 2020).
4 See 84 FR 4225 (Feb. 14, 2019).
TABLE 1 TO PARAGRAPH (h)
Softwood lumber
(by HTSUS number)
Assessment
$/cubic
meter
Assessment
$/square
meter
4407.11.00 .................. 0.1737 0.004412
4407.12.00 .................. 0.1737 0.004412
4407.19.05 .................. 0.1737 0.004412
4407.19.06 .................. 0.1737 0.004412
4407.19.10 .................. 0.1737 0.004412
4409.10.05 .................. 0.1737 0.004412
4409.10.10 .................. 0.1737 0.004412
4409.10.20 .................. 0.1737 0.004412
4409.10.90 .................. 0.1737 0.004412
4418.99.10 .................. 0.1737 0.004412
* * * * *
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2021–03467 Filed 2–24–21; 8:45 am]
BILLING CODE P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 327
RIN 3064–AF65
Assessments, Amendments To
Address the Temporary Deposit
Insurance Assessment Effects of the
Optional Regulatory Capital
Transitions for Implementing the
Current Expected Credit Losses
Methodology
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The Federal Deposit
Insurance Corporation is adopting
amendments to the risk-based deposit
insurance assessment system applicable
to all large insured depository
institutions (IDIs), including highly
complex IDIs, to address the temporary
deposit insurance assessment effects
resulting from certain optional
regulatory capital transition provisions
relating to the implementation of the
current expected credit losses (CECL)
methodology. The final rule removes the
double counting of a specified portion
of the CECL transitional amount or the
modified CECL transitional amount, as
applicable (collectively, the CECL
transitional amounts), in certain
financial measures that are calculated
using the sum of Tier 1 capital and
reserves and that are used to determine
assessment rates for large or highly
complex IDIs. The final rule also adjusts
the calculation of the loss severity
measure to remove the double counting
of a specified portion of the CECL
transitional amounts for a large or
highly complex IDI. This final rule does
not affect regulatory capital or the
regulatory capital relief provided in the
form of transition provisions that allow
banking organizations to phase in the
effects of CECL on their regulatory
capital ratios.
DATES: The final rule is effective April
1, 2021.
FOR FURTHER INFORMATION CONTACT:
Scott Ciardi, Chief, Large Bank Pricing,
(202) 898–7079 or sciardi@fdic.gov;
Ashley Mihalik, Chief, Banking and
Regulatory Policy, (202) 898–3793 or
amihalik@fdic.gov; Nefretete Smith,
Counsel, (202) 898–6851 or nefsmith@
fdic.gov; Sydney Mayer, Senior
Attorney, (202) 898–3669 or smayer@
fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives and Overview of
Final Rule
The Federal Deposit Insurance Act
(FDI Act) requires that the FDIC
establish a risk-based deposit insurance
assessment system for insured
depository institutions (IDIs).1
Consistent with this statutory
requirement, the FDIC’s objective in
finalizing this rule is to ensure that IDIs
are assessed in a manner that is fair and
accurate. In particular, the primary
objective of this final rule is to remove
a double counting issue in several
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks, which
could result in a deposit insurance
assessment rate for a large or highly
complex bank that does not accurately
reflect the bank’s risk to the deposit
insurance fund (DIF), all else equal.2
The final rule amends the assessment
regulations to remove the double
counting of a portion of the CECL
transitional amounts, in certain
financial measures used to determine
deposit insurance assessment rates for
large or highly complex banks. In
particular, certain financial measures
are calculated by summing Tier 1
capital, which includes the CECL
transitional amounts, and reserves,
which already reflects the
implementation of CECL. As a result, a
portion of the CECL transitional
amounts is being double counted in
these measures, which in turn affects
assessment rates for large or highly
complex banks. The final rule also
adjusts the calculation of the loss
severity measure to remove the double
counting of a portion of the CECL
transitional amounts for large or highly
complex banks.
This final rule amends the deposit
insurance system applicable to large
banks and highly complex banks only,
and it does not affect regulatory capital
or the regulatory capital relief provided
in the form of transition provisions that
allow banking organizations to phase in
the effects of CECL on their regulatory
capital ratios.3 Specifically, in
calculating another measure used to
determine assessment rates for all IDIs,
the Tier 1 leverage ratio, the FDIC will
continue to apply the CECL regulatory
capital transition provisions, consistent
with the regulatory capital relief
provided to address concerns that
despite adequate capital planning,
unexpected economic conditions at the
time of CECL adoption could result in
higher-than-anticipated increases in
allowances.4
The FDIC did not receive any
comment letters in response to the
proposal and is adopting the proposed
rule as final without change. Under this
final rule, amendments to the deposit
insurance assessment system and
changes to regulatory reporting
requirements will be applicable only
while the regulatory capital relief
described above, or any potential future
amendment that may affect the
VerDate Sep<11>2014 16:18 Feb 24, 2021 Jkt 253001 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 E:\FR\FM\25FER1.SGM 25FER1
11392 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
5 12 CFR part 327.
6 See 71 FR 69282 (Nov. 30, 2006).
7 See 76 FR 10672 (Feb. 25, 2011).
8 See 12 CFR 327.3(b)(1).
9 See 12 CFR 327.5.
10 See 12 CFR 327.16(a) and (b).
11 See 12 CFR 327.16(b); see also 76 FR 10672
(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
12 See 76 FR 10688. The FDIC uses a different
scorecard for highly complex IDIs because those
institutions are structurally and operationally
complex, or pose unique challenges and risks in
case of failure. 76 FR 10695.
13 ASU 2016–13 covers measurement of credit
losses on financial instruments and includes three
subtopics within Topic 326: (i) Subtopic 326–10
Financial Instruments—Credit Losses—Overall; (ii)
Subtopic 326–20: Financial Instruments—Credit
Losses—Measured at Amortized Cost; and (iii)
Subtopic 326–30: Financial Instruments—Credit
Losses—Available-for-Sale Debt Securities.
14 ‘‘Other extensions of credit’’ includes trade and
reinsurance receivables, and receivables that relate
to repurchase agreements and securities lending
agreements. ‘‘Off-balance sheet credit exposures’’
includes off-balance sheet credit exposures not
accounted for as insurance, such as loan
commitments, standby letters of credit, and
financial guarantees. The FDIC notes that credit
losses for off-balance sheet credit exposures that are
unconditionally cancellable by the issuer are not
recognized under CECL.
15 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
16 84 FR 4222 (Feb. 14, 2019).
calculation of CECL transitional
amounts and the double counting of
these amounts for deposit insurance
assessment purposes, is reflected in the
regulatory reports of banks.
II. Background
A. Deposit Insurance Assessments
Pursuant to Section 7 of the FDI Act,
the FDIC has established a risk-based
assessment system in Part 327 of its
Rules and Regulations.5 In 2006, the
FDIC adopted a final rule that created
different risk-based assessment systems
for large IDIs and small IDIs that
combined supervisory ratings with other
risk measures to differentiate risk and
determine assessment rates.6 In 2011,
the FDIC amended the risk-based
assessment system applicable to large
IDIs to, among other things, better
capture risk at the time the institution
assumes the risk, to better differentiate
risk among large IDIs during periods of
good economic and banking conditions
based on how they would fare during
periods of stress or economic
downturns, and to better take into
account the losses that the FDIC may
incur if a large IDI fails.7
The FDIC charges all IDIs an
assessment amount for deposit
insurance equal to the IDI’s deposit
insurance assessment base multiplied
by its risk-based assessment rate.8 An
IDI’s assessment base and assessment
rate are determined each quarter based
on supervisory ratings and information
collected in the Consolidated Reports of
Condition and Income (Call Report) or
the Report of Assets and Liabilities of
U.S. Branches and Agencies of Foreign
Banks (FFIEC 002), as appropriate.
Generally, an IDI’s assessment base
equals its average consolidated total
assets minus its average tangible
equity.9
An IDI’s assessment rate is calculated
using different methods based on
whether the IDI is a small, large, or
highly complex bank.10 A large or
highly complex bank is assessed using
a scorecard approach that combines
CAMELS ratings and certain forward-
looking financial measures to assess the
risk that the bank poses to the DIF.11
The score that each large or highly
complex bank receives is used to
determine its deposit insurance
assessment rate. One scorecard applies
to most large IDIs and another applies
to highly complex banks. Both
scorecards use quantitative financial
measures that are useful in predicting a
large or highly complex bank’s long-
term performance.12
As described in more detail below,
the FDIC is finalizing amendments to
the assessment regulations to remove
the double counting of a specified
portion of the CECL transitional
amounts in the calculation of the loss
severity measure and certain other
financial measures that are calculated
by summing Tier 1 capital and reserves,
which are used to determine assessment
rates for large or highly complex banks.
B. The Current Expected Credit Losses
Methodology
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2016–13, Financial Instruments—
Credit Losses, Topic 326, Measurement
of Credit Losses on Financial
Instruments.13 The ASU resulted in
significant changes to credit loss
accounting under U.S. generally
accepted accounting principles (GAAP).
The revisions to credit loss accounting
under GAAP included the introduction
of CECL, which replaces the incurred
loss methodology for financial assets
measured at amortized cost. For these
assets, CECL requires banking
organizations to recognize lifetime
expected credit losses and to
incorporate reasonable and supportable
forecasts in developing the estimate of
lifetime expected credit losses, while
also maintaining the current
requirement that banking organizations
consider past events and current
conditions.
CECL allowances cover a broader
range of financial assets than the
allowance for loan and lease losses
(ALLL) under the incurred loss
methodology. Under the incurred loss
methodology, the ALLL generally covers
credit losses on loans held for
investment and lease financing
receivables, with additional allowances
for certain other extensions of credit and
allowances for credit losses on certain
off-balance sheet credit exposures (with
the latter allowances presented as
liabilities).14 These exposures will be
within the scope of CECL. In addition,
CECL applies to credit losses on held-
to-maturity (HTM) debt securities. ASU
2016–13 also introduces new
requirements for available-for-sale (AFS)
debt securities. The new accounting
standard requires that a banking
organization recognize credit losses on
individual AFS debt securities through
credit loss allowances, rather than
through direct write-downs, as is
currently required under U.S. GAAP.
The credit loss allowances attributable
to debt securities are separate from the
credit loss allowances attributable to
loans and leases.
C. The 2019 CECL Rule
Upon adoption of CECL, a banking
organization will record a one-time
adjustment to its credit loss allowances
as of the beginning of its fiscal year of
adoption equal to the difference, if any,
between the amount of credit loss
allowances required under the incurred
loss methodology and the amount of
credit loss allowances required under
CECL. A banking organization’s
implementation of CECL will affect its
retained earnings, deferred tax assets
(DTAs), allowances, and, as a result, its
regulatory capital ratios.
In recognition of the potential for the
implementation of CECL to affect
regulatory capital ratios, on February 14,
2019, the FDIC, the Office of the
Comptroller of the Currency (OCC), and
the Board of Governors of the Federal
Reserve System (Board) (collectively,
the agencies) issued a final rule that
revised certain regulations, including
the agencies’ regulatory capital
regulations (capital rule),15 to account
for the aforementioned changes to credit
loss accounting under GAAP, including
CECL (2019 CECL rule).16 The 2019
CECL rule includes a transition
provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios.
VerDate Sep<11>2014 16:18 Feb 24, 2021 Jkt 253001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 E:\FR\FM\25FER1.SGM 25FER1
5 12 CFR part 327.
6 See 71 FR 69282 (Nov. 30, 2006).
7 See 76 FR 10672 (Feb. 25, 2011).
8 See 12 CFR 327.3(b)(1).
9 See 12 CFR 327.5.
10 See 12 CFR 327.16(a) and (b).
11 See 12 CFR 327.16(b); see also 76 FR 10672
(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012).
12 See 76 FR 10688. The FDIC uses a different
scorecard for highly complex IDIs because those
institutions are structurally and operationally
complex, or pose unique challenges and risks in
case of failure. 76 FR 10695.
13 ASU 2016–13 covers measurement of credit
losses on financial instruments and includes three
subtopics within Topic 326: (i) Subtopic 326–10
Financial Instruments—Credit Losses—Overall; (ii)
Subtopic 326–20: Financial Instruments—Credit
Losses—Measured at Amortized Cost; and (iii)
Subtopic 326–30: Financial Instruments—Credit
Losses—Available-for-Sale Debt Securities.
14 ‘‘Other extensions of credit’’ includes trade and
reinsurance receivables, and receivables that relate
to repurchase agreements and securities lending
agreements. ‘‘Off-balance sheet credit exposures’’
includes off-balance sheet credit exposures not
accounted for as insurance, such as loan
commitments, standby letters of credit, and
financial guarantees. The FDIC notes that credit
losses for off-balance sheet credit exposures that are
unconditionally cancellable by the issuer are not
recognized under CECL.
15 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
12 CFR part 324 (FDIC).
16 84 FR 4222 (Feb. 14, 2019).
calculation of CECL transitional
amounts and the double counting of
these amounts for deposit insurance
assessment purposes, is reflected in the
regulatory reports of banks.
II. Background
A. Deposit Insurance Assessments
Pursuant to Section 7 of the FDI Act,
the FDIC has established a risk-based
assessment system in Part 327 of its
Rules and Regulations.5 In 2006, the
FDIC adopted a final rule that created
different risk-based assessment systems
for large IDIs and small IDIs that
combined supervisory ratings with other
risk measures to differentiate risk and
determine assessment rates.6 In 2011,
the FDIC amended the risk-based
assessment system applicable to large
IDIs to, among other things, better
capture risk at the time the institution
assumes the risk, to better differentiate
risk among large IDIs during periods of
good economic and banking conditions
based on how they would fare during
periods of stress or economic
downturns, and to better take into
account the losses that the FDIC may
incur if a large IDI fails.7
The FDIC charges all IDIs an
assessment amount for deposit
insurance equal to the IDI’s deposit
insurance assessment base multiplied
by its risk-based assessment rate.8 An
IDI’s assessment base and assessment
rate are determined each quarter based
on supervisory ratings and information
collected in the Consolidated Reports of
Condition and Income (Call Report) or
the Report of Assets and Liabilities of
U.S. Branches and Agencies of Foreign
Banks (FFIEC 002), as appropriate.
Generally, an IDI’s assessment base
equals its average consolidated total
assets minus its average tangible
equity.9
An IDI’s assessment rate is calculated
using different methods based on
whether the IDI is a small, large, or
highly complex bank.10 A large or
highly complex bank is assessed using
a scorecard approach that combines
CAMELS ratings and certain forward-
looking financial measures to assess the
risk that the bank poses to the DIF.11
The score that each large or highly
complex bank receives is used to
determine its deposit insurance
assessment rate. One scorecard applies
to most large IDIs and another applies
to highly complex banks. Both
scorecards use quantitative financial
measures that are useful in predicting a
large or highly complex bank’s long-
term performance.12
As described in more detail below,
the FDIC is finalizing amendments to
the assessment regulations to remove
the double counting of a specified
portion of the CECL transitional
amounts in the calculation of the loss
severity measure and certain other
financial measures that are calculated
by summing Tier 1 capital and reserves,
which are used to determine assessment
rates for large or highly complex banks.
B. The Current Expected Credit Losses
Methodology
In 2016, the Financial Accounting
Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2016–13, Financial Instruments—
Credit Losses, Topic 326, Measurement
of Credit Losses on Financial
Instruments.13 The ASU resulted in
significant changes to credit loss
accounting under U.S. generally
accepted accounting principles (GAAP).
The revisions to credit loss accounting
under GAAP included the introduction
of CECL, which replaces the incurred
loss methodology for financial assets
measured at amortized cost. For these
assets, CECL requires banking
organizations to recognize lifetime
expected credit losses and to
incorporate reasonable and supportable
forecasts in developing the estimate of
lifetime expected credit losses, while
also maintaining the current
requirement that banking organizations
consider past events and current
conditions.
CECL allowances cover a broader
range of financial assets than the
allowance for loan and lease losses
(ALLL) under the incurred loss
methodology. Under the incurred loss
methodology, the ALLL generally covers
credit losses on loans held for
investment and lease financing
receivables, with additional allowances
for certain other extensions of credit and
allowances for credit losses on certain
off-balance sheet credit exposures (with
the latter allowances presented as
liabilities).14 These exposures will be
within the scope of CECL. In addition,
CECL applies to credit losses on held-
to-maturity (HTM) debt securities. ASU
2016–13 also introduces new
requirements for available-for-sale (AFS)
debt securities. The new accounting
standard requires that a banking
organization recognize credit losses on
individual AFS debt securities through
credit loss allowances, rather than
through direct write-downs, as is
currently required under U.S. GAAP.
The credit loss allowances attributable
to debt securities are separate from the
credit loss allowances attributable to
loans and leases.
C. The 2019 CECL Rule
Upon adoption of CECL, a banking
organization will record a one-time
adjustment to its credit loss allowances
as of the beginning of its fiscal year of
adoption equal to the difference, if any,
between the amount of credit loss
allowances required under the incurred
loss methodology and the amount of
credit loss allowances required under
CECL. A banking organization’s
implementation of CECL will affect its
retained earnings, deferred tax assets
(DTAs), allowances, and, as a result, its
regulatory capital ratios.
In recognition of the potential for the
implementation of CECL to affect
regulatory capital ratios, on February 14,
2019, the FDIC, the Office of the
Comptroller of the Currency (OCC), and
the Board of Governors of the Federal
Reserve System (Board) (collectively,
the agencies) issued a final rule that
revised certain regulations, including
the agencies’ regulatory capital
regulations (capital rule),15 to account
for the aforementioned changes to credit
loss accounting under GAAP, including
CECL (2019 CECL rule).16 The 2019
CECL rule includes a transition
provision that allows banking
organizations to phase in over a three-
year period the day-one adverse effects
of CECL on their regulatory capital
ratios.
VerDate Sep<11>2014 16:18 Feb 24, 2021 Jkt 253001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 E:\FR\FM\25FER1.SGM 25FER1