Assessments, Amendments To Address the Temporary Deposit Insurance Assessment Effects of the Optional Regulatory Capital Transitions for Implementing (rule,…
Summary
Federal Register pages from Thursday, February 25, 2021 carrying the FDIC final rule that removes the double counting of a portion of the CECL transitional amounts in certain financial measures used to set assessment rates for large or highly complex banks. The rule also adjusts the loss severity measure. The regulation text provides that where the outstanding balance of loans provided under the Paycheck Protection Program exceeds the balance of commercial and industrial loans, the remainder is excluded first from all other loans and then from agricultural loans. A large bank generally has $10 billion or more in total assets. The pages also carry softwood lumber assessment rates and an FAA directive on Leonardo S.p.a. helicopters.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Assessments, Amendments To Address the Temporary Deposit Insurance Assessment Effects of the Optional Regulatory Capital Transitions for Implementing (rule,….”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/assessments-amendments-to-address-the-temporary-deposit-insurance-asse-2da77a66a3/
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11391
TABLE 1 TO PARAGRAPH (h) not affect regulatory capital or the counting of a portion of the CECL
regulatory capital relief provided in the transitional amounts, in certain
Assessment Assessment form of transition provisions that allow financial measures used to determine
Softwood lumber $/cubic $/square
(by HTSUS number) meter meter banking organizations to phase in the deposit insurance assessment rates for
effects of CECL on their regulatory large or highly complex banks. In
4407.11.00 .................. 0.1737 0.004412 capital ratios. particular, certain financial measures
4407.12.00 .................. 0.1737 0.004412
4407.19.05 .................. 0.1737 0.004412 DATES: The final rule is effective April are calculated by summing Tier 1
4407.19.06 .................. 0.1737 0.004412 1, 2021. capital, which includes the CECL
4407.19.10 .................. 0.1737 0.004412 FOR FURTHER INFORMATION CONTACT: transitional amounts, and reserves,
4409.10.05 .................. 0.1737 0.004412 which already reflects the
4409.10.10 .................. 0.1737 0.004412 Scott Ciardi, Chief, Large Bank Pricing,
4409.10.20 .................. 0.1737 0.004412 (202) 898–7079 or sciardi@fdic.gov; implementation of CECL. As a result, a
4409.10.90 .................. 0.1737 0.004412 Ashley Mihalik, Chief, Banking and portion of the CECL transitional
4418.99.10 .................. 0.1737 0.004412 Regulatory Policy, (202) 898–3793 or amounts is being double counted in
amihalik@fdic.gov; Nefretete Smith, these measures, which in turn affects
* * * * * Counsel, (202) 898–6851 or nefsmith@ assessment rates for large or highly
Bruce Summers, fdic.gov; Sydney Mayer, Senior complex banks. The final rule also
Attorney, (202) 898–3669 or smayer@ adjusts the calculation of the loss
Administrator, Agricultural Marketing
fdic.gov. severity measure to remove the double
Service.
counting of a portion of the CECL
[FR Doc. 2021–03467 Filed 2–24–21; 8:45 am] SUPPLEMENTARY INFORMATION:
transitional amounts for large or highly
BILLING CODE P
I. Policy Objectives and Overview of complex banks.
Final Rule This final rule amends the deposit
insurance system applicable to large
FEDERAL DEPOSIT INSURANCE The Federal Deposit Insurance Act
banks and highly complex banks only,
CORPORATION (FDI Act) requires that the FDIC
and it does not affect regulatory capital
establish a risk-based deposit insurance
or the regulatory capital relief provided
12 CFR Part 327 assessment system for insured
in the form of transition provisions that
depository institutions (IDIs).1
RIN 3064–AF65 allow banking organizations to phase in
Consistent with this statutory
the effects of CECL on their regulatory
requirement, the FDIC’s objective in
Assessments, Amendments To capital ratios.3 Specifically, in
finalizing this rule is to ensure that IDIs
Address the Temporary Deposit calculating another measure used to
are assessed in a manner that is fair and
Insurance Assessment Effects of the determine assessment rates for all IDIs,
accurate. In particular, the primary
Optional Regulatory Capital the Tier 1 leverage ratio, the FDIC will
objective of this final rule is to remove
Transitions for Implementing the continue to apply the CECL regulatory
a double counting issue in several
Current Expected Credit Losses capital transition provisions, consistent
financial measures used to determine
Methodology deposit insurance assessment rates for with the regulatory capital relief
large or highly complex banks, which provided to address concerns that
AGENCY: Federal Deposit Insurance
could result in a deposit insurance despite adequate capital planning,
Corporation (FDIC). unexpected economic conditions at the
ACTION: Final rule.
assessment rate for a large or highly
complex bank that does not accurately time of CECL adoption could result in
reflect the bank’s risk to the deposit higher-than-anticipated increases in
SUMMARY: The Federal Deposit
insurance fund (DIF), all else equal.2 allowances.4
Insurance Corporation is adopting The FDIC did not receive any
amendments to the risk-based deposit The final rule amends the assessment
regulations to remove the double comment letters in response to the
insurance assessment system applicable proposal and is adopting the proposed
to all large insured depository rule as final without change. Under this
1 12 U.S.C. 1817(b). As used in this final rule, the
institutions (IDIs), including highly final rule, amendments to the deposit
term ‘‘insured depository institution’’ has the same
complex IDIs, to address the temporary meaning as it is used in section 3(c)(2) of the FDI insurance assessment system and
deposit insurance assessment effects Act, 12 U.S.C. 1813(c)(2). Pursuant to this changes to regulatory reporting
resulting from certain optional requirement, the FDIC first adopted a risk-based
requirements will be applicable only
regulatory capital transition provisions deposit insurance assessment system effective in
1993 that applied to all IDIs. See 57 FR 45263 (Oct. while the regulatory capital relief
relating to the implementation of the 1, 1992). The FDIC implemented this assessment described above, or any potential future
current expected credit losses (CECL) system with the goals of making the deposit
amendment that may affect the
methodology. The final rule removes the insurance system fairer to well-run institutions and
encouraging weaker institutions to improve their
double counting of a specified portion condition, and thus, promote the safety and 3 Banking organizations subject to the capital rule
of the CECL transitional amount or the soundness of IDIs. include national banks, state member banks, state
modified CECL transitional amount, as 2 As used in this final rule, the term ‘‘small bank’’ nonmember banks, savings associations, and top-
applicable (collectively, the CECL is synonymous with ‘‘small institution,’’ the term tier bank holding companies and savings and loan
‘‘large bank’’ is synonymous with ‘‘large holding companies domiciled in the United States
transitional amounts), in certain institution,’’ and the term ‘‘highly complex bank’’ not subject to the Federal Reserve Board’s Small
financial measures that are calculated is synonymous with ‘‘highly complex institution,’’ Bank Holding Company Policy Statement (12 CFR
using the sum of Tier 1 capital and as the terms are defined in 12 CFR 327.8. For part 225, appendix C), but exclude certain savings
reserves and that are used to determine assessment purposes, a large bank is generally and loan holding companies that are substantially
defined as an institution with $10 billion or more engaged in insurance underwriting or commercial
assessment rates for large or highly in total assets, a small bank is generally defined as activities or that are estate trusts, and bank holding
complex IDIs. The final rule also adjusts an institution with less than $10 billion in total companies and savings and loan holding companies
the calculation of the loss severity assets, and a highly complex bank is generally that are employee stock ownership plans. See 12
measure to remove the double counting defined as an institution that has $50 billion or CFR part 3 (Office of the Comptroller of the
more in total assets and is controlled by a parent Currency)); 12 CFR part 217 (Board); 12 CFR part
of a specified portion of the CECL holding company that has $500 billion or more in 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) and
transitional amounts for a large or total assets, or is a processing bank or trust 85 FR 61577 (Sept. 30, 2020).
highly complex IDI. This final rule does company. See 12 CFR 327.8(e), (f), and (g). 4 See 84 FR 4225 (Feb. 14, 2019).
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11392 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
calculation of CECL transitional to most large IDIs and another applies the latter allowances presented as
amounts and the double counting of to highly complex banks. Both liabilities).14 These exposures will be
these amounts for deposit insurance scorecards use quantitative financial within the scope of CECL. In addition,
assessment purposes, is reflected in the measures that are useful in predicting a CECL applies to credit losses on held-
regulatory reports of banks. large or highly complex bank’s long- to-maturity (HTM) debt securities. ASU
term performance.12 2016–13 also introduces new
II. Background As described in more detail below, requirements for available-for-sale (AFS)
A. Deposit Insurance Assessments the FDIC is finalizing amendments to debt securities. The new accounting
Pursuant to Section 7 of the FDI Act, the assessment regulations to remove standard requires that a banking
the FDIC has established a risk-based the double counting of a specified organization recognize credit losses on
assessment system in Part 327 of its portion of the CECL transitional individual AFS debt securities through
Rules and Regulations.5 In 2006, the amounts in the calculation of the loss credit loss allowances, rather than
FDIC adopted a final rule that created severity measure and certain other through direct write-downs, as is
different risk-based assessment systems financial measures that are calculated currently required under U.S. GAAP.
for large IDIs and small IDIs that by summing Tier 1 capital and reserves, The credit loss allowances attributable
combined supervisory ratings with other which are used to determine assessment
to debt securities are separate from the
risk measures to differentiate risk and rates for large or highly complex banks.
credit loss allowances attributable to
determine assessment rates.6 In 2011, B. The Current Expected Credit Losses loans and leases.
the FDIC amended the risk-based Methodology
assessment system applicable to large C. The 2019 CECL Rule
In 2016, the Financial Accounting
IDIs to, among other things, better Standards Board (FASB) issued Upon adoption of CECL, a banking
capture risk at the time the institution Accounting Standards Update (ASU) organization will record a one-time
assumes the risk, to better differentiate No. 2016–13, Financial Instruments— adjustment to its credit loss allowances
risk among large IDIs during periods of Credit Losses, Topic 326, Measurement as of the beginning of its fiscal year of
good economic and banking conditions of Credit Losses on Financial adoption equal to the difference, if any,
based on how they would fare during Instruments.13 The ASU resulted in between the amount of credit loss
periods of stress or economic significant changes to credit loss allowances required under the incurred
downturns, and to better take into accounting under U.S. generally
account the losses that the FDIC may loss methodology and the amount of
accepted accounting principles (GAAP). credit loss allowances required under
incur if a large IDI fails.7 The revisions to credit loss accounting
The FDIC charges all IDIs an CECL. A banking organization’s
under GAAP included the introduction implementation of CECL will affect its
assessment amount for deposit
of CECL, which replaces the incurred retained earnings, deferred tax assets
insurance equal to the IDI’s deposit
loss methodology for financial assets (DTAs), allowances, and, as a result, its
insurance assessment base multiplied
measured at amortized cost. For these regulatory capital ratios.
by its risk-based assessment rate.8 An
assets, CECL requires banking
IDI’s assessment base and assessment In recognition of the potential for the
organizations to recognize lifetime
rate are determined each quarter based implementation of CECL to affect
expected credit losses and to
on supervisory ratings and information regulatory capital ratios, on February 14,
incorporate reasonable and supportable
collected in the Consolidated Reports of 2019, the FDIC, the Office of the
forecasts in developing the estimate of
Condition and Income (Call Report) or Comptroller of the Currency (OCC), and
lifetime expected credit losses, while
the Report of Assets and Liabilities of the Board of Governors of the Federal
also maintaining the current
U.S. Branches and Agencies of Foreign Reserve System (Board) (collectively,
requirement that banking organizations
Banks (FFIEC 002), as appropriate. the agencies) issued a final rule that
consider past events and current
Generally, an IDI’s assessment base revised certain regulations, including
conditions.
equals its average consolidated total CECL allowances cover a broader the agencies’ regulatory capital
assets minus its average tangible range of financial assets than the regulations (capital rule),15 to account
equity.9 allowance for loan and lease losses for the aforementioned changes to credit
An IDI’s assessment rate is calculated loss accounting under GAAP, including
(ALLL) under the incurred loss
using different methods based on CECL (2019 CECL rule).16 The 2019
methodology. Under the incurred loss
whether the IDI is a small, large, or CECL rule includes a transition
methodology, the ALLL generally covers
highly complex bank.10 A large or provision that allows banking
credit losses on loans held for
highly complex bank is assessed using organizations to phase in over a three-
investment and lease financing
a scorecard approach that combines year period the day-one adverse effects
receivables, with additional allowances
CAMELS ratings and certain forward- of CECL on their regulatory capital
for certain other extensions of credit and
looking financial measures to assess the ratios.
allowances for credit losses on certain
risk that the bank poses to the DIF.11
off-balance sheet credit exposures (with
The score that each large or highly 14 ‘‘Other extensions of credit’’ includes trade and
complex bank receives is used to 12 See 76 FR 10688. The FDIC uses a different reinsurance receivables, and receivables that relate
determine its deposit insurance scorecard for highly complex IDIs because those to repurchase agreements and securities lending
assessment rate. One scorecard applies institutions are structurally and operationally agreements. ‘‘Off-balance sheet credit exposures’’
complex, or pose unique challenges and risks in includes off-balance sheet credit exposures not
5 12 CFR part 327. case of failure. 76 FR 10695. accounted for as insurance, such as loan
6 See 71 FR 69282 (Nov. 30, 2006).
13 ASU 2016–13 covers measurement of credit commitments, standby letters of credit, and
losses on financial instruments and includes three financial guarantees. The FDIC notes that credit
7 See 76 FR 10672 (Feb. 25, 2011).
subtopics within Topic 326: (i) Subtopic 326–10 losses for off-balance sheet credit exposures that are
8 See 12 CFR 327.3(b)(1).
Financial Instruments—Credit Losses—Overall; (ii) unconditionally cancellable by the issuer are not
9 See 12 CFR 327.5. recognized under CECL.
Subtopic 326–20: Financial Instruments—Credit
10 See 12 CFR 327.16(a) and (b). 15 12 CFR part 3 (OCC); 12 CFR part 217 (Board);
Losses—Measured at Amortized Cost; and (iii)
11 See 12 CFR 327.16(b); see also 76 FR 10672 Subtopic 326–30: Financial Instruments—Credit 12 CFR part 324 (FDIC).
(Feb. 25, 2011) and 77 FR 66000 (Oct. 31, 2012). Losses—Available-for-Sale Debt Securities. 16 84 FR 4222 (Feb. 14, 2019).
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11393
D. The 2020 CECL Rule E. Double Counting of a Portion of the retained earnings in regulatory capital
CECL Transitional Amounts in Certain calculations.22
As part of the efforts to address the Financial Measures Used To Determine For banks electing the 2020 CECL rule
disruption of economic activity in the Assessments for Large or Highly transition provision that enter the third
United States caused by the spread of Complex Banks year of their transition period and for
coronavirus disease 2019 (COVID–19), An increase in a banking banks electing the three-year 2019 CECL
on March 31, 2020, the agencies organization’s allowances, including rule transition provision, banks must
adopted a second CECL transition those estimated under CECL, generally calculate the transitional amount to
provision through an interim final will reduce the banking organization’s phase into their retained earnings for
rule.17 The agencies subsequently earnings or retained earnings, and purposes of their regulatory capital
adopted a final rule (2020 CECL rule) on therefore, its Tier 1 capital. For banks calculations over a three-year period.
September 30, 2020, that is consistent electing the 2019 CECL rule, the CECL For banks electing the 2019 CECL rule,
with the interim final rule, with some transitional amount is the difference the CECL transitional amount is the
clarifications and adjustments related to between the closing balance sheet difference between the pre-CECL
the calculation of the transition and the amount of retained earnings for the amount of retained earnings and the
fiscal year-end immediately prior to the post-CECL amount of retained earnings.
eligibility criteria for using the 2020
bank’s adoption of CECL (pre-CECL For banks electing the 2020 CECL rule
CECL transition provision.18 The 2020
amount) and the bank’s balance sheet that enter the third year of their
CECL rule provides banking transition, the modified CECL
organizations that adopt CECL for amount of retained earnings as of the
beginning of the fiscal year in which it transitional amount is the difference
purposes of GAAP (as in effect January between the bank’s AACL at the end of
1, 2020), for a fiscal year that begins adopts CECL (post-CECL amount). For
banks electing the 2020 CECL rule the second year of the transition period
during the 2020 calendar year, the and its AACL as of the beginning of the
option to delay for up to two years an transition provision, retained earnings
are increased for regulatory capital fiscal year of CECL adoption multiplied
estimate of CECL’s effect on regulatory by 25 percent plus the CECL transitional
calculation purposes by a modified
capital, followed by a three-year amount described above. The CECL
CECL transitional amount that is
transition period (i.e., a five-year adjusted to reflect changes in retained transitional amount or, at the end of the
transition period in total).19 The 2020 earnings due to CECL that occur during second year of the transition period for
CECL rule does not replace the three- the first two years of the five-year banks electing the 2020 CECL rule, the
year transition provision in the 2019 transition period. Under the 2020 CECL modified CECL transitional amount, is
CECL rule, which remains available to rule, the change in retained earnings fixed and must be phased in over the
any banking organization at the time due to CECL is calculated by taking the three-year transition period or the last
that it adopts CECL.20 change in reported adjusted allowances three years of the transition period,
for credit losses (AACL) 21 relative to the respectively, on a straight-line basis, 25
first day of the fiscal year in which percent in the first year (or third year for
CECL was adopted and applying a banks electing the 2020 CECL rule), and
17 85 FR 17723 (Mar. 31, 2020). scaling multiplier of 25 percent during an additional 25 percent of the
18 See 85 FR 61577 (Sept. 30, 2020). the first two years of the transition transitional amount over each of the
19 A banking organization that is required to period. The resulting amount is added next two years.23 At the beginning of the
adopt CECL under GAAP in the 2020 calendar year, to the CECL transitional amount sixth year for banks electing the 2020
but chooses to delay use of CECL for regulatory described above. Hence, the modified CECL rule, or the beginning of the
reporting in accordance with section 4014 of the
CECL transitional amount for banks fourth year for banks electing the 2019
Coronavirus Aid Relief, and Economic Security Act CECL rule, the electing bank would
(CARES Act), is also eligible for the 2020 CECL
electing the 2020 CECL rule is
calculated on a quarterly basis during have completely reflected in regulatory
transition provision. The CARES Act (Pub. L. 116–
the first two years of the transition capital the day-one effects of CECL
136, 4014, 134 Stat. 281 (March 27, 2020)) provides
banking organizations optional temporary relief period. The bank reflects that modified (plus, for banks electing the 2020 CECL
from complying with CECL ending on the earlier of CECL transitional amount, which rule, an estimate of CECL’s effect on
(1) the termination date of the current national includes 100 percent of the day-one regulatory capital, relative to the
emergency, declared by the President on March 13, impact of CECL on retained earnings
2020 under the National Emergencies Act (50 U.S.C. 22 See 85 FR 61580 (Sept. 30, 2020).
1601 et seq.) concerning COVID–19; or (2)
plus a portion of the difference between 23 Thus, when calculating regulatory capital, a
December 31, 2020. If a banking organization AACL reported in the most recent bank electing the 2019 CECL rule transition
chooses to revert to the incurred loss methodology regulatory report and AACL as of the provision would increase the retained earnings
pursuant to the CARES Act in any quarter in 2020, beginning of the fiscal year that the reported on its balance sheet by the applicable
the banking organization would not apply any banking organization adopts CECL, in portion of its CECL transitional amount, i.e., 75
transitional amounts in that quarter but would be percent of its CECL transitional amount during the
the transitional amount applied to first year of the transition period, 50 percent of its
allowed to apply the transitional amounts in
CECL transitional amount during the second year of
subsequent quarters when the banking organization 21 The 2019 CECL rule defined a new term for the transition period, and 25 percent of its CECL
resumes use of CECL. The Consolidated regulatory capital purposes, adjusted allowances for transitional amount during the third year of the
Appropriations Act, 2021 (Pub. L. 116–260 (Dec. 27, credit losses (AACL). The meaning of the term transition period. A bank electing the 2020 CECL
2020)) extended the optional temporary relief from AACL for regulatory capital purposes is different rule transition provision would increase the
complying with CECL afforded under the CARES from the meaning of the term allowances of credit retained earnings reported on its balance sheet by
Act, with an end date on the earlier of (1) the first losses (ACL) used in applicable accounting the applicable portion of its modified CECL
day of the fiscal year of the IDI, bank holding standards. The term allowance for credit losses as transitional amount, i.e., 100 percent of its modified
company, or any affiliate thereof that begins after used by the FASB in ASU 2016–13 applies to both CECL transitional amount during the first and
the date on which the national emergency financial assets measured at amortized cost and second years of the transition period, 75 percent of
AFS debt securities. In contrast, the AACL its CECL modified transitional amount during the
concerning the COVID–19 outbreak declared by the
definition includes only those allowances that have third year of the transition period, 50 percent of its
President on March 13, 2020 under the National been established through a charge against earnings modified CECL transitional amount during the
Emergencies Act (50 U.S.C. 1601 et seq.) terminates; or retained earnings. Under the 2019 CECL rule, the fourth year of the transition period, and 25 percent
or (2) January 1, 2022. term AACL, rather than ALLL, applies to a banking of its CECL transitional amount during the fifth year
20 See 85 FR 61578 (Sept. 30, 2020). organization that has adopted CECL. of the transition period.
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11394 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
incurred loss methodology’s effect on percent). The applicable portions of the provided for under the 2019 and 2020
regulatory capital, during the first two CECL transitional amounts attributable CECL rules. Specifically, in certain
years of CECL adoption).24 to allowances for credit losses on HTM scorecard measures which are
Certain financial measures that are debt securities, other financial assets calculated using the sum of Tier 1
used in the scorecard to determine measured at amortized cost, and off- capital and reserves, the FDIC proposed
assessment rates for large or highly balance sheet credit exposures are to remove a specified portion of the
complex banks are calculated using both included in Tier 1 capital only and are CECL transitional amount (or modified
Tier 1 capital and reserves. Tier 1 not double counted with reserves for CECL transitional amount) that is added
capital is reported in Call Report deposit insurance assessment purposes. to retained earnings for regulatory
Schedule RC–R, Part I, item 26, and for The CECL effective dates assigned by capital purposes when determining
banks that elect either the three-year ASU 2016–13 as most recently amended deposit insurance assessment rates. The
transition provision contained in the by ASU No. 2019–10, the optional FDIC also proposed to adjust the
2019 CECL rule or the five-year temporary relief from complying with calculation of the loss severity measure
transition provision contained in the CECL afforded by the CARES Act and as to remove the double counting of a
2020 CECL rule, Tier 1 capital includes extended by the Consolidated specified portion of the CECL
(due to adjustments to the amount of Appropriations Act, 2021, and the transitional amounts for a large or
retained earnings reported on the transitions provided for under the 2019 highly complex bank.
balance sheet) the applicable portion of CECL rule and 2020 CECL rule, provide The FDIC did not receive any
the CECL transitional amount (or that all banks will have completely comment letters in response to the
modified CECL transitional amount). reflected in regulatory capital the day- proposal and is adopting the proposed
For deposit insurance assessment one effects of CECL (plus, if applicable, rule as final without change.
purposes, reserves are calculated using an estimate of CECL’s effect on
the amount reported in Call Report regulatory capital, relative to the III. The Final Rule
Schedule RC, item 4.c, ‘‘Allowance for incurred loss methodology’s effect on A. Summary
loan and lease losses.’’ For all banks that regulatory capital, during the first two
have adopted CECL, this Schedule RC years of CECL adoption) by December As proposed, in certain scorecard
line item reflects the allowance for 31, 2026. As a result, and as discussed measures which are calculated using the
credit losses on loans and leases.25 below, the amendments to the deposit sum of Tier 1 capital and reserves, the
The issue of double counting arises in insurance assessment system and FDIC will remove a specified portion of
certain financial measures used to changes to reporting requirements the CECL transitional amounts that is
determine assessment rates for large or pursuant to this final rule will be added to retained earnings for
highly complex banks that are applicable only while the temporary regulatory capital purposes when
calculated using both Tier 1 capital and regulatory capital relief described above, determining deposit insurance
reserves because the allowance for or any potential future amendment that assessment rates. The FDIC also will
credit losses on loans and leases is may affect the calculation of CECL adjust the calculation of the loss
included during the transition period in transitional amounts and the double severity measure to remove the double
both reserves and, as a portion of the counting of these amounts for deposit counting of a specified portion of the
CECL or modified CECL transitional insurance assessment purposes, is CECL transitional amounts for a large or
amount, Tier 1 capital. For banks that reflected in the regulatory reports of highly complex bank.
elect either the three-year transition banks. Absent the adjustments to the
provision contained in the 2019 CECL calculation of certain financial measures
rule or the five-year transition provision F. The Proposed Rule in the large or highly complex bank
contained in the 2020 CECL rule, the On December 7, 2020, the FDIC scorecards under this final rule, the
CECL transitional amounts, as defined published in the Federal Register a inclusion of the applicable portions of
in section 301 of the regulatory capital notice of proposed rulemaking (the the CECL transitional amounts added to
rules, additionally include the effect on proposed rule, or proposal) 26 that retained earnings for regulatory capital
retained earnings, net of tax effect, of would amend the risk-based deposit purposes and attributable to the
establishing allowances for credit losses insurance assessment system applicable allowance for credit losses on loans and
in accordance with the CECL to all large IDIs, including highly leases held for investment in regulatory
methodology on HTM debt securities, complex IDIs, to address the temporary capital and the implementation of CECL
other financial assets measured at deposit insurance assessment effects in calculating reserves would result in
amortized cost, and off-balance sheet resulting from certain optional temporary double counting of a portion
credit exposures as of the beginning of regulatory capital transition provisions of the CECL transitional amounts in
the fiscal year of adoption (plus, for relating to the implementation of the select financial measures used to
banks electing the 2020 CECL rule, the CECL methodology. To address these determine assessment rates for large or
change during the first two years of the temporary deposit insurance assessment highly complex banks. For example, in
transition period in reported AACLs for effects, in calculating certain measures the denominator of the higher-risk
HTM debt securities, other financial used in the scorecard for determining assets to Tier 1 capital and reserves
assets measured at amortized cost, and deposit insurance assessment rates for ratio, the applicable portions of the
off-balance sheet credit exposures large or highly complex banks, the FDIC CECL transitional amounts added to
relative to the balances of these AACLs proposed to remove the applicable retained earnings for regulatory capital
as of the beginning of the fiscal year of portions of the CECL transitional purposes and attributable to the
CECL adoption multiplied by 25 amounts added to retained earnings for allowance for credit losses on loans and
regulatory capital purposes and leases held for investment would be
24 See 84 FR 4228 (Feb. 14, 2019) and 85 FR
attributable to the allowance for credit included in Tier 1 capital, and these
61580 (Sept. 30, 2020). losses on loans and leases held for portions also would be reflected in the
25 The allowance for credit losses on loans and
leases held for investment also is reported in item
investment under the transitions calculation of reserves using the
7, column A, of Call Report Schedule RI–B, Part II, allowance amount reported in Call
Changes in Allowances for Credit Losses. 26 85 FR 78794 (Dec. 7, 2020). Report Schedule RC, item 4.c. If left
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11395
uncorrected, this temporary double increase in its allowances for credit the allowance for credit losses on loans
counting could result in a deposit losses, and in its AACL for regulatory and leases held for investment. Its
insurance assessment rate for a large or capital purposes, of $200,000, with a combined Tier 1 capital and reserves
highly complex bank that does not reduction in beginning retained would equal $11.2 million ($10 million
accurately reflect the bank’s risk to the earnings of $200,000, which flows plus $1.2 million), reflecting double
DIF, all else equal. through and results in Tier 1 capital of counting of the $200,000 applicable
In the following simplified, stylized $9.8 million. For each of the quarterly portion of the bank’s CECL transitional
example, illustrated in Table 1 below, reporting periods in year 1 of the five- amount attributable to the allowance for
consider a hypothetical large bank that year transition period (i.e., 2020), the credit losses on loans and leases.30
has a CECL effective date of January 1, electing bank would increase the
2020, and elects a five-year transition.27 retained earnings reported on its Under the final rule, for purposes of
On the closing balance sheet date balance sheet by $200,000 for purposes calculating assessments for large or
immediately prior to adopting CECL of calculating its regulatory capital highly complex banks, the FDIC would
(i.e., December 31, 2019), the electing ratios, resulting in an increase in its Tier subtract $200,000 from the denominator
bank has $1 million of ALLL and $10 1 capital of $200,000 to $10 million, all of financial measures that sum Tier 1
million of Tier 1 capital. On the opening else equal.29 capital and reserves, since the amount
balance sheet date immediately after In this example, in determining the of $200,000 is incorporated in both Tier
adopting CECL (i.e., January 1, 2020), hypothetical large bank’s deposit 1 capital (as the applicable portion of
the electing bank has $1.2 million of insurance assessment rate, the bank’s the CECL transitional amount in year
allowances for credit losses, of which Tier 1 capital of $10 million would one of the five-year transition period)
the entire $1.2 million qualifies as include the $200,000 addition to the and reserves in the denominator. The
AACL for regulatory capital purposes bank’s reported retained earnings due to bank’s adjusted Tier 1 capital and
and is attributable to the allowance for the CECL transition (entirely reserves would equal $11 million. The
credit losses on loans and leases held attributable to the allowance for credit FDIC also would adjust the calculation
for investment.28 The bank would losses on loans and leases), and its of the loss severity measure by
recognize the adoption of CECL as of reserves would equal $1.2 million, the
$200,000, as described below.
January 1, 2020, by recording an entire amount of which is attributable to
TABLE 1—STYLIZED EXAMPLE 1 OF FIRST-QUARTER APPLICATION OF A FIVE-YEAR CECL TRANSITION IN CALCULATING
TIER 1 CAPITAL AND RESERVES FOR DEPOSIT INSURANCE ASSESSMENT PURPOSES
In thousands Dec. 31, 2019 Jan. 1, 2020
Reserves ................................................................................................................. $1,000 (ALLL) ........................................ $1,200 (AACL).
Tier 1 Capital .......................................................................................................... $10,000 .................................................. $10,000.
Tier 1 Capital and Reserves (absent final rule) ...................................................... $11,000 .................................................. $11,200.
Applicable Portion of the CECL Transitional Amount ............................................. ................................................................ $200.
Tier 1 Capital and Reserves (under final rule) ....................................................... ................................................................ $11,000.
1 This stylized example reflects the first-quarter application of a hypothetical bank that has adopted a five-year CECL transition under the 2020
CECL rule and assumes that the full amount of the CECL transitional amount is attributable to the allowance for credit losses on loans and
leases. The example does not reflect any changes over the course of the first quarter of 2020 (i.e., no changes in the amounts reported on the
bank’s balance sheet between January 1 and March 31, 2020, the end of the reporting period for the first quarter). As a consequence, the bank’s
modified CECL transitional amount as of March 31, 2020, equals its CECL transitional amount. This stylized example omits the effects of de-
ferred tax assets, which are addressed in the agencies’ capital rule, the 2019 CECL rule, and the 2020 CECL rule.
The final rule amends the deposit and does not affect regulatory capital or
insurance system applicable to large the regulatory capital relief provided
banks and highly complex banks only, under the 2019 CECL rule or 2020 CECL
27 This stylized example is included to illustrate balance sheet amount of retained earnings for the 84 FR 4222 (Feb. 14, 2019) and 85 FR 61577 (Sept.
the effect of the final rule and omits the effects of fiscal year-end immediately prior to a bank’s 30, 2020).
deferred tax assets on regulatory capital adoption of CECL and the balance sheet amount of 30 In this stylized example, the entirety of the
calculations, which are addressed in the agencies’ retained earnings as of the beginning of the fiscal CECL transitional amount is attributable to the
capital rule, the 2019 CECL rule, and the 2020 CECL year in which the bank adopts CECL, the FDIC allowance for credit losses on loans and leases and
rule. The example reflects the first-quarter 2020 calculates financial measures used to determine
application by a hypothetical large bank (with no it equals the modified CECL transitional amount
deposit insurance assessment rates using data during the first quarter of the transition period. The
purchased credit-deteriorated assets) that has reported as of each quarter end.
adopted the five-year CECL transition under the applicable portion of the CECL transitional amounts
29 Under the 2019 CECL rule, when calculating
2020 CECL rule and assumes that the full amount is the amount that is double counted in certain
of the CECL transitional amount is attributable to regulatory capital ratios during the first year of an financial measures used to determine deposit
the allowance for credit losses on loans and leases. electing bank’s CECL adoption date, the bank must
insurance assessment rates and that the FDIC will
The example does not reflect any changes over the phase in 25 percent of the transitional amounts. The
remove from those financial measures. However,
course of the first quarterly reporting period in year bank would phase in an additional 25 percent of
CECL transitional amounts may also include
1 (i.e., no changes in the amounts reported on the the transitional amounts over each of the next two
amounts attributable to allowances for credit losses
bank’s balance sheet between January 1 and March years so that the bank would have phased in 75
percent of the day-one adverse effects of adopting under CECL on HTM debt securities, other financial
31, 2020, the end of the reporting period for the first
quarter). As a consequence, the example bank’s CECL during year three. At the beginning of the assets measured at amortized cost, and off-balance
modified CECL transitional amount as of March 31, fourth year, the bank would have completely sheet credit exposures. Under the final rule, in
2020 equals its CECL transitional amount. See 12 reflected in regulatory capital the day-one effects of determining a large or highly complex bank’s
CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR CECL. Under the 2020 CECL rule, the modified deposit insurance assessment rate, the FDIC will
part 324 (FDIC). See also 84 FR 4222 (Feb. 14, 2019) CECL transitional amount is calculated on a continue to include in Tier 1 capital the applicable
and 85 FR 61577 (Sept. 30, 2020). quarterly basis during the first two years of the portion of any CECL transitional amounts
28 While the CECL transitional amount is transition period. See 12 CFR part 3 (OCC); 12 CFR attributable to allowances for credit losses on items
calculated using the difference between the closing part 217 (Board); 12 CFR part 324 (FDIC). See also other than loans and leases held for investment.
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11396 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
rule.31 The FDIC will continue the investment for large or highly complex 3. Loss Severity Measure
application of the transition provisions banks. The loss severity measure estimates
provided for under the 2019 and 2020 While the FDIC recognizes that by the the relative magnitude of potential
CECL rules to the Tier 1 leverage ratio April 1, 2021, effective date for this final losses to the DIF in the event of an IDI’s
used in determining deposit insurance rule, numerous large or highly complex failure.35 In calculating this measure,
assessment rates for all IDIs. banks will have implemented CECL and the FDIC applies a standardized set of
Temporary changes to the Call Report many will have elected the transition assumptions based on historical failures
forms and instructions are required to provided under either the 2019 CECL regarding liability runoffs and the
implement the amendments to the rule or 2020 CECL rule, the FDIC is not recovery value of asset categories to
assessment system to remove the double making adjustments to prior quarterly simulate possible losses to the FDIC,
counting under the final rule. These assessments. reducing capital and assets until the
changes are being effectuated in 1. Credit Quality Measure Tier 1 leverage ratio declines to 2
coordination with the other member percent. The double counting results in
entities of the Federal Financial The score for the credit quality
a greater reduction of assets during the
Institutions Examination Council measure, applicable to both large banks
capital reduction phase and therefore a
(FFIEC).32 Changes to regulatory and highly complex banks, is the greater
lower resolution value of assets at the
reporting requirements pursuant to this of (1) the ratio of criticized and
time of failure, which in turn results in
final rule will be required only while classified items to Tier 1 capital and
a higher loss severity measure that
the regulatory capital relief is reflected reserves score or (2) the ratio of reflects more risk than a bank actually
in the regulatory reports of banks. underperforming assets to Tier 1 capital poses to the DIF. Under the final rule,
and reserves score.33 The double the FDIC is adjusting the calculation of
B. Adjustments to Certain Measures counting results in lower ratios and a
Used in the Scorecard Approach for the capital adjustment in the loss
credit quality measure that reflects less severity measure to remove the double
Determining Assessment Rates for Large risk than a bank actually poses to the
or Highly Complex Banks counting of the applicable portion of the
DIF. Under the final rule, the FDIC is CECL transitional amounts added to
Under the final rule, the FDIC will adjusting the denominator, Tier 1 retained earnings for regulatory capital
adjust the calculations of certain capital and reserves, used in both ratios purposes and attributable to the
financial measures used to determine by removing the applicable portions of allowance for credit losses on loans and
deposit insurance assessment rates for the CECL transitional amounts added to leases held for investment for both large
large or highly complex banks to remove retained earnings for regulatory capital banks and highly complex banks.36
the applicable portions of the CECL purposes and attributable to the
transitional amounts added to retained allowance for credit losses on loans and C. Other Conforming Amendments to
earnings that is attributable to the leases held for investment. the Assessment Regulations
allowance for credit losses on loans and 2. Concentration Measure Under the final rule, the FDIC is
leases held for investment. The FDIC is making conforming amendments to the
removing this part of the CECL For large banks, the concentration FDIC’s assessment regulations to
transitional amounts because, for large measure is the higher of (1) the ratio of effectuate the adjustments described
or highly complex banks that have higher-risk assets to Tier 1 capital and above and consistent with the proposed
adopted CECL, the measure of reserves reserves or (2) the growth-adjusted rule. These conforming amendments
used in the scorecard is the allowance portfolio concentration measure. The ensure that the adjustments to the
for credit losses on loans and leases growth-adjusted portfolio concentration financial measures used to calculate a
reported in Call Report Schedule RC, measure includes the ratio of large or highly complex bank’s
item 4.c. concentration levels for several loan assessment rate are properly
This amount, which will be reported portfolios to Tier 1 capital and reserves. incorporated into the assessment
For highly complex banks, the
in a new line item in Schedule RC–O regulations.
concentration measure is the highest of
only on the FFIEC 031 and FFIEC 041
three measures: (1) The ratio of higher- D. Regulatory Reporting Changes
versions of the Call Report, will be
risk assets to Tier 1 capital and reserves, A bank electing a transition under
removed from scorecard measures that
(2) the ratio of top 20 counterparty either the 2019 CECL rule or the 2020
are calculated using the sum of Tier 1
exposures to Tier 1 capital and reserves, CECL rule must indicate its election to
capital and reserves, as described in
or (3) the ratio of the largest use the 3-year 2019 or the 5-year 2020
more detail below. The FDIC also will
counterparty exposure to Tier 1 capital CECL transition provision in Call Report
adjust the calculation of the loss
and reserves.34
severity measure to remove the double
The double counting results in lower 35 Appendix D to subpart A of 12 CFR part 327
counting by removing the applicable
ratios and a concentration measure that describes the calculation of the loss severity
portions of the CECL transitional
reflects less risk than a bank actually measure.
amounts added to retained earnings for 36 The loss severity measure is an average loss
poses to the DIF. Under the final rule,
regulatory capital purposes and severity ratio for the three most recent quarters of
the FDIC is adjusting the denominator,
attributable to the allowance for credit data available. It is anticipated that the temporary
Tier 1 capital and reserves, used in each reporting changes proposed pursuant to this final
losses on loans and leases held for
of these ratios by removing the rule would be implemented no earlier than the first
applicable portions of the CECL applicable reporting period following the
31 See 12 CFR part 3 (OCC); 12 CFR part 217
anticipated effective date of this final rule. As such,
(Board); 12 CFR part 324 (FDIC). See also 84 FR transitional amounts added to retained the FDIC will adjust the calculation of the loss
4222 (Feb. 14, 2019) and 85 FR 61577 (Sept. 30, earnings for regulatory capital purposes severity measure to remove the double counting of
2020). and attributable to the allowance for the specified portion of the CECL transitional
32 As discussed in the section on the Paperwork amounts for one of the three quarters averaged in
credit losses on loans and leases held
Reduction Act below, the agencies published a joint the first reporting period following the effective
notice and request for comment (85 FR 82580 (Dec.
for investment. date, for two of the three quarters averaged in the
18, 2020)) requesting one additional temporary item second reporting period following the effective
33 See 12 CFR 327.16(b)(ii)(A)(2)(iv).
on the Call Report (FFIEC 031 and FFIEC 041 only) date, and for all three quarters averaged in all
to make the adjustments described below. 34 See Appendix A to subpart A of 23 CFR 327. subsequent reporting periods, as applicable.
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11397
Schedule RC–R, Part I, item 2.a. In losses on loans and leases held for 2020, the FDIC estimates that 109 of 139
addition, such an electing bank must investment from certain financial large or highly complex banks had
report the applicable portions of the measures used in the scorecards that implemented CECL, and that 94 had
transitional amounts under the 2019 determine deposit insurance assessment elected a transition provided under
CECL rule or the 2020 CECL rule in the rates for large or highly complex banks. either the 2019 CECL rule or the 2020
affected Call Report items during the Absent the final rule, this amount CECL rule. As banks phase out the
transition period. For example, an would be temporarily double counted transitional amounts over time, the
electing bank would add the applicable and could result in a deposit insurance assessment effect also will decline. As
portion of the CECL transitional amount assessment rate for a large or highly described previously, the optional
(or the modified CECL transitional complex bank that does not accurately temporary relief from CECL afforded by
amount) when calculating the amount of reflect the bank’s risk to the DIF, all else the CARES Act and as extended by the
retained earnings it would report in equal. Furthermore, the double counting Consolidated Appropriations Act, 2021,
Schedule RC–R, Part I, item 2, of the could result in inequitable deposit and the transitions provided for under
Call Report.37 insurance assessments, as a large or the 2019 CECL rule and 2020 CECL rule,
In calculating certain measures used highly complex bank that has not yet provide that all banks will have
in the scorecard approach for implemented CECL or that does not completely reflected in regulatory
determining deposit insurance utilize a transition provision could pay capital the day-one effects of CECL
assessments for large or highly complex a higher or lower assessment rate than (plus, if applicable, an estimate of
banks, under the final rule the FDIC will a bank that has implemented CECL and CECL’s effect on regulatory capital,
remove a specified portion of the CECL utilizes a transition provision, even if relative to the incurred loss
transitional amounts added to retained both banks pose equal risk to the DIF. methodology’s effect on regulatory
earnings under the transitions provided The FDIC estimates that the majority of capital, during the first two years of
for under the 2020 and 2019 CECL rules. large or highly complex banks affected CECL adoption) by December 31, 2026,
Specifically, in certain measures used in by the double counting are currently thereby eliminating the double counting
the scorecard approach for determining paying a lower rate than they would effects from the scorecard for large or
assessments for large or highly complex absent the final rule. However, the FDIC highly complex banks. These above
banks, the FDIC will remove the also estimates that a few banks are estimates are subject to uncertainty
applicable portion of the CECL currently paying a higher rate than they given differing CECL implementation
transitional amount (or modified CECL otherwise would pay if the issue of dates and the option for large or highly
transitional amount) added to retained double counting is corrected. The FDIC complex banks to choose between the
earnings for regulatory capital purposes estimates that the rate these latter banks transitions offered under the 2019 CECL
(Call Report Schedule RC–R, Part I, Item are paying is higher by only a de rule or the 2020 CECL rule, or to
2), attributable to the allowance for minimis amount, and occurs where the recognize the full impact of CECL on
credits losses on loans and leases held double counting on the loss severity regulatory capital upon implementation.
for investment and included in the measure more than offsets the effect of The final rule could pose some
amount reported on the Call Report double counting on the other scorecard additional regulatory costs for large or
balance sheet in Schedule RC, item 4.c. measures that are calculated using the highly complex banks that elect a
However, large or highly complex sum of Tier 1 capital and reserves. transition under either the 2019 CECL
banks that have elected a CECL rule or the 2020 CECL rule associated
transition provision do not currently Based on FDIC data as of September with changes to internal systems or
report these specific portions of the 30, 2020, the FDIC estimates that this processes, or changes to reporting
CECL transitional amounts in the Call double counting could result in requirements. It is the FDIC’s
Report. Thus, implementing the approximately $55 million in annual understanding that banks already
finalized amendments to the risk-based foregone assessment revenue, or 0.047 calculate, for internal purposes, the
deposit insurance assessment system percent of the DIF balance as of that portion of the CECL transitional amount
applicable to large or highly complex date. This estimate includes the (or modified CECL transitional amount)
banks requires temporary changes to the majority of large or highly complex added to retained earnings for
reporting requirements applicable to the banks that are paying a lower rate due regulatory capital purposes that is
Call Report and its related instructions. to the double counting and the few attributable to the allowance for credit
These reporting changes have been banks that are paying a higher rate losses on loans and leases held for
proposed and are being effectuated in absent correction of double counting. investment. As such, the FDIC
coordination with the other member The FDIC expects that absent this final anticipates that the addition of this
entities of the FFIEC.38 As previously rule, the estimated amount of foregone temporary item to the Call Report would
described, changes to reporting assessment revenue would increase as not impose significant additional
requirements for large or highly additional large or highly complex burden and any additional costs are
complex banks pursuant to this final banks adopt CECL, to the extent those likely to be de minimis.
rule will be required only while the large or highly complex banks elect to
apply a transition. Absent the final rule, IV. Effective Date of the Final Rule
temporary relief is reflected in banks’
regulatory reports. the FDIC expects that this amount of The FDIC is issuing this final rule
foregone assessment revenue also may with an effective date of April 1, 2021,
E. Expected Effects increase as large or highly complex and applicable to the second quarterly
The final rule removes the applicable banks electing the 2020 CECL rule assessment period of 2021 (i.e., April 1–
portions of the CECL transitional include in their modified CECL June 30, 2021). Based on this effective
amounts added to retained earnings for transitional amounts an estimate of date, the temporary effects of the double
regulatory capital purposes and CECL’s effect on regulatory capital, counting of the applicable portions of
attributable to the allowance for credit relative to the incurred loss the CECL transitional amounts in select
methodology’s effect on regulatory financial measures used in the scorecard
37 See 84 FR 4227 and 85 FR 17726. capital, during the first two years of approach for determining assessments
38 85 FR 82580 (Dec. 18, 2020). CECL adoption. As of September 30, for large or highly complex banks will
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11398 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
be corrected beginning with the second system that measures risk and the final rule. These changes are being
quarterly assessment period of 2021. determines each bank’s assessment rate, effectuated in coordination with the
the final rule is not subject to the RFA. other member entities of the FFIEC. As
V. Administrative Law Matters
Nonetheless, the FDIC is voluntarily such, the FDIC considered the
A. Administrative Procedure Act presenting information in this RFA requirements of the RCDRIA and are
section. finalizing this rule with an effective date
Under the Administrative Procedure
Based on Call Report data as of of April 1, 2021. The FDIC invited
Act (APA),39 ‘‘[t]he required publication
September 30, 2020, the FDIC insures comments regarding the application of
or service of a substantive rule shall be 5,042 depository institutions, of which
made not less than 30 days before its RCDRIA to the final rule, but did not
3,585 are defined as small entities by receive comments on this topic.
effective date, except as otherwise the terms of the RFA.44 The final rule,
provided by the agency for good cause however, only applies to institutions D. Paperwork Reduction Act
found and published with the rule.’’ 40 with $10 billion or greater in total The Paperwork Reduction Act of 1995
An effective date of April 1, 2021 assets. Consequently, small entities for (PRA) states that no agency may
would mean that the temporary effects purposes of the RFA will experience no conduct or sponsor, nor is the
of the double counting of the applicable economic impact as a result of the respondent required to respond to, an
portions of the CECL transitional implementation of this final rule. information collection unless it displays
amounts in select financial measures a currently valid Office of Management
used in the scorecard approach for C. Riegle Community Development and
Regulatory Improvement Act of 1994 and Budget (OMB) control number.46
determining assessments for large or The FDIC’s OMB control numbers for its
highly complex banks are corrected, Section 302(a) of the Riegle assessment regulations are 3064–0057,
beginning with the second quarterly Community Development and 3064–0151, and 3064–0179. The final
assessment period of 2021 (i.e., April 1– Regulatory Improvement Act (RCDRIA) rule does not revise any of these existing
June 30, 2021), with a payment due date requires that the Federal banking assessment information collections
of September 30, 2021. agencies, including the FDIC, in pursuant to the PRA and consequently,
B. Regulatory Flexibility Act determining the effective date and no submissions in connection with
administrative compliance requirements these OMB control numbers will be
The Regulatory Flexibility Act (RFA), of new regulations that impose made to the OMB for review. However,
5 U.S.C. 601 et seq., generally requires additional reporting, disclosure, or other the final rule affects the agencies’
an agency, in connection with a final requirements on IDIs, consider, current information collections for the
rule, to prepare and make available for consistent with principles of safety and Call Report (FFIEC 031 and FFIEC 041,
public comment a final regulatory soundness and the public interest, any but not FFIEC 051). The agencies’ OMB
flexibility analysis that describes the administrative burdens that such control numbers for the Call Reports are:
impact of a final rule on small entities.41 regulations would place on depository OCC OMB No. 1557–0081; Board OMB
However, a regulatory flexibility institutions, including small depository No. 7100–0036; and FDIC OMB No.
analysis is not required if the agency institutions, and customers of 3064–0052. The changes to the Call
certifies that the rule will not have a depository institutions, as well as the Report forms and instructions have been
significant economic impact on a benefits of such regulations. In addition, addressed in a separate Federal Register
substantial number of small entities. section 302(b) of RCDRIA requires new notice or notices.47
The U.S. Small Business Administration regulations and amendments to
(SBA) has defined ‘‘small entities’’ to regulations that impose additional E. Plain Language
include banking organizations with total reporting, disclosures, or other new Section 722 of the Gramm-Leach-
assets of less than or equal to $600 requirements on IDIs generally to take Bliley Act 48 requires the Federal
million.42 Certain types of rules, such as effect on the first day of a calendar banking agencies to use plain language
rules of particular applicability relating quarter that begins on or after the date in all proposed and final rulemakings
to rates, corporate or financial on which the regulations are published published in the Federal Register after
structures, or practices relating to such in final form, with certain exceptions, January 1, 2000. The FDIC invited
rates or structures, are expressly including for good cause.45 comment regarding the use of plain
excluded from the definition of ‘‘rule’’ The amendments to the FDIC’s
language, but did not receive any
for purposes of the RFA.43 Because the deposit insurance assessment
comments on this topic.
final rule relates directly to the rates regulations under this final rule do
imposed on IDIs for deposit insurance impose additional reporting, E. The Congressional Review Act
and to the deposit insurance assessment disclosures, or other new requirements. For purposes of Congressional Review
As discussed above, the FDIC is making Act, the OMB makes a determination as
39 5 U.S.C. 553. temporary changes to the FFIEC 031 and to whether a final rule constitutes a
40 5 U.S.C. 553(d).
FFIEC 041 Call Report forms and ‘‘major’’ rule. The OMB has determined
41 5 U.S.C. 601 et seq.
instructions to implement the that the final rule is not a major rule for
42 The SBA defines a small banking organization
amendments to the assessment system purposes of the Congressional Review
as having $600 million or less in assets, where an
organization’s ‘‘assets are determined by averaging to remove the double counting under Act.
the assets reported on its four quarterly financial If a rule is deemed a ‘‘major rule’’ by
statements for the preceding year.’’ See 13 CFR 44 FDIC Call Report data, September 30, 2020.
121.201 (as amended, effective August 19, 2019). In 45 5 U.S.C. 553(b)(B).
the OMB, the Congressional Review Act
its determination, the SBA ‘‘counts the receipts, 45 U.S.C. 553(d).
generally provides that the rule may not
employees, or other measure of size of the concern 45 U.S.C. 601 et seq. take effect until at least 60 days
whose size is at issue and all of its domestic and 45 U.S.C. 801 et seq. following its publication. The
foreign affiliates.’’ 13 CFR 121.103. Following these
regulations, the FDIC uses a covered entity’s
45 U.S.C. 801(a)(3). Congressional Review Act defines a
45 U.S.C. 804(2).
affiliated and acquired assets, averaged over the
45 U.S.C. 808(2). 46 4 U.S.C. 3501–3521.
preceding four quarters, to determine whether the
covered entity is ‘‘small’’ for the purposes of RFA. 45 12 U.S.C. 4802(a). 47 85 FR 82580 (Dec. 18, 2020).
43 5 U.S.C. 601. 45 12 U.S.C. 4802(b). 48 12 U.S.C. 4809.
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Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations 11399
‘‘major rule’’ as any rule that the Congressional Review Act, the FDIC PART 327—ASSESSMENTS
Administrator of the Office of will submit the final rule and other
Information and Regulatory Affairs of appropriate reports to Congress and the ■ 1. The authority citation for part 327
the OMB finds has resulted in or is Government Accountability Office for continues to read as follows:
likely to result in—(A) an annual effect review. Authority: 12 U.S.C. 1813, 1815, 1817–19,
on the economy of $100,000,000 or 1821.
more; (B) a major increase in costs or List of Subjects in 12 CFR Part 327
prices for consumers, individual ■ 2. In Appendix A to Subpart A, revise
Bank deposit insurance, Banks, the table under the heading, ‘‘VI.
industries, Federal, State, or Local
government agencies or geographic Banking, Savings associations. Description of Scorecard Measures’’ to
regions, or (C) significant adverse effects read as follows:
Authority and Issuance
on competition, employment, Appendix A to Subpart A of Part 327—
investment, productivity, innovation, or For the reasons stated in the Method To Derive Pricing Multipliers
on the ability of United States-based preamble, the Federal Deposit Insurance and Uniform Amount
enterprises to compete with foreign- Corporation amends 12 CFR part 327 as
based enterprises in domestic and follows: * * * * *
export markets. As required by the VI. Description of Scorecard Measures
Scorecard
measures 1 Description
Leverage Ratio ..................... Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average assets based on the definition for
prompt corrective action.
Concentration Measure for The concentration score for large institutions is the higher of the following two scores:
Large Insured depository
institutions (excluding
Highly Complex Institu-
tions).
(1) Higher-Risk Assets/ Sum of construction and land development (C&D) loans (funded and unfunded), higher-risk C&I loans (funded
Tier 1 Capital and Re- and unfunded), nontraditional mortgages, higher-risk consumer loans, and higher-risk securitizations divided by
serves 2. Tier 1 capital and reserves. See Appendix C for the detailed description of the ratio.
(2) Growth-Adjusted The measure is calculated in the following steps:
Portfolio Concentra-
tions 2.
(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are calculated for each broad portfolio cat-
egory:
• C&D,
• Other commercial real estate loans,
• First lien residential mortgages (including non-agency residential mortgage-backed securities),
• Closed-end junior liens and home equity lines of credit (HELOCs),
• Commercial and industrial loans,
• Credit card loans, and
• Other consumer loans.
(2) Risk weights are assigned to each loan category based on historical loss rates.
(3) Concentration levels are multiplied by risk weights and squared to produce a risk-adjusted concentration
ratio for each portfolio.
(4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth factor of 1 to 1.2 where a
3-year cumulative growth rate of 20 percent or less equals a factor of 1 and a growth rate of 80 percent or
greater equals a factor of 1.2. If three years of data are not available, a growth factor of 1 will be assigned.
(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the growth factor and resulting val-
ues are summed.
See Appendix C for the detailed description of the measure.
Concentration Measure for Concentration score for highly complex institutions is the highest of the following three scores:
Highly Complex Institu-
tions.
(1) Higher-Risk Assets/ Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and unfunded), nontraditional mort-
Tier 1 Capital and Re- gages, higher-risk consumer loans, and higher-risk securitizations divided by Tier 1 capital and reserves. See
serves 2. Appendix C for the detailed description of the measure.
(2) Top 20 Counterparty Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 capital and reserves. The total
Exposure/Tier 1 Cap- exposure amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower)
ital and Reserves 2. for derivatives, securities financing transactions (SFTs), and cleared transactions, and its gross lending expo-
sure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an enti-
ty’s own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one
counterparty (or borrower). Counterparty exposure excludes all counterparty exposure to the U.S. Government
and departments or agencies of the U.S. Government that is unconditionally guaranteed by the full faith and
credit of the United States. The exposure amount for derivatives, including OTC derivatives, cleared trans-
actions that are derivative contracts, and netting sets of derivative contracts, must be calculated using the
methodology set forth in 12 CFR 324.34(b), but without any reduction for collateral other than cash collateral
that is all or part of variation margin and that satisfies the requirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and
(iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure amount associated with SFTs, including cleared trans-
actions that are SFTs, must be calculated using the standardized approach set forth in 12 CFR 324.37(b) or
(c). For both derivatives and SFT exposures, the exposure amount to central counterparties must also include
the default fund contribution.3
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Scorecard
measures 1 Description
(3) Largest Counterparty The largest total exposure amount to one counterparty divided by Tier 1 capital and reserves. The total exposure
Exposure/Tier 1 Cap- amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower) for deriva-
ital and Reserves 2. tives, SFTs, and cleared transactions, and its gross lending exposure (including all unfunded commitments) to
that counterparty (or borrower). A counterparty includes an entity’s own affiliates. Exposures to entities that are
affiliates of each other are treated as exposures to one counterparty (or borrower). Counterparty exposure ex-
cludes all counterparty exposure to the U.S. Government and departments or agencies of the U.S. Government
that is unconditionally guaranteed by the full faith and credit of the United States. The exposure amount for de-
rivatives, including OTC derivatives, cleared transactions that are derivative contracts, and netting sets of deriv-
ative contracts, must be calculated using the methodology set forth in 12 CFR 324.34(b), but without any re-
duction for collateral other than cash collateral that is all or part of variation margin and that satisfies the re-
quirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The exposure
amount associated with SFTs, including cleared transactions that are SFTs, must be calculated using the
standardized approach set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures, the expo-
sure amount to central counterparties must also include the default fund contribution.3
Core Earnings/Average Core earnings are defined as net income less extraordinary items and tax-adjusted realized gains and losses on
Quarter-End Total Assets. available-for-sale (AFS) and held-to-maturity (HTM) securities, adjusted for mergers. The ratio takes a four-
quarter sum of merger-adjusted core earnings and divides it by an average of five quarter-end total assets
(most recent and four prior quarters). If four quarters of data on core earnings are not available, data for quar-
ters that are available will be added and annualized. If five quarters of data on total assets are not available,
data for quarters that are available will be averaged.
Credit Quality Measure ........ The credit quality score is the higher of the following two scores:
(1) Criticized and Classi- Sum of criticized and classified items divided by the sum of Tier 1 capital and reserves. Criticized and classified
fied Items/Tier 1 Cap- items include items an institution or its primary federal regulator have graded ‘‘Special Mention’’ or worse and
ital and Reserves 2. include retail items under Uniform Retail Classification Guidelines, securities, funded and unfunded loans, other
real estate owned (ORE), other assets, and marked-to-market counterparty positions, less credit valuation ad-
justments.4 Criticized and classified items exclude loans and securities in trading books, and the amount recov-
erable from the U.S. government, its agencies, or government-sponsored enterprises, under guarantee or in-
surance provisions.
(2) Underperforming As- Sum of loans that are 30 days or more past due and still accruing interest, nonaccrual loans, restructured loans
sets/Tier 1 Capital (including restructured 1–4 family loans), and ORE, excluding the maximum amount recoverable from the U.S.
and Reserves 2. government, its agencies, or government-sponsored enterprises, under guarantee or insurance provisions, di-
vided by a sum of Tier 1 capital and reserves.
Core Deposits/Total Liabil- Total domestic deposits excluding brokered deposits and uninsured non-brokered time deposits divided by total li-
ities. abilities.
Balance Sheet Liquidity Sum of cash and balances due from depository institutions, federal funds sold and securities purchased under
Ratio. agreements to resell, and the market value of available for sale and held to maturity agency securities (ex-
cludes agency mortgage-backed securities but includes all other agency securities issued by the U.S. Treasury,
U.S. government agencies, and U.S. government-sponsored enterprises) divided by the sum of federal funds
purchased and repurchase agreements, other borrowings (including FHLB) with a remaining maturity of one
year or less, 5 percent of insured domestic deposits, and 10 percent of uninsured domestic and foreign depos-
its.5
Potential Losses/Total Do- Potential losses to the DIF in the event of failure divided by total domestic deposits. Appendix D describes the
mestic Deposits (Loss Se- calculation of the loss severity measure in detail.
verity Measure) 6.
Market Risk Measure for The market risk score is a weighted average of the following three scores:
Highly Complex Institu-
tions.
(1) Trading Revenue Trailing 4-quarter standard deviation of quarterly trading revenue (merger-adjusted) divided by Tier 1 capital.
Volatility/Tier 1 Capital.
(2) Market Risk Capital/ Market risk capital divided by Tier 1 capital.7
Tier 1 Capital.
(3) Level 3 Trading As- Level 3 trading assets divided by Tier 1 capital.
sets/Tier 1 Capital.
Average Short-term Funding/ Quarterly average of federal funds purchased and repurchase agreements divided by the quarterly average of
Average Total Assets. total assets as reported on Schedule RC–K of the Call Reports.
1 The FDIC retains the flexibility, as part of the risk-based assessment system, without the necessity of additional notice-and-comment rule-
making, to update the minimum and maximum cutoff values for all measures used in the scorecard. The FDIC may update the minimum and
maximum cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio in order to maintain an approximately similar distribution of
higher-risk assets to Tier 1 capital and reserves ratio scores as reported prior to April 1, 2013, or to avoid changing the overall amount of as-
sessment revenue collected. 76 FR 10672, 10700 (February 25, 2011). The FDIC will review changes in the distribution of the higher-risk assets
to Tier 1 capital and reserves ratio scores and the resulting effect on total assessments and risk differentiation between banks when determining
changes to the cutoffs. The FDIC may update the cutoff values for the higher-risk assets to Tier 1 capital and reserves ratio more frequently than
annually. The FDIC will provide banks with a minimum one quarter advance notice of changes in the cutoff values for the higher-risk assets to
Tier 1 capital and reserves ratio with their quarterly deposit insurance invoice.
2 The applicable portions of the current expected credit loss methodology (CECL) transitional amounts attributable to the allowance for credit
losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital
regulations, as they may be amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
84 FR 4222 (Feb. 14, 2019)), will be removed from the sum of Tier 1 capital and reserves.
3 SFTs include repurchase agreements, reverse repurchase agreements, security lending and borrowing, and margin lending transactions,
where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements. The default fund
contribution is the funds contributed or commitments made by a clearing member to a central counterparty’s mutualized loss sharing arrange-
ment. The other terms used in this description are as defined in 12 CFR part 324, subparts A and D, unless defined otherwise in 12 CFR part
327.
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4 A marked-to-market counterparty position is equal to the sum of the net marked-to-market derivative exposures for each counterparty. The
net marked-to-market derivative exposure equals the sum of all positive marked-to-market exposures net of legally enforceable netting provisions
and net of all collateral held under a legally enforceable CSA plus any exposure where excess collateral has been posted to the counterparty.
For purposes of the Criticized and Classified Items/Tier 1 Capital and Reserves definition a marked-to-market counterparty position less any
credit valuation adjustment can never be less than zero.
5 Deposit runoff rates for the balance sheet liquidity ratio reflect changes issued by the Basel Committee on Banking Supervision in its Decem-
ber 2010 document, ‘‘Basel III: International Framework for liquidity risk measurement, standards, and monitoring,’’ http://www.bis.org/publ/
bcbs188.pdf.
6 The applicable portions of the CECL transitional amounts attributable to the allowance for credit losses on loans and leases held for invest-
ment and added to retained earnings for regulatory capital purposes will be removed from the calculation of the loss severity measure.
7 Market risk is defined in 12 CFR 324.202.
* * * * * 2020), and 84 FR 4222 (Feb. 14, 2019)), will domestic deposits. Any projected shortfall is
■ 3. Amend Appendix C to Subpart A be removed from the sum of Tier 1 capital divided by current domestic deposits to
and reserves throughout the large bank and obtain an end-of-period loss severity ratio.
by:
highly complex bank scorecards, including in The loss severity measure is an average loss
■ a. Redesignating footnotes 2 through
the ratio of Higher-Risk Assets to Tier 1 severity ratio for the three most recent
16 as footnotes 3 through 17; and Capital and Reserves, the Growth-Adjusted
■ b. Revising the paragraph under the quarters of data available.
Portfolio Concentrations Measure, the ratio of 1 In most cases, the model would yield
heading, ‘‘I. Concentration Measures,’’ Top 20 Counterparty Exposure to Tier 1
to read as follows: Capital and Reserves, and the Ratio of Largest reductions in liabilities and assets prior to
Counterparty Exposure to Tier 1 Capital and failure. Exceptions may occur for institutions
Appendix C to Subpart A of Part 327— Reserves. primarily funded through insured deposits
Description of Concentration Measures which the model assumes to grow prior to
* * * * * failure.
I. Concentration Measures
■ 4. In Appendix D to Subpart A, revise 2 Of course, in reality, runoff and capital
The concentration score for large banks is the introductory text to read as follows: declines occur more or less simultaneously
the higher of the higher-risk assets to Tier 1 as an institution approaches failure. The loss
capital and reserves score or the growth- Appendix D to Subpart A of Part 327— severity measure assumptions simplify this
adjusted portfolio concentrations score.1 The Description of the Loss Severity
concentration score for highly complex process for ease of modeling.
Measure 3 The applicable portions of the current
institutions is the highest of the higher-risk
assets to Tier 1 capital and reserves score, the The loss severity measure applies a expected credit loss methodology (CECL)
Top 20 counterparty exposure to Tier 1 standardized set of assumptions to an transitional amounts attributable to the
capital and reserves score, or the largest institution’s balance sheet to measure allowance for credit losses on loans and
counterparty to Tier 1 capital and reserves possible losses to the FDIC in the event of an leases held for investment and added to
score.2 The higher-risk assets to Tier 1 capital institution’s failure. To determine an retained earnings for regulatory capital
and reserves ratio and the growth-adjusted institution’s loss severity rate, the FDIC first purposes pursuant to the regulatory capital
portfolio concentration measure are applies assumptions about uninsured deposit regulations, as they may be amended from
described herein. and other unsecured liability runoff, and time to time (12 CFR part 3, 12 CFR part 217,
1 For the purposes of this Appendix, the growth in insured deposits, to adjust the size 12 CFR part 324, 85 FR 61577 (Sept. 30,
term ‘‘bank’’ means insured depository and composition of the institution’s 2020), and 84 FR 4222 (Feb. 14, 2019)), will
institution. liabilities. Assets are then reduced to match be removed from the calculation of the loss
2 As described in Appendix A to this any reduction in liabilities.1 The institution’s severity measure.
subpart, the applicable portions of the asset values are then further reduced so that
the Leverage ratio reaches 2 percent.2 3 In * * * * *
current expected credit loss methodology
(CECL) transitional amounts attributable to both cases, assets are adjusted pro rata to ■ 5. In Appendix E to subpart A, under
the allowance for credit losses on loans and preserve the institution’s asset composition. the heading ‘‘II. Mitigating the
leases held for investment and added to Assumptions regarding loss rates at failure
for a given asset category and the extent of Assessment Effects of Paycheck
retained earnings for regulatory capital
purposes pursuant to the regulatory capital secured liabilities are then applied to Protection Program Loans for Large or
regulations, as they may be amended from estimated assets and liabilities at failure to Highly Complex Institutions’’, revise
time to time (12 CFR part 3, 12 CFR part 217, determine whether the institution has Table E.2 and paragraph (a) to read as
12 CFR part 324, 85 FR 61577 (Sept. 30, enough unencumbered assets to cover follows:
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS
Scorecard Description Exclusions
measures 1
Leverage Ratio ...................... Tier 1 capital for Prompt Corrective Action (PCA) divided by adjusted average as- No Exclusion.
sets based on the definition for prompt corrective action.
Concentration Measure for The concentration score for large institutions is the higher of the following two
Large Insured depository scores:
institutions (excluding High-
ly Complex Institutions).
(1) Higher-Risk Assets/ Sum of construction and land development (C&D) loans (funded and unfunded), No Exclusion.
Tier 1 Capital and Re- higher-risk commercial and industrial (C&I) loans (funded and unfunded), non-
serves. traditional mortgages, higher-risk consumer loans, and higher-risk securitizations
divided by Tier 1 capital and reserves. See Appendix C for the detailed descrip-
tion of the ratio.
(2) Growth-Adjusted Port- The measure is calculated in the following steps:
folio Concentrations.
(1) Concentration levels (as a ratio to Tier 1 capital and reserves) are cal-
culated for each broad portfolio category:
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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard Description Exclusions
measures 1
• Constructions and land development (C&D),
• Other commercial real estate loans,
• First lien residential mortgages (including non-agency residential mort-
gage-backed securities),
• Closed-end junior liens and home equity lines of credit (HELOCs),
• Commercial and industrial loans (C&I),
• Credit card loans, and
• Other consumer loans.
(2) Risk weights are assigned to each loan category based on historical loss
rates.
(3) Concentration levels are multiplied by risk weights and squared to produce
a risk-adjusted concentration ratio for each portfolio.
(4) Three-year merger-adjusted portfolio growth rates are then scaled to a growth Exclude from C&I loan
factor of 1 to 1.2 where a 3-year cumulative growth rate of 20 percent or less growth rate the out-
equals a factor of 1 and a growth rate of 80 percent or greater equals a factor standing amount of loans
of 1.2. If three years of data are not available, a growth factor of 1 will be as- provided under the Pay-
signed. check Protection Pro-
gram.
(5) The risk-adjusted concentration ratio for each portfolio is multiplied by the
growth factor and resulting values are summed.
See Appendix C for the detailed description of the measure.
Concentration Measure for Concentration score for highly complex institutions is the highest of the following
Highly Complex Institutions. three scores:
(1) Higher-Risk Assets/ Sum of C&D loans (funded and unfunded), higher-risk C&I loans (funded and un- No Exclusion.
Tier 1 Capital and Re- funded), nontraditional mortgages, higher-risk consumer loans, and higher-risk
serves. securitizations divided by Tier 1 capital and reserves. See Appendix C for the
detailed description of the measure.
(2) Top 20 Counterparty Sum of the 20 largest total exposure amounts to counterparties divided by Tier 1 No Exclusion.
Exposure/Tier 1 Cap- capital and reserves. The total exposure amount is equal to the sum of the insti-
ital and Reserves. tution’s exposure amounts to one counterparty (or borrower) for derivatives, se-
curities financing transactions (SFTs), and cleared transactions, and its gross
lending exposure (including all unfunded commitments) to that counterparty (or
borrower). A counterparty includes an entity’s own affiliates. Exposures to enti-
ties that are affiliates of each other are treated as exposures to one
counterparty (or borrower). Counterparty exposure excludes all counterparty ex-
posure to the U.S. Government and departments or agencies of the U.S. Gov-
ernment that is unconditionally guaranteed by the full faith and credit of the
United States. The exposure amount for derivatives, including OTC derivatives,
cleared transactions that are derivative contracts, and netting sets of derivative
contracts, must be calculated using the methodology set forth in 12 CFR
324.34(b), but without any reduction for collateral other than cash collateral that
is all or part of variation margin and that satisfies the requirements of 12 CFR
324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3) through (7). The expo-
sure amount associated with SFTs, including cleared transactions that are
SFTs, must be calculated using the standardized approach set forth in 12 CFR
324.37(b) or (c). For both derivatives and SFT exposures, the exposure amount
to central counterparties must also include the default fund contribution.
(3) Largest Counterparty The largest total exposure amount to one counterparty divided by Tier 1 capital No Exclusion.
Exposure/Tier 1 Cap- and reserves. The total exposure amount is equal to the sum of the institution’s
ital and Reserves. exposure amounts to one counterparty (or borrower) for derivatives, SFTs, and
cleared transactions, and its gross lending exposure (including all unfunded
commitments) to that counterparty (or borrower). A counterparty includes an en-
tity’s own affiliates. Exposures to entities that are affiliates of each other are
treated as exposures to one counterparty (or borrower). Counterparty exposure
excludes all counterparty exposure to the U.S. Government and departments or
agencies of the U.S. Government that is unconditionally guaranteed by the full
faith and credit of the United States. The exposure amount for derivatives, in-
cluding OTC derivatives, cleared transactions that are derivative contracts, and
netting sets of derivative contracts, must be calculated using the methodology
set forth in 12 CFR 324.34(b), but without any reduction for collateral other than
cash collateral that is all or part of variation margin and that satisfies the re-
quirements of 12 CFR 324.10(c)(4)(ii)(C)(1)(ii) and (iii) and 324.10(c)(4)(ii)(C)(3)
through (7). The exposure amount associated with SFTs, including cleared
transactions that are SFTs, must be calculated using the standardized approach
set forth in 12 CFR 324.37(b) or (c). For both derivatives and SFT exposures,
the exposure amount to central counterparties must also include the default
fund contribution.
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TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard Description Exclusions
measures 1
Core Earnings/Average Quar- Core earnings are defined as net income less extraordinary items and tax-ad- Prior to averaging, exclude
ter-End Total Assets. justed realized gains and losses on available-for-sale (AFS) and held-to-maturity from total assets for the
(HTM) securities, adjusted for mergers. The ratio takes a four-quarter sum of applicable quarter-end
merger-adjusted core earnings and divides it by an average of five quarter-end periods the outstanding
total assets (most recent and four prior quarters). If four quarters of data on balance of loans provided
core earnings are not available, data for quarters that are available will be under the Paycheck Pro-
added and annualized. If five quarters of data on total assets are not available, tection Program.
data for quarters that are available will be averaged.
Credit Quality Measure. 2 The credit quality score is the higher of the following two scores:
(1) Criticized and Classi- Sum of criticized and classified items divided by the sum of Tier 1 capital and re- No Exclusion.
fied Items/Tier 1 Cap- serves. Criticized and classified items include items an institution or its primary
ital and Reserves. federal regulator have graded ‘‘Special Mention’’ or worse and include retail
items under Uniform Retail Classification Guidelines, securities, funded and un-
funded loans, other real estate owned (ORE), other assets, and marked-to-mar-
ket counterparty positions, less credit valuation adjustments. Criticized and clas-
sified items exclude loans and securities in trading books, and the amount re-
coverable from the U.S. government, its agencies, or government-sponsored
enterprises, under guarantee or insurance provisions.
(2) Underperforming As- Sum of loans that are 30 days or more past due and still accruing interest, non- No Exclusion.
sets/Tier 1 Capital and accrual loans, restructured loans (including restructured 1–4 family loans), and
Reserves. ORE, excluding the maximum amount recoverable from the U.S. government,
its agencies, or government-sponsored enterprises, under guarantee or insur-
ance provisions, divided by a sum of Tier 1 capital and reserves.
Core Deposits/Total Liabilities Total domestic deposits excluding brokered deposits and uninsured non-brokered Exclude from total liabilities
time deposits divided by total liabilities. outstanding borrowings
from Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a maturity of one
year or less and out-
standing borrowings from
the Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a maturity of greater
than one year.
Balance Sheet Liquidity Ratio Sum of cash and balances due from depository institutions, federal funds sold and Include in highly liquid as-
securities purchased under agreements to resell, and the market value of avail- sets the outstanding bal-
able for sale and held to maturity agency securities (excludes agency mortgage- ance of PPP loans that
backed securities but includes all other agency securities issued by the U.S. exceed borrowings from
Treasury, U.S. government agencies, and U.S. government sponsored enter- the Federal Reserve
prises) divided by the sum of federal funds purchased and repurchase agree- Banks under the PPPLF,
ments, other borrowings (including FHLB) with a remaining maturity of one year until September 30,
or less, 5 percent of insured domestic deposits, and 10 percent of uninsured do- 2020, or if extended by
mestic and foreign deposits. the Board of Governors
of the Federal Reserve
System and the Sec-
retary of the Treasury,
until such date of exten-
sion.
Exclude from other bor-
rowings with a remaining
maturity of one year or
less the balance of out-
standing borrowings from
the Federal Reserve
Banks under the Pay-
check Protection Pro-
gram Liquidity Facility
with a remaining maturity
of one year or less.
Potential Losses/Total Do- Potential losses to the DIF in the event of failure divided by total domestic depos- Exclusions are described in
mestic Deposits (Loss Se- its. Paragraph (a) of this section describes the calculation of the loss severity paragraph (a) of this sec-
verity Measure). measure in detail. tion.
Market Risk Measure for The market risk score is a weighted average of the following three scores:
Highly Complex Institu-
tions 2.
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11404 Federal Register / Vol. 86, No. 36 / Thursday, February 25, 2021 / Rules and Regulations
TABLE E.2—EXCLUSIONS FROM CERTAIN RISK MEASURES USED TO CALCULATE THE ASSESSMENT RATE FOR LARGE OR
HIGHLY COMPLEX INSTITUTIONS—Continued
Scorecard Description Exclusions
measures 1
(1) Trading Revenue Vol- Trailing 4-quarter standard deviation of quarterly trading revenue (merger-ad- No Exclusion.
atility/Tier 1 Capital. justed) divided by Tier 1 capital.
(2) Market Risk Capital/ Market risk capital divided by Tier 1 capital .............................................................. No Exclusion.
Tier 1 Capital.
(3) Level 3 Trading As- Level 3 trading assets divided by Tier 1 capital ........................................................ No Exclusion.
sets/Tier 1 Capital.
Average Short-term Funding/ Quarterly average of federal funds purchased and repurchase agreements divided Exclude from the quarterly
Average Total Assets. by the quarterly average of total assets as reported on Schedule RC–K of the average of total assets
Call Reports. the outstanding balance
of loans provided under
the Paycheck Protection
Program.
1 The applicable portions of the current expected credit loss methodology (CECL) transitional amounts attributable to the allowance for credit
losses on loans and leases held for investment and added to retained earnings for regulatory capital purposes pursuant to the regulatory capital
regulations, as they may be amended from time to time (12 CFR part 3, 12 CFR part 217, 12 CFR part 324, 85 FR 61577 (Sept. 30, 2020), and
84 FR 4222 (Feb. 14, 2019)), will be removed from the sum of Tier 1 capital and reserves throughout the large bank and highly complex bank
scorecards, including in the ratio of Higher-Risk Assets to Tier 1 Capital and Reserves, the Growth-Adjusted Portfolio Concentrations Measure,
the ratio of Top 20 Counterparty Exposure to Tier 1 Capital and Reserves, the Ratio of Largest Counterparty Exposure to Tier 1 Capital and Re-
serves, the ratio of Criticized and Classified Items to Tier 1 Capital and Reserves, and the ratio of Underperforming Assets to Tier 1 Capital and
Reserves. All of these ratios are described in appendix A of this subpart.
2 The credit quality score is the greater of the criticized and classified items to Tier 1 capital and reserves score or the underperforming assets
to Tier 1 capital and reserves score. The market risk score is the weighted average of three scores—the trading revenue volatility to Tier 1 cap-
ital score, the market risk capital to Tier 1 capital score, and the level 3 trading assets to Tier 1 capital score. All of these ratios are described in
appendix A of this subpart and the method of calculating the scores is described in appendix B of this subpart. Each score is multiplied by its re-
spective weight, and the resulting weighted score is summed to compute the score for the market risk measure. An overall weight of 35 percent
is allocated between the scores for the credit quality measure and market risk measure. The allocation depends on the ratio of average trading
assets to the sum of average securities, loans and trading assets (trading asset ratio) as follows: (1) Weight for credit quality score = 35 percent
* (1—trading asset ratio); and, (2) Weight for market risk score = 35 percent * trading asset ratio. In calculating the trading asset ratio, exclude
from the balance of loans the outstanding balance of loans provided under the Paycheck Protection Program.
(a) Description of the loss severity Protection Program that exceed total from the calculation of the loss severity
measure. The loss severity measure outstanding borrowings from Federal measure.
applies a standardized set of Reserve Banks under the Paycheck * * * * *
assumptions to an institution’s balance Protection Program Liquidity Facility, if Federal Deposit Insurance Corporation.
sheet to measure possible losses to the any. The institution’s asset values are
FDIC in the event of an institution’s By order of the Board of Directors.
then further reduced so that the
failure. To determine an institution’s Dated at Washington, DC, on February 16,
Leverage Ratio reaches 2 percent. In
loss severity rate, the FDIC first applies 2021.
both cases, assets are adjusted pro rata
assumptions about uninsured deposit James P. Sheesley,
to preserve the institution’s asset
and other liability runoff, and growth in composition. Assumptions regarding Assistant Executive Secretary.
insured deposits, to adjust the size and loss rates at failure for a given asset [FR Doc. 2021–03456 Filed 2–23–21; 11:15 am]
composition of the institution’s category and the extent of secured BILLING CODE 6714–01–P
liabilities. Exclude total outstanding liabilities are then applied to estimated
borrowings from Federal Reserve Banks assets and liabilities at failure to
under the Paycheck Protection Program determine whether the institution has DEPARTMENT OF TRANSPORTATION
Liquidity Facility from short-and long- enough unencumbered assets to cover
term secured borrowings, as Federal Aviation Administration
domestic deposits. Any projected
appropriate. Assets are then reduced to
shortfall is divided by current domestic
match any reduction in liabilities. 14 CFR Part 39
deposits to obtain an end-of-period loss
Exclude from an institution’s balance of
commercial and industrial loans the severity ratio. The loss severity measure [Docket No. FAA–2020–0503; Product
is an average loss severity ratio for the Identifier 2018–SW–006–AD; Amendment
outstanding balance of loans provided 39–21386; AD 2021–02–03]
under the Paycheck Protection Program. three most recent quarters of data
In the event that the outstanding available. The applicable portions of the RIN 2120–AA64
balance of loans provided under the current expected credit loss
Paycheck Protection Program exceeds methodology (CECL) transitional Airworthiness Directives; Leonardo
the balance of commercial and amounts attributable to the allowance S.p.a. Helicopters
industrial loans, exclude any remaining for credit losses on loans and leases AGENCY: Federal Aviation
balance of loans provided under the held for investment and added to Administration (FAA), DOT.
Paycheck Protection Program first from retained earnings for regulatory capital
ACTION: Final rule.
the balance of all other loans, up to the purposes pursuant to the regulatory
total amount of all other loans, followed capital regulations, as they may be SUMMARY: The FAA is adopting a new
by the balance of agricultural loans, up amended from time to time (12 CFR part airworthiness directive (AD) for certain
to the total amount of agricultural loans. 3, 12 CFR part 217, 12 CFR part 324, 85 Leonardo S.p.a. (Leonardo) Model
Increase cash balances by outstanding FR 61577 (Sept. 30, 2020), and 84 FR AW189 helicopters. This AD requires
loans provided under the Paycheck 4222 (Feb. 14, 2019)), will be removed various repetitive inspections of the
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- FR-2021-02-25_2021-03456.pdf
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